At the 2013 ISG Sourcing Industry Conference, a panel of ISG Partners discussed how the Request for Solution (RFS) can help clients join sourcing solutions with innovation.
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In 2012 ISG suggested that the “RFP is dead” (or should be) in today’s market. In 2013 it is time to explore a framework of Evolutionary Contracting
Classic Contracting is decreasing
► RFP is too prescriptive.
► RFP limits innovation.
► RFP’s are too formal and they do not foster trust or transparency
► Need something more flexible in the market RFS process.
► RFS can yield more innovative solutions for the base contract.
► RFS with Collaborative Contracting, done well, can foster trust and transparency.
Evolutionary Contracting is increasing ► Contracts need to evolve over time.
► Static operating models for multi-year durations do not make sense.
► Base Contract is just the beginning of the business relationship – it must grow/evolve or run the risk of becoming outdated and irrelevant.
► Buyers and Sellers need to engage in Mutual Consent Commerce. True win/win with easy on easy off terms. Think handshake with 100 pages vs. classical 1000
RFS is already short-listed – final award presented in October at the IACCM Americas Forum 2013 in Arizona.
IACCM Innovation Awards Recognizing outstanding leadership & innovation in commercial contracting Award for outstanding service providers - For consultants, service or application service providers who have led or enabled high value initiatives at client organizations.
Clients want to source a service, but want innovation too . . .
► Describing innovation in an RFP can be very difficult or impossible The marketplace for services is changing rapidly – in some cases, so quickly that
service provider’s own marketing can’t keep up Every day there are announcements of new technologies; new and emerging
standards; and changing delivery and commercial models
► You could consider a less structured, more collaborative approach to the provider marketplace, and ask for a solution to your problem from providers most suited to know your business, and their best ideas, using their latest offerings!
Leverage knowledge to power results – and achieve objectives – and more.
The Request for Solution process allows you and your potential providers the best chance to find the right answer for you, and lets the expert provider architect that answer with the very latest technology and business process solutions.
Using RFS, with expert advice from ISG, ensures clients ask the right questions to the right providers to get the right solution, in the most time efficient way.
RFI Query the Market
RFS Engage the Market
Question Provider’s Answer
Unstructured Unstructured
Structured Unstructured
RFP Instruct & Test the Market
Structured Structured
The RFS process and ISG consultants helps you: ► Ask the right questions –
based on our expertise ► Ask the right service
providers – based on our deal database
► Ask the questions in the right context – based on ISG knowledge of the market and the business domain
► Interpret the response based on ISG expertise in transactions
Solution-driven approach allows service providers to offer their innovative, thought-leading solutions – or identifies if there are no solutions in the market.
Right providers ►Engaging appropriate providers allows focus, saves time ►Reduces the churn of too many providers with marginal solution ►Dramatically increases probability of finding right solution ►Lowers cost of transaction – for both parties!
Right questions ►Stating the problem clearly allows providers to innovate ►Allows adaptation to market conditions – real time ►Facilitates collaborative process that refines problem statement ►Recognises that there maybe more than one answer
Right experience ►Recent market experience with the provider participants ►Domain experience and data to help evaluate solutions ►Focused on the key questions so the process is no longer that it
The RFS Process to start – then back to Strategy if no success
Check- point
A
B
Possible RFS outcomes and service design
RFS may not lead exactly where you think it will go . . . If the RFS yields strong and innovative solutions, it makes sense to continue – otherwise, re-evaluate.
* or solutions!
If no acceptable solutions emerge, the project must re-evaluate the Design using the new information gained from the RFS process – and perhaps issue an RFP
If a strong solution emerges in Phase 1 and 2, the Client can leverage Collaborative Contracting to move through the Transaction.
Prepare Solution
Due Diligence Contract
Transition and Transformation
Review: ► Sourcing Strategy ► Target Operating Model ► Service Design
Once the Client finds the right solution, the detailed solution and proposed value are further scrutinized and captured in a market typical sourcing agreement
Time
Primary Activities
Perform pre-agreement activities
Assign the team members
Prepare project plan
Conduct kickoff
Develop engagement package and base case
Determine and contact participating providers
Assist the service providers during proposal development
Conduct solution and indicative pricing evaluation
Downselect
Release key contract documents and pricing forms
Conduct due diligence and submit updated proposals
Perform the service provider walk-through
Evaluate provider solution, pricing and legal response
Downselect
Develop contract documents and plan negotiations
Conduct negotiations
Develop final employee retention and transfer plan
Focuses on finalizing the project set-up, preparing the ISG and COMPANY XYZ project teams for their project role and responsibilities
* Initial interviews with key stakeholders to validate sourcing objectives and prepare kickoff materials.
Prepare Solution Due Diligence Contract
Prepare engagement plan Define engagement plan tasks, responsibilities, timelines and milestones. Validate PSA, SOW and PO in place.
Identify engagement resources Define project organisation. Communicate resources and responsibilities.
Confirm engagement scope Engagement lead validates defined scope of services with client.
Stakeholder interviews* Conduct interviews to help ISG understand business priorities, obtain contextual information including project objectives and determine project deliverables expectations.
Develop the kickoff presentation materials
Develop the deck including the project approach; project plan and milestones; team structure; assigned resources and their roles and responsibilities.
Conduct the project team kickoff
Hold a workshop to deliver the kickoff presentation including a Q&A session with the team. Secure agreement with team on roles, responsibilities and deliverables – begin assignments.
Focuses on articulating the objectives and collaborating with a group of bidders to develop the best solutions to meet the objectives
Prepare Solution Due Diligence Contract
Develop engagement package and base case
Develop an engagement package to describe the clients sourcing and project objectives, background and current environment description. Develop base case.
Determine and contact participating providers
Provide client with ISG provider capabilities materials. Provide ISG recommendation if requested. Develop provider facing communications and conduct kickoff.
Assist the service providers during proposal development
Initiate and facilitate a Q&A process to provide clarification. Hold Q&A meetings to discuss topics as needed. Conduct MVD sessions to provide solution feedback.
Conduct solution and indicative pricing evaluation
Develop an evaluation model and business case. Review the providers proposals and conduct MVD sessions to clarify solutions. Evaluate the solutions and indicative pricing.
Develop first pass future-state SIAM design work plan
Review current service management and governance structures, tools and processes. Develop future state vision and gap analysis.
Downselect Facilitate scenario, risk and SWAT analysis to help the team develop a recommendation. Finalize the financial evaluation. Develop and present a steering committee presentation.
Focuses on conducting in-bound and out-bound Due Diligence (DD), beginning the contracting workstream and helping the Providers fine-tune their proposals Prepare Solution Due Diligence Contract
Release key contract documents
Develop and release MSA, Exhibits 1,2 , 3 and 4 (to the extent necessary) along with a detailed Attachment 4-A with resource unit baselines.
Conduct due diligence and submit updated proposals
Conduct outbound and inbound due diligence. Conduct workshops as needed to clarify and document Technical Solution Document, Transition and Transformation Plans. Provider submits updated proposal with detailed pricing.
Perform the service provider walk-through
Conduct MVD or "Walkthrough" of Provider updated proposals. Review the solution, key contract document responses and detailed pricing response.
Evaluate provider solution, pricing and legal response
After Provider submits post MVD final bid, conduct evaluation using the valuation model developed in phase 2.
Develop future-state SIAM operating model
Develop any revised roles and responsibilities, staff new or changed positions, develop processes and prepare to stand-up revised organization and processes.
Downselect Facilitate scenario, risk and SWOT analysis to help the team develop a recommendation. Finalize the financial evaluation. Develop and present a steering committee presentation.
Focuses on final negotiations and getting to contract.
Prepare Solution Due Diligence Contract
Develop contract documents Develop remaining contract documents not provided in Phase 3. Convert Phase responses to final documents for negotiations.
Prepare for negotiations Fine tune negotiations strategies and tactics, assign and assemble the negotiations team; prepare negotiation logistics; document remaining open issues and negotiations objectives; and prepare and deliver negotiations training.
Conduct negotiations Conduct negotiations; update contract documents and open issues lists as issues are closed; prepare and conduct follow-on sessions. Track and complete action items.
Develop final future-state SIAM operating model
Deploy the updated SIAM operating model and processes for "day 1"; continue development of remaining processes and begin to collaborate with Provider on Service Management Manual.
Prepare to kickoff transition/transformation (T&T)
Help the client constitute an internal T&T project team; develop project governance; and prepare to kickoff the workstream with the Provider after signature.
Sign the contract Signature ready contract documents are developed and processed through COMPANY XYZ and Provider approval processes and both Parties sign the agreement.
► Contract may contain an innovation clause, and governance for innovation
► Clients expect innovation without understanding the context and are disappointed when they don’t get it (usually in top 3 things most disappointing in services relationships)
► ISG observes that innovation is generally hindered by client behaviors
► We thought it made sense to look at this subject from the provider perspective
► A while back . . . we tried to do something about it: TPI research on Innovation – 2008 Business drivers, investment, organizational
alignment and disciplined execution must all exist for innovation to occur.
Every client wants innovation from their provider – for free, right now, and to make huge improvement and/or savings in their work. . .
► We created language for a Terms sheet, a governance meeting name for Innovation meetings, and processes for how to do it . . . We were sure we had the answer…
► Clients and providers did this, and much beautiful shelfware ensued.
► And nothing has happened; Clients are as unhappy as they have ever been about innovation – to the extent that we have started to advise clients to not bother with extensive innovation language in their contracts . . .
We believed that by identifying the requirements, building the processes, and priming the documents, we could help solve the problem.
Why? Because innovation is a human-based activity, which needs humans to engage with each other and to do it together.
► Clients have many different perceptions of innovation
► The lack of a common definition between client and service provider can create unrealistic expectations or preconceived ideas on the part of the client, which creates frustration that is directed at you, the provider
Getting a client to come to the table to jointly create a definition can address false expectations on the client’s side, and open ideas and awareness for you.
How might this work in practice?
► What level of the organization would you engage for maximum impact?
► Who would come from your side? ► How might such a discussion be framed
up? Facilitated or freewheeling?
► How would your client’s culture affect how you structured such a meeting?
► What output would you expect? Is a Mission Statement enough to get you going? Mission and Actions?
► Not all client companies have a culture of innovation in the back office services
► Many companies see strategic planning and innovation only on the product side of the business. Finding a way to bring together the business strategy and planning with the business operations will allow the provider to deliver innovation that matters to the client’s business.
As a provider delivering common services to multiple clients, you have deep and unique insight on opportunities for innovation – but clients don’t think about that.
How might this work in practice?
► How might you work with your client to discover the problem that is most on their mind, for which an innovative solution might be applicable?
► How can a service provider “live” the message of innovation in business operations so a client sees it?
► Technology and back office services are usually seen as cost centers; even though clients insist on contractual obligations for the provider to deliver innovation, they are generally not interested in innovation if it costs more
► In addition, pressures on the provider to continuously provide cost savings to the client means less margin that could incent or pay for innovation
You are spending money continuously to improve your delivery efficiency; how are your thoughts about your own innovation filtering to your engagement teams?
How might this work in practice?
► Are there resources, visionary individuals, or think tanks that create ideas in your organization that can help educate your client on the need for investment in innovation?
► How do you change the way you manage your on-site teams to keep this door of ideas and innovation open?
Recognize the difference between “Big I” innovation and continuous improvement
► Client business executives expect business innovation, but operations executives expect technical and process innovation; it can be difficult to bridge the gap and create meaningful solutions that support both areas
► Some forms of continuous improvement can be very valuable to a client both from an efficiency and a cost savings perspective but do not get the recognition as “Big I” innovation.
Operations teams often don’t see innovation as their objective – but every dollar saved through innovation in operations goes straight to the bottom line.
How might this work in practice?
► How would you change your overall reporting to your client to emphasize the “little i” or continuous improvement activities, and link that back to Innovation?
► Could you bring your own innovation teams to meet with your client’s operations people to create awareness and open eyes?
► You, the provider, can bring leadership to this kind of multiple player situation, but you need to help your client recognize their role to be the driver.
Multi-service provider environments, which are the norm today, require a number of providers to be engaged in a complex services situation.
How might this work in practice?
► How would you look at the complex services of your client, to help bring them to awareness of the value of collaboration between providers?
► How would you overcome your own reluctance to collaborate with a competitor?
The primary focus of most sourcing initiatives is to get to the base contract. However, the value of a relationship is to be derived in the evolutionary contracting phase.
Evolutionary Contracting: Key to Continuous Value
► * - Base Contract 2.0: Solutions may be different, but regardless of the approach (top down or bottoms up), a well run process will end up with similar T’s & C’s and market pricing.
Input Based
Stage 1
Transaction Based
Stage 2
Contract Pricing & Terms
Faster Less Costly Buyer Unconstrained Seller Innovative & Creative Approach Requires Transparency Process Builds Foundation of Trust Focus on Evolutionary Contract Phase
Focus on Getting to “Perfect” Base Contract Process is Formal – Trust is Thin Approach is Closed Book Seller is Restricted in Solution Buyer is Prescriptive Slow/Expensive Innovation
The focus of commerce needs to shift from the “deal” or event of signing, to the framework and evolution of the deal as we move through a dynamic market.
► Base Contract 2.0 Looks more like 100 pages than 1000
pages Ease of expansion AND exit for both
parties Focus on bi-lateral transparency Rely on trust not legal terms
► Evolutionary Contracting Mindset that the contract is an
understanding not a document Focus on change and evolving structure
Input Transaction Outcome Mutual Consent Commerce
Both parties need to ensure that the other party is succeeding.
Base Contract
Base Contract
2.0
Contract Term Evolutionary Contracting
Typical Base Contract & Governance Framework
New Framework that recognizes that the world is changing
The suggested change from RFP to RFS and Evolutionary Contracting is radical and drives lots of dialog and disagreement. But all revolutions are radical and our industry needs a revolution.
Typical Client Questions
► Where should I try this? Has anyone done this?
► We have strict rules for buying services, how can I change that?
► What level of transparency is required? What about confidentiality?
► How do I know if I am getting value? Am I leaving something “on the table”?
► Who can help my company explore this?
► My procurement department requires me to compete all new business? How will that work?
► Trust is personal, how can you develop trust between corporations?
The market evolved in terms of maturity, standardization, and modularization. This should also be reflected in the contract architecture, i.e., the “big contracts” of the past must be modularized and can often be simplified.
LOW MATURITY AND STANDARDIZATION HIGH(ER)
LOW
HIGH
MODULARIZATION
Past ►Large, complex deals Full scope, long term Asset and HR transfer Dedicated resources Customized services/solutions High transaction cost
Provides a scope-agnostic Master Services Agreement (MSA) defining terms on the relationship, and a Service Delivery Contract with terms specific to a particular outsourcing transaction and the in-scope services.
The modularization of a contract enables the establishment of a clear link between a Technical Service Catalog and the corresponding Service Delivery Contract.
DecisionDirector is ISG’s strategic tool for managing the modularized, authoritative content and for running RFP processes in the future. The platform provides the ability to tag and filter content as required.
NOTE Will use tags to markup content, e.g., by iSRA service, ISG product (e.g., “RFP Lite”), and applicability (e.g., for geography, industry).