23 Jan 10 Vendor selection – How important is it?
Despite the compelling needs of outsourcing, there have been instances in the recent past where some companies (although for different reasons) have shifted work back to their roots (onshore). This has been primarily seen in verticals including banking, financial services, retail, etc.
Bringing back the (offshored) operations in-house is not an attractive option for any company, as it eventually adds to their costs. However, there must be some compelling reason that forced companies to take work back onshore/in-house. The reasons might vary from….not enough cost savings, unsatisfactory results, quality not as expected to not a right choice of vendor.
Last year, we had conducted a survey of US and UK based law firms, which threw an interesting finding – “10% of the survey respondents tried and rejected offshoring”. During our course of research, we found a number of buyers who cited unsatisfactory work quality for abandoning their offshoring initiatives. Could this mean not enough groundwork done before selecting a vendor? Possibly!
So, what are the important things that a ‘buyer’ (irrespective of the vertical) considers before deciding to outsource/offshore? Which services to outsource? Where to outsource? Whom to outsource? The first two questions are related to the broader strategy of the company…we’ll leave these for a discussion at a later date. Lets discuss the third point “whom to outsource?” with respect to the LPO industry.
A few large deals (Clifford Chance, Eversheds, Osborne Clark, Rio Tinto) in the recent past helped spark the interest of a number of law firms and corporations towards offshoring. Despite the growing interest, there is a paucity of information on vendors in this niche segment. Growth in the LPO market resulted in a spurt in the number of providers, especially smaller providers (with <20 employees) many of which do not yet have the capabilities, financial strength or scalability to service the demands of large customers. Currently, there are over 140 (large, mid-sized and small) vendors in the industry. Very little is known about many of these players and their capabilities. This makes it so much more difficult for a law firm or a corporate counsel in selecting a vendor.
So what are the critical questions that a company needs to be scrutinized on? There are different ways to look at the competitiveness of a business. Recently, we introduced ValueNotes Sourcing Prism that evaluates vendors on select parameter. Considering the industry and the kind of information that would benefit a buyer, we focused on three main parameters.
Does the provider have the capability to offer services? What is the depth of service line? Where is the company positioned on the value chain? What is the experience or number of years in the business? What is the level of adoption of technology? Services maturity provides clarity on the service expertise that a company has built in its chosen industry.
Is the business model sustainable? Will the company exist say… five years now? Sustainability is critical to understand the ability to sustain growth, enabling long term client relationships. Is the company financially strong? How is the brand strength? Does he possess the ability to deal with risks? Is the business model scalable?
Does the company have a clear vision? Has it demonstrated execution capabilities? Strategic intent is important to figure out the strategic decision-making element in a company, both in theory as well as execution.
Does this mean a vendor high on all the three parameters is the best choice? Yes and No! Service providers are at varying levels in terms of attributes like scalability, domain knowledge, process maturity, onshore presence, etc. Buyers have to choose a vendor best aligned to meet their strategic or tactical objectives for offshoring. Since service provider capabilities differ significantly, choosing the right partner depends on the specific objectives of the buyer!