Business Process Outsourcing - PROCESS, STRATEGIES, AND CONTRACTS

Selecting the Vendor


3.1 EVALUATING THE PROPOSALS

The structure and scope of the vendor evaluation process will vary depending on the customer's approach, the number of vendors being evaluated, time constraints, and audit and report requirements.

Common steps include:
 Selecting key evaluation criteria
 Identifying who will be asked to participate in the ranking of vendors
 Establishing a scoring system
 Weighting the key criteria
 Implementing final sign-off procedures

a) EVALUATION CRITERIA

Examples of key criteria include:

 The Proposed Solution
Methodologies
Technology (hardware/software/network)
Configuration
Committed resources
Innovativeness
Flexibility
Fit with customer's environment/organization
Willingness to share risk

 Ability to Deliver Services
Experience/skill levels of staff
Methodologies
Technology (hardware/software/network)
Vendor reputation
Vendor experience
Proposed implementation schedules
Physical security
Data security
Disaster recovery/business continuation

 Ability to Implement New Methodologies or Technology
Technical resources/ability
Access to new methodologies or technology
Flexibility
Innovativeness
Open methodologies or technology versus proprietary methodologies
technology
Willingness to use third-party products
Implementation schedules
Remedies for failing to meet schedules

 Ability to Meet Performance Standards
Methodology
Proposed service levels
Remedies for failing to meet service levels
Benchmarking services
Benchmarking service levels

 Value-added Services
Incentive mechanisms
Access to new methodologies or technology
Cross-marketing

 Financial Proposal
Base pricing
Variable pricing
Cost savings
Savings commitments
Budget comparison
Ability to increase or decrease services
Cost-of-living adjustments
Taxes
Payment schedule
Expenses

 Vendor Reputation/Financial Standing
Financial stability
Quality of personnel
Vendor culture
Prior or existing customer relationships
Vendor presence in customer locations

 Vendor Experience
Outsourcing experience
Experience in industry
References
Number of clients
Experience in relevant locations

 Vendor Flexibility
Adjustment of services
Adjustment of fees
Adjustment of service levels
Ability to add or take away entities
Ability to terminate early
Ability to terminate in part

 Keeping Abreast of Industry Developments
Security
Hardware
Software
Network
Methodologies
Processes
Tools
Laws/Regulations
Taxes

 Terms and Conditions Proprietary rights Third-party consents
Indemnities Insurance
Rights to terminate
Rights upon termination
Audit rights
Liability for third-party claims
Damages

 Human Resources
Number of employees to be transitioned
Salary
Health benefits
Deductibles/Copayment
Bonuses
Savings plans
Retirement plans
Severance
Pre-employment screening
Employment agreement


f) FINAL SELECTION PROCESS

This can be done in a number of ways:
 An informal sign-off from the outsourcing team
 An informal sign-off from senior management
 A formal approval vote by the outsourcing team and/or senior management
 A formal letter of approval from senior management



3.2 NOTIFYING THE PREFERRED VENDOR(S)

a) MAKING THE ANNOUNCEMENT

The outsourcing team leader will notify the lead contact person for the vendor or vendors of the decision. When making the announcement, the customer should:
 Reserve the right to negotiate with other vendors
 Refrain from making any promises or representations regarding entering into a definitive agreement
 Identify key issues that must be resolved (e.g., the price must come down a certain percentage)
 Emphasize that all negotiations and communications are confidential
 Note that the vendor should not make statements to customer employees or the press without the customer's consent
 Obtain a commitment that the vendor will provide a top negotiating team that is empowered to make decisions
 Discuss the proposed schedule

b) COMMITMENT AND COSTS

The preferred vendor or vendors typically will need to (or be asked to) increase the number of personnel working on the potential deal. Such personnel may include:
 A senior manager empowered to make decisions
 Marketing representatives
 Proposed project executive(s)
 Business process experts
 Methodology or technology experts
 Tax expert(s)
 A dedicated human resources representative
 Legal counsel
 Industry experts (e.g., retail consultant)
 Local representatives, counsel (for international deals)
 Temporary staff (if customer staff is at critically low levels)
 Due diligence team
 Contract administrators

This commitment may also include increasing nonpersonnel resources (e.g., access to certain technologies, temporary loan of equipment, travel expenditures).

There should be at least an understanding between the customer and the vendor(s) as to how costs and expenses will be allocated. Typically, the customer and the vendor(s) each bears its own costs and expenses. In some cases, however, the customer may agree to pay for some or all of a vendor's expenses (e.g., cost of temporary staff provided to the customer in the event a definitive agreement is not entered into with the vendor or certain travel expenses).

c) LETTERS OF INTENT

Vendors typically want to include a provision in the letter of intent that provides that the customer will enter into exclusive negotiations with the vendor for a certain number of days. Other common provisions include allocating costs and expenses, indemnifications for representations made to customer employees, and restatement of the parties' confidentiality obligations.

Letters of intent are usually not appropriate if the customer is negotiating with two or more vendors simultaneously. Obviously the customer could not commit to an exclusivity arrangement if it intends to negotiate with more than one vendor at a time. Most customers resist signing anything indicating that there is a commitment between the parties prior to the signing of the definitive agreement. In cases where the customers have agreed to sign a letter of intent, it is because they have been relatively confident that they would ultimately sign a definitive agreement with the vendor.

d) COMMUNICATION STRATEGY

Once the customer has selected the preferred vendor or vendors, it will need to decide whether to make an internal announcement to employees and/or a formal announcement to the press.

If one vendor is selected, the decision to announce the selection of a preferred vendor often depends on the customer's communication strategy with its employees. Announcing the selection to customer employees often leads to a leak to the press. Many customers that choose to announce the selection of a preferred vendor to employees simultaneously issue a press release. Customers that elect not to make an announcement to employees or to the press at the preferred vendor selection phase typically do so because they feel that they may forfeit negotiating power, lose the interest of other vendors, cause unwarranted public speculation, or, possibly, impact public perception (including stock prices).

APPENDIX 3.1: EVALUATION OF VENDOR PROPOSALS RELATING TO THE PROVISION OF BPO SERVICES
Examples of criteria:
1. Vendor Resources (financial stability of Vendor; ability of Vendor to meet its commitments over the term of the contract)
2. Global Presence (experience and resources providing services outside of the United States and supporting users in other countries)
3. Experience in Customer's Industry (specialized skills in Customer's industry to ensure quality)
4. Previous Experience with Customer (past experience Customer has with Vendor that may impact selection)
5. Financial Considerations (anticipated savings, improved cash flow, increased revenues)
6. Services to Be Provided (experience, resources and ability of Vendor to provide in-scope services)
7. Human Resources (transition of Customer employees to Vendor; terms of offers)
8. Terms and Conditions (responses to Customer's terms and conditions)


For more Information
* Driving Business Excellence, Business Process Management Books, Business Process Outsourcing, Process Improvement Handbook, Strategic Business Partner, *

Business Process Outsourcing - PROCESS, STRATEGIES, AND CONTRACTS