February 27, 2015
Sole sourcing can deliver multiple benefits, including reduced cost- and time-to-decision, elimination of the need to manage a large portfolio of providers, and likelihood of reaping greater value from a closer relationship with a single services delivery partner. Yet the sole-source process can quickly unravel if not carefully designed and managed by the buyer, even (or perhaps, especially) when a strong relationship between the buyer and provider already exists.
Several factors are critical to sole sourcing success.
Deepen the relationship
While mutual respect, aligned interests, commitment, and trust are critical in any outsourcing relationship, they assume greater importance in a sole-source situation. Why? Buyers look to sole source to achieve collaborative, insights-based solutions, rather than merely receiving a table stakes collection of transactions. Buyers achieve this by openly sharing their desired outcomes and concerns, and building an outcomes-focused, value-oriented foundation during the solutioning and negotiation process. This depth of relationship must be nurtured throughout the tenure of the engagement. This applies whether looking to transform the relationship or simply update it. Alignment of both organizations to the objectives is key to a successful sole-source.
Engage senior leadership
Senior leadership from both the buyer and supplier need to set the initial goals for the relationship as they deepen it, and then continue to reinforce the desired outcomes to their teams throughout the sole sourcing process. Institutionalizing these objectives will ensure that they become the parameters that guide behavior in all interactions. This takes significant and persistent effort at all levels, and will require some spot coaching to realign team members who fall back to the old ways of doing things.
Get approvals early and often
Given their role as stewards of an enterprise’s activities, boards of directors may balk at the idea of sole sourcing. To avoid delays and additional fact gathering expenses – and even the requirement to tender an RFP to multiple providers – the buyer should present the opportunity to its board as early as possible in the process. The buyer must understand the concerns the board might have around the value of a competitive process, and address them through external benchmarking, leveraging current market information about suppliers and services, and a thorough understanding of the value of the current relationship. An early confirmation from the board that this is worth considering will avoid wasting time, resources, money, and momentum.
Don’t boil the ocean
As one of the key advantages of sole sourcing is time-to-execution of the agreement, buyers need to focus on three factors during the sourcing process: a strong, solid, and accurate business case that is easily explained to the organization; confidence (through benchmarking and external validation) that the service provider, scope, and pricing are market-competitive and aligned to the desired outcomes; and a robust contract that focuses negotiations on the most relevant terms.
Develop a robust business case
To attain buy-in from senior leadership, the board, and the overall organization, the buyer’s business case must include: a baseline to demonstrate the full current service delivery costs; projections for the contract duration; dynamic modeling for real-time solutioning; an accounting of direct cost, business, and strategic benefits; and multi-dimensional risk measures. The business case must include a comparison to a competitive process, ensuring that the organization understands the value of the sole-source. And while it must cover all these bases, the resulting information must be presented in a clear, simple, direct, and compelling manner.
Compare to ensure value
The onus is on the buyer to ensure that the scope, pricing, and value are reasonable. As the buyer, you need to know what you want from the provider’s services, and how they’ll help you achieve your goals. After analyzing all through a market-comparative lens, you should work hand-in-hand with the provider to set specific (and quantifiable!) solution targets, making it clear that under-achieved goals may re-open a multi-provider sourcing process.
Focus the contract and negotiations on truly important factors
By taking ownership of the engagement process to set specific milestones and goals, the buyer maintains control of the decision and problem solving involved in reaching the goal, and eliminates any ambiguities relating to timing, scope, responsibilities, metrics, and targets. But a bit of buyer beware: Everest Group has identified 31 relevant contractual terms that sourcing negotiations should address.
For more specifics on attaining sole-sourcing success, please read our paper, “Sole Source Outsourcing – Ensuring a Successful Outcome.”
