Vendor Selection in Outsourcing Projects

In a session titled, “Outsourcing Vendor Selection,” META Group Director Doug Plotkin and VP Stratos Sarissamlis shared some useful advice about the process — although here I've greatly simplified what was said. I can't remember which analyst said this, but it was useful: “When we get an RFP back, I see the client turn to the pricing page. [Yet at this point] we don’t know how much of this deal vendor A took and how much of this deal vendor B took. If vendor A took 60% and vendor B took 70% and you're only thinking about price, you’ll miss that.”

Before the initial scoring starts, make sure you've figured out the selection criteria. “Generally there are about 10. If there are more than 10, it’s hard to score. Don’t give pricing more than 35% of the critieria. Don’t put vendors in a position where the lowest priced vendor can’t deliver.”

From there, “Whittle the vendors down to two — from four or five. Negotiate with both as long as [you] can. You don’t want to use one as cannon fodder. If [you] don’t have two, [you've] made a mistake with what vendors responded…”

Once you've settled on the finalists, it's time to evaluate, “Pricing, service levels, scope of work — until [you] get deal with them [you] like. At the end [you're] going to find that [you] don’t know how to choose. It comes down to that arcane thing… cultural fit. Which team did [you] like? Not because [you] liked the sales person better. The sales person will be in Bermuda or someplace else. What you need to do is to have at the table the people who will deliver the deal.”

How much time should you allot for the RFP process? According to these folks, “about four weeks.” Any faster is too fast — for the vendor to get the proper input from the right people on his or her side.

Their bottom line:

  • Stay focused until you sign.
  • Keep negotiating
  • Don’t allow the executives in your organization to make “side deals.” (To avoid this, update them constantly on what you’re doing — twice a week.)
  • Don’t allow the CFO to take out costs unless the business units agree.
  • Constantly refer back to objectives; remember why you’re doing this… Those special things cost money.
  • Choose vendors who keep their promises — do what they say they'll do — as you go through the RFP process.