Choosing The Right Outsourcing Vendor

Imagine you’ve been tasked with figuring out how to outsource the data center operations of a major high-tech corporation. Suppose you’ve been told to choose from among three vendors for the job. How would you decide on the best candidate for the position?

Now, imagine that you know for a fact, due to your personal experience in the field, that none of the three vendors would make a good fit for the position. How would you convince your supervisors that their preferred vendors wouldn’t measure up?

Peter Borner was in this exact position a few years ago — and managed to come out, as he puts it, “like a hero.” Borner is a freelance consultant in the United Kingdom with a focus on consolidation, shared services, cost reduction and global sourcing. He has previously held executive positions at Sony Music Inc., Liquid Audio Inc., B4 Technology Ltd. and other firms.

Peter BornerWhen Your Current Vendors Don’t Measure Up

Several years ago, Borner was hired on to manage the Web operations of a high-tech company. (Due to contractual obligations, he can’t name the company he was working for at the time.) Just a few months into his tenure, Borner faced the challenge of lowering the company’s data center costs and streamlining its operations through outsourcing — and doing it as quickly as possible. The company Borner was working for presented him with three vendor options: the three companies that were managing the data center at the time. (Again, Borner can’t name the vendors.)

“I could clearly see that not one of the vendors met our requirements,” Borner said, explaining that he knew enough about each of the three vendors to recognize that none would be able to pull off the outsourcing gig. “None of these vendors met the requirements even closely.”

However, Borner wanted to present his bosses with the facts and figures necessary to convince them he was right, but he didn’t have the time or resources to do the job himself.

Putting Together Facts

To get it done, Borner turned to outsourcing advisory company RampRate. Founded in 2001, RampRate’s key offering is its Spy Index, a database the company describes as a benchmarking system that ranks more than 150 outsourcing vendors such as IBM Corp. and EDS according to a variety of metrics. The Spy Index gives ratings based on analysts’ input, current and former client feedback, vendor data and internally developed research. The result is detailed, comparable information on outsourcing vendors’ financial stability, technical prowess, customer service functions and problem solving capabilities, as well as a variety of other attributes.

RampRate offers its clients several rate plans. Clients can pay a uniform transaction fee, RampRate can work on a retainer basis or clients can pay RampRate project and consulting fees.

Borner “engaged RampRate to assess each of those vendors, and to pick other candidates if those didn’t work out,” explained Tony Greenberg, RampRate’s chief executive officer and co-founder.

Borner said it can be hard to develop definitive, comparable information on outsourcing vendors quickly — and such information is essential in picking the right candidate. If you don’t have the time or means to do an extensive RFP process to evaluate outsourcing vendors on your own, scoring help from an advisory or research company might be the way to go.

RampRate took Borner’s detailed list of requirements and used them to appraise his three vendor candidates. In two weeks, the firm came to the same conclusion as Borner: None would be able to do the job. So Borner asked RampRate to scour its list of Spy Index vendors for more suitable candidates. Again, he gave RampRate a list of specific requirements, and the company used its database to compare vendors apples-to-apples to find more appropriate outsourcing contenders.

Borner’s requirements were fairly complex. His company’s data center handled 40 terabytes of data per month. It had been constructed ad hoc as Internet traffic had increased over the years — and looked it. For example, Borner said the company’s Veritas software was licensed on a per-machine basis and the company had dozens of small machines running the software. In order to cut costs, Borner needed to merge the systems into one or two big machines.

The RampRate Answer

In about seven weeks, RampRate came back to Borner with a short list of candidates for the position. (Greenberg said the average time it takes a company to select a set of serviceable outsourcing candidates can range from four to 12 months.) However, RampRate advised a multi-vendor structure for the agreement. Instead of outsourcing everything to one vendor, RampRate recommended that Borner outsource to a team of companies that would each handle a particular aspect of the process. Under the proposal, several would handle the data center, one would manage the bandwidth and two would act as the managed service providers. Borner’s company had been managing the data center itself, but it became clear that outsourcing that function would further reduce costs.

“At the time, I was pretty opened minded about it,” Borner said, explaining that he didn’t have a bias toward using one vendor vs. several. Today though, Borner said he prefers outsourcing to a group of vendors in order to tap each vendor’s strengths.

“Nobody’s looking for just one vendor,” RampRate’s Greenberg said. He explained that most IT outsourcing deals nowadays involve a team of service providers. Greenberg advises that when you’re looking for outsourcing options, keep an open mind and use whatever combination works best.

How To Evaluate the Candidates

Borner immediately began vetting RampRate’s vendor suggestions using some interesting techniques:

1. He set up a team to evaluate the candidates consisting of him and two other researchers.

2. He and his team sat down and gave surprise conference calls to each of the candidates. The calls were designed to test the vendors’ reaction during a crisis. Borner had 30 set questions, and gave the vendors 15 minutes to assemble their heads of professional services, sales, systems architecture and network operations to answer them.

“The way that they managed the call varied depending on the vendor,” Borner said. Ultimately, he said he made his decisions based largely on the vendors’ conference call performances — an indication of how they would handle real emergencies.

3. Borner and his team asked each vendor to give a sales pitch. During the pitch, Borner and his staff asked “unreasonably complicated questions” to gauge vendors’ technical prowess.

Borner’s selection process shows that you can and should make your outsourcing candidates jump through as many hoops as possible. If they want your business — your most important commodity — they should be able to meet all of your expectations, and the evaluation process can help you understand what kind of business partner they’re likely to be.

Getting Executive Buy-in

After vetting each candidate and making his vendor selections, Borner then took his choices to his supervisors for approval. That’s when he ran into a stumbling block — company politics. One of the company’s existing data center vendors had an agreement with a separate part of the company, a deal that was contingent on the continuation of the data center outsourcing relationship. In order to make all parts of the company happy, Borner had to include the company’s existing vendor in the new outsourcing structure.

The lesson? Don’t get set on a particular vendor until you’ve got approval from all parts of your company. Unless you’re the CEO, you probably won’t know the details of every connection between your company and other company.

“You can never achieve utopia,” cautioned Borner.

Once Borner was ready to put pen to paper and sign agreements with his chosen lineup of vendors, he again contacted RampRate. The advisory firm provides lifecycle management for its customers — meaning, it will help you choose vendors, sign agreements and then keep tabs on everyone to make sure contractual obligations are being met.

RampRate’s Greenberg boasted that the company’s approach to outsourcing ensures everyone is happy and stays that way.

“For every company we work with, there’s a sustaining relationship year after year,” he said. “We’re sort of like a matchmaker that’s never experienced a divorce.”

RampRate’s lifecycle management services can be included in the price of the contract or can be added as a 1% to 2% cut of the contract price. The services include monitoring and troubleshooting, such as renegotiations in case another company acquires your outsourcing vendor.

Signing the Outsourcing Agreement

Guided by RampRate, Borner signed fully measurable outsourcing agreements that included stiff penalties for missed commitments. Under the structure of the deal, Borner dealt with one of the managed service vendors as his single point of contact, and that vendor dealt with the rest of the outsourcing team. RampRate also supplied quarterly (and later bi-annual) updates on Borner’s vendors. The deals were so airtight that Borner experienced a rare event in the outsourcing industry — he received a penalty payment from one of his outsourcing vendors (they had missed the agreed-upon commitments) without ever having to contact the company.

“I’ve never had that happen in my life,” Borner said.

Borner said RampRate made him look like a hero to his superiors at the company. The lesson? If you’re on a tight deadline and need to evaluate your options fast, you might consider bringing in some outside help. Borner said he managed to meet his goals in the short time he had: The agreements cut his company’s data center budget by 12% to 15% and pared the staff from 14 to four.

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Peter Borner