Reinventing outsourcing through agile principles

Organisations are starting to use agile principles to reinvent the outsourcing selection process, with some excellent results

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Outsourcing

Outsourcing IT is a $300bn industry – and yet studies show that up to 25% of clients are dissatisfied with their suppliers. This is partly because selecting a supplier is a bit like choosing a marriage partner without the benefit of dating.

Consider, for a moment, the traditional contracting process. Clients issue an RFP. Multiple suppliers submit written proposals that, in some cases, exceed 1,000 pages, often cut and pasted from previous proposals, without really knowing the client's unique business needs. The client inserts detailed service descriptions, performance indicators, penalties and other tools designed to keep the supplier on time and under budget. 

At the end of the RFP process, both the contracting company and the supplier are often locked into a multi-year relationship. And if the supplier overpromises and underdelivers, the laborious contracting process begins all over again. Along the way, the valuable time, energy and goodwill of team members has been sapped.

But it doesn’t have to be this way.

A handful of companies have begun using agile principles to reinvent the outsourcing selection process – with excellent results. The Agile Manifesto, originally designed for software development, encourages collaborative, cross-disciplinary teams to move rapidly, prioritise working services over exhaustive documentation, and maintain flexibility to change. 

By adopting these principles, companies have an opportunity to extract much-needed value from an otherwise costly and time-consuming endeavour. These agile principles include:

  • Individuals and interactions over processes and tools. IT is not just a commodity – it is a people business. When outsourcing, more than half of the client’s investment goes toward staffing. Rather than issuing an exhaustive RFP, the client issues a short brief (no more than 10-20 pages) that prioritises key objectives and deal-breakers, and articulates what really matters to the business. This serves as a starting point for discussions.
  • Working services over comprehensive statement of work. The client holds in-person, iterative workshops with suppliers – in short cycles – to articulate high-level business needs and jointly explore potential solutions. These meetings are held as much as possible with suppliers’ operational teams, not the sales force.
  • Customer collaboration over contract negotiation. Based on a series of brief workshop discussions (no more than two hours each), the client whittles down the field until they find the best match. This typically takes weeks, rather than months. The workshop discussions cultivate a focus on business-oriented challenges and build co-ownership over solutions, so the roadmap is “ours”, not “theirs”.
  • Responding to change over following a plan. By focusing on business-oriented objectives and how best to achieve them – rather than cookie-cutter solutions – the client and supplier can better adapt to change and take advantage of new opportunities that arise in the business.

This agile approach to IT sourcing is still quite new, but we have seen clients achieve tangible results.

A European telecommunications company used agile principles to negotiate an ambitious outsourcing deal for application management. Instead of spending precious hours reviewing mammoth proposals and speaking with pre-sales teams (who tend to overpromise), the client held in-depth discussions with the operational teams of the short-listed suppliers. 

These discussions included a cross-disciplinary team from finance, HR, IT and other units, and by the end of the process, the entire IT management team – not just the CIO and CFO – had bought into the solution. This early buy-in created alignment, which is a key ingredient for success.

Likewise, an insurance company used agile to transform its IT delivery. Instead of researching various solutions in the market and issuing an RFI, it invited 16 suppliers to an afternoon of “speed dating”. By the end of the day, the client had whittled the candidates down to six. 

After two weeks of supplier workshops, the client had enough information to select two finalists. It issued an RFP and this was also conducted in the agile sourcing manner. By holding frequent, in-person workshops with these two suppliers, the time required to close the contract was reduced dramatically (by 30%). The discussions also avoided a wealth of unnecessary documentation and focused the team’s attention on the most relevant issues that affected the business.

While agile sourcing can deliver better, stronger and faster solutions, it is not a silver bullet for all scenarios. In situations where quality of service is relatively similar across the board, as with standard telecom contracts, the agile approach is likely to be overkill. 

Similarly, agile sourcing is rarely applicable for procurement within the public sector due to this sector’s unique purchasing constraints, including rules that may forbid face-to-face negotiation. However, in scenarios where the IT solution is unclear, highly customised or complex, then agile can lead to more innovative, fit-for-purpose results.

To succeed with agile sourcing, companies need to prepare in the following ways:

  • Establish multi-disciplinary teams. Agile sourcing requires intense participation from people across multiple units (various parts of the IT organisation, HR, finance, procurement, legal, and so on).
  • Ensure alignment between teams. Given the speed of discussions, it is important to have explicit alignment across teams. We recommend meeting at least twice a week to ensure everyone is pulling in the same direction.
  • Prepare for faster decision-making. To keep the selection process moving, senior management must be prepared to meet often and make decisions quickly. For many of our clients, this can become the biggest bottleneck.
  • Document key agreements. While the agile approach does not require massive amounts of detailed documentation, it is critical to document the agreement in a contract. This can be done between workshops to save time and avoid surprises during the contracting phase.

Outsourcing has the potential to bring significant new capabilities into an organisation and drive innovation, but too often it falls short of these lofty ambitions. Applying agile principles to the outsourcing process can dramatically improve outcomes. It enables clients to focus on what really matters for the business, significantly reduces the amount of time spent negotiating with suppliers, and leads to more flexible, resilient contracts.


François Stragier and Heiner Himmelreich are partners at the Boston Consulting Group.

This was last published in August 2015

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