This is a chapter from section three of The Outsourcing manual and deals with the first practical steps of your outsourcing journey.
You would think, wouldn't you, that, were there a large service contract to be let for a significant number of years, a long queue of potential suppliers would be panting at the gate.
Paradoxically, this may or may not be the case and, worse still, if there is a long queue, most are unlikely to be able to meet your needs notwithstanding the elegance of their glossy brochures and, sometimes, blandishments of pinochian proportions!
Why should this be?
Its because some business functions like Information Technology or Site Maintenance are reasonably well served in terms of the number of outsourcing suppliers available whilst others like Human Resources are not.
Where there is a ready availability of suppliers, it is probable that only a very small number will actually be mature and competent in both technical and outsourcing senses - some will, quite simply, be incompetent. The picture for those functions where there is not a ready availability of suppliers is not so good!
It is obvious therefore, that the 'market' will need to be approached with great care and, perhaps, a little shrewdness. In the case where there is a small number of competent suppliers who have the right amount of outsourcing experience, they will, on average, win more business than others. There are two important implications that flow from this :
So, when approaching sectors served only by a small number of competent outsourcing suppliers, it will be wise for you to have some view of what suppliers will conclude when they assess you. You will need to present to the market an attractive business opportunity which both excites competent suppliers and signals you as an 'intelligent' customer capable of creating and sustaining a good business relationship for a number of years. Of course, as an intelligent customer, you will look closely for any evidence of over trading by those suppliers who impress you.
In the case where there are suppliers with the right amount of technical expertise but insufficient outsourcing experience, the approach requires a different emphasis.
It is always possible to find sufficient companies to generate a competition. It may, however, be necessary to educate them in terms of the need for flexibility of thinking and service packaging.
This is because, outsourcing agreements quite often require 'imaginative' charging arrangements (refer Part 2 Chapter 7 - Charging Formulae) and inexperienced suppliers sometimes find it difficult to come to terms with formulae which factor in a clear understanding of, for example, their actual costs. In extreme cases, inexperienced outsourcing suppliers have been known to withdraw from negotiations simply because they did not properly understand the dynamics of the outsourcing business. In addition to the need not to 'startle the horses' during negotiation, it will be necessary to test both their scale of resources and quality of service delivery infrastructure to determine their capability to deliver an outsourced service.
Though the general approach to Making A Market is the same for all circumstances, the emphasis will therefore vary relative to sector maturity - mature sectors need enticement whilst immature sectors need education.
Since it is difficult to manage these issues effectively once the formal procurement process has begun, the whole point of Making A Market is, therefore, to :
There are a number of key steps that should be taken if the market is correctly to be engaged. They are as follows :
The information pack is a useful device which will help to guarantee consistent messages to the market, minimise misunderstandings and assist discussions within the customer and supplier organisations. It will be helpful to circulate the information pack to those internal people with a direct interest (refer Part 1 Chapter 4 - Managing The Constituency) and, in so doing, achieve, insofar as is possible, an agreed document for presentation to potential suppliers.
The information pack is constructed by bringing together the various strands of activity and thinking into a single information pack which may then be used as a basis for discussion and communication with suppliers. It will, in effect, become the agenda for the first meeting and should, as a minimum, contain the following information :
This is a description of the process to be followed for this first stage of the procurement and will offer a preamble perhaps in the following style :
"The making a market process is designed to lay the foundations for a lasting relationship. It seeks to establish the clearest possible understanding, for both parties, regarding their respective objectives, measures, anxieties and limits. The key steps in the process are :
This is a description of the meetings to be held in this phase and the objectives to be achieved at each meeting. The schedule of participant meetings provides participants with the following information ( the italicised text offers some suggested drafting for inclusion in the relevant documents) :
Not only does this have the effect of establishing an openness in the relationship, but it should stimulate the competition.
This section offers a basis for their selection at this stage and could take the following form :
"Participants have been selected on a superficial assessment of their size and capacity relative to the size of [your company name] and the likely future requirement. It should be noted that, in drawing up the participant list, it is not the intention to exclude any supplier from responding to the 'Expression Of Interest' advertisement if or when placed".
This section describes the meeting structure, form and content and could take the following form :
"The style and tone of meetings must be open and relaxed. Each party must feel free to articulate any and all anxieties regarding the other party. It will be a closed conversation and therefore held in the strictest confidence and without prejudice to any subsequent procurement.
The objective is to lay the foundations for a true relationship which will flourish only if completely open. Discussions must, therefore, transcend what might be regarded as a normal 'sales' conversation.
Three meetings will be held with each participant.
The first will be introductory in nature and an information pack will be delivered and discussed. The following principles will be discussed :
When all meetings have been concluded, a paper may be produced, for [your company name] consumption only, which describes the boundaries of potential participant involvement and will inform the overall agreement packaging process (refer Part 2 Chapter 3 - Agreement Packaging), the structure and content of the SoSR (refer Part 2 Chapter 11 - SoSR Structure & Information requirement) and wording of the 'Expressions Of Interest' advertisement where appropriate".
This is a written articulation of the business/corporate/project objectives to provide a focused point of reference for the discussions.
The objectives and measures will be those derived from Part 1 Chapter 2 - Setting Clear Objectives.
This is a description of the service requirement to provide a context for the planned discussions.
This will be a broad outline of the services, will avoid any real detail and will be derived from work discussed in Part 2 Chapter 4 - Defining The Service Requirement.
This is a description of your expectations, the discussion of which allows the supplier to update, and if necessary correct, your perceptions.
This will offer participants an overview of the capabilities thought by the customer to be necessary to deliver the service requirements. If prepared carefully, it can be used to regulate responses without alienating the marketplace. i.e. the capability statement can be made more or less demanding depending upon the general condition of potential suppliers.
This is a description of the basis by which you will judge the competition.
It provides a high level view of likely evaluation criteria but without offering a view of weighting. (refer Part 2 Chapter 9 - Models For Evaluating Proposals and Chapter 10 - Model For Evaluating Relationships)
This draws the boundaries around the likely service requirement, and can be helpful in identifying those aspects of service that will not pass to the supplier i.e. the retention of strategic control. (refer Part 2 Chapter 3 - Agreement Packaging)
This describes the procurement process to be followed and the broad timetable of events. (refer Part 2 Chapter 1 - The Procurement Process and Chapter 2 - Project planning & Resources)
It is likely that participants will be chosen from well established service suppliers and, as such, they must clearly understand that an invitation to the making a market meetings does not confer any privileges or preferred status. The following issues are relevant :
The approach to making a market suggests a series of three meetings. In certain instances, it may be more important for there to be, perhaps, four meetings. The point here is that the meetings must be planned and once set, they must be scheduled within the scope of the overall project. Declaration of a schedule of meetings, with dates and times, provides everybody with a clear understanding of the pace at which the process will be conducted.
A word of caution however. Since the meetings will be on an individual basis, the more organisations selected, the more meetings to be held. Four half-day meetings with six organisations adds up to 12 days work - a hefty commitment for busy managers. Undoubtedly there will be a balance between the number of organisations to be involved and the commitment of time.
The focus of the first meeting is the content of the information pack and it should be used as the agenda. It is suggested that the meeting be limited to this agenda. If there is need for a broader discussion, then the information pack is probably incomplete. Allow the receiving parties to listen, absorb and take the issues and comments away - you are looking for considered observations, not instant reactions.
The various organisations return with their considered comments and observations. This is the opportunity for the customer to listen while the supplier attempts to influence and educate. Inevitably some bias will apply as each supplier couches their comments in terns that suit their resource and commercial disposition. However, their comments, taken as whole, will provide valuable input to the thinking associated with the procurement. Although some supplier questions may allow an immediate answer, where this is not obviously the case, avoid a quick response and take the issue away for further reflection an discussion at meeting three.
Having considered the comments made in meeting two, this meeting allows the issues to be aired and debated and the parties can come to some conclusions. Ideally the suppliers should leave this meeting with a clear intention to bid for the business when the procurement is initiated. The customer should leave the meeting with a heightened perception of requirement and an enhanced view of how to conduct the procurement.
Depending on the discussions that have gone on, you may feel the need to update the information pack. Certainly where policies have been refined, there is a strong argument for updating the information pack for circulation to colleagues and the suppliers.