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Sourcing Strategy: a necessary prequel?

Recently I engaged in a number of Sourcing Strategy projects for clients in a broad range of industries. In these type of projects we (it’s almost always a team effort) supported clients in being specific about their requirements, add relevant market trends and determine the impact for next steps. Several sourcing related topics are listed as potential next steps. These range from improving governance on an in-sourced solution via the set-up of shared service centers towards outsourcing of ICT or business processes. For a Management Consultant who is curious by nature, these projects are a paradise as almost nothing can be excluded upfront as not-relevant-for-the-sourcing-strategy.

Some clients however consider the strategy phase an unnecessary delay in the process. They ask why we can’t just draft a Request for Proposal and create a standard contract and get on with it? To them it is clear they want to outsource their ICT infrastructure, HR activities or application development and they trust their advisor for the details. The advisor has been involved numerous times in similar engagements before so why not copy/paste the ‘best practices’, spice them up with some ‘lessons learned’ and jump right in?

Proper preparation is worth the time and effort…

In my experience skipping the sourcing strategy will almost without exception lead to more work and less quality later on. Any sourcing engagement is unique and to optimize the process, a client has to formulate clear and consistent requirements upfront. Delivering desktop services for a law firm is different from delivering desktop services for an engineering company. And application development for a retail company has a significantly different profile from application development for a government agency. Some services seem quite standard at first glance, like for instance Pay rolling as part of HR BPO. But the impact of a vendor not meeting agreed service levels may be completely different between clients and industries. Steering mechanisms should therefore be optimized accordingly.

Determining an optimal scope is always a bespoke decision and the best pricing model for an engagement is always tailor-made. Service levels, KPI’s, incentives and penalties schemes are client and scope specific. Problems will occur if the business requirements are not specifically addressed. Executing a sourcing strategy prior to the selection phase is an excellent way to do this. Experience shows that many iterations are needed to get things right later on. And additional iterations in parallel tracks always compromise quality since consistency is hurt badly in such an approach.

So before initiating any sourcing related activity please invest some time to agree upfront on the sourcing strategy. This can be time-boxed and there is no need to start with a blank sheet of paper. Your sourcing consultant should be able to help you phrase the relevant questions and make them multiple choice where possible. This relatively small investment in time and effort at the start will definitely pay off later on in the process.