ITO and Strategic Partnership

Project Background

The client was a 90 year old company in the print industry with an emerging future strategy that was highly dependent on innovation enabled by information technology. However, the company’s internal IT capability had declined significantly in recent years as company profitability decreased and cost savings measures were taken that resulted in maintaining only enough IT capability to “keep the lights on”. Company executives knew that this situation had to change. Greater IT capability was needed to assure internal business processes effectiveness and reliability and, perhaps equally importantly, to generate strategic product and service offerings that would enable the company to compete in the 21st century. The company decided to pursue opportunities for IT outsourcing and the crafting of a “strategic partnership” relationship with an IT service company.

Outsourcing Strategy Determination

TBI was initially hired to assess its current situation and help the company prepare a recommendation for the Board of Directors on IT outsourcing. The client’s initial thinking was that a sole sourcing arrangement (with the vendor already responsible for mainframe data center operations) might be the best path to take, in order to accomplish needed change as quickly as possible. TBI reviewed the company’s preliminary requirements for a strategic relationship and IT services outsourcing and the proposed pricing by the incumbent vendor and then recommended that a fully fledged competitive outsourcing procurement action be undertaken instead. The reasons for this included the need to take more time to complete needed due diligence on the IT service requirements and to do a more thorough analysis of current costs, to consider potential benefits from application support outsourcing as well as IT infrastructure outsourcing, to gain a better assurance of “best fit” with vendor offerings and to obtain more competitive pricing by vendors. The Board of Directors and company executives concurred with this recommendation and a second IT services vendor was invited to participate in a formal RFP process along with the incumbent vendor.

TBI Managed Outsourcing Process

TBI was retained to assist the client in accomplishing the IT outsourcing. TBI consultants employed TBI methodology to quickly plan and manage the company’s internal outsourcing due diligence process. They also worked with the client to develop the RFP, including statements of work and performance requirements for help desk, server operations, desktop support, voice telecommunications, data network services and application development and maintenance. Interviews with the company’s senior executive team were also conducted in order to develop the requirements for a strategic relationship to be included in the RFP. As the timeline for the action was very aggressive and vendors would not have the opportunity to spend much time with client personnel to develop information prior to submitting their proposal, TBI carefully organized and indexed and provided vendors with all source materials as well as the final narrative documentation on the scope of services, as part of the RFP issuance. Also in order to speed the process, draft terms and conditions for the contractual relationship were included with the RFP for vendor response. Because one of the vendors had prior outsourcing experience with the client and the other did not, the intensive effort to develop information on scope of services was also intended to help “level the playing field”.

After the RFP issuance and a formal Bidder’s Conference that TBI helped the client to craft and present, vendors had only three weeks to complete their proposals. During this period, TBI worked closely with the client and vendor teams to distribute questions and develop and provide answers to clarify the RFP. We also organized the client team for the vendor evaluation, working with them to develop evaluation criteria and rating scales for proposal evaluation, and scripts and documentation formats for conducting and recording results of vendor reference checks and site visits.

During the proposal evaluation phase, TBI managed the client team’s vendor evaluation process and helped organize and plan an off-site meeting in which the down-select decision was made by the client team. TBI also worked with client management and financial support personnel to refine scope and the base financial case, and to consider the financial impact of the outsourcing action (including taxes, software and service contract changes, cost savings and recognized business investment needs). TBI also prepared the request for vendors to provide, Best and Final Offers (BAFO). A pre-negotiation vendor/client discussion step was used after vendor BAFOs were received, to finalize the down-select decision, primarily to judge how willing vendors were to substantially reduce their pricing.

TBI worked with the client to plan, organize and conduct the contract negotiation process and the vendor proposal validation process. We also assisted in negotiation as members of the client negotiation team, working with the client and vendor management and legal teams to finalize the Services Agreement and all of its Schedules, detailing scope, transition plans, service level agreements, etc. TBI also provided assistance to the client in defining organizational structure and new jobs in the retained IT organization, to provide governance for the outsourced service management and to accomplish coordinated process improvement across all aspects of IT.

Project Results

Client and vendor reached agreement four months after the issuance of the RFP, both pleased with the speed of the process and with TBI’s help in facilitating the necessary information exchange and reaching contractual agreement. The client company was able to obtain a service provider to provide on-going IT services and a variety of enhancements to current services at its current cost level. Vendor considered its final pricing as low as possible, without sacrificing all profit, with the risk of this low pricing balanced by the strategic partnership opportunities for the company. Contract terms covered the outsourcing of the IT infrastructure operations, and enterprise packaged software applications development and maintenance and legacy application maintenance. They also included the companies’ agreement to pursue joint marketing, cross sales, and joint product development opportunities.

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