Competition is a useful tool in the procurement process for complex outsourcing, but it is often misused and counterproductive. Most competitive processes are designed to commoditize the offerings of several suppliers across a requirement set, making the decision on whether or with whom to outsourcing primarily dependent upon contract terms and price. The problem with this approach is that the process seeks to commoditize a service that is often not a commodity. These deals are complex, and the decision-making process is complex as well. Price and contract terms are a factor, but should not be the determining factor except to the extent that they test other decision criteria.

I have come to believe over the years that real success is mostly dependent upon the relationship between the customer and the outsourcing provider; and if that relationship is determined by a contract, it has a high probability of failing. It is much better to base the contract on the relationship, rather than the other way around. This requires a deal process that fleshes out the relationship before contract negotiations take place. A process that requires the contract to document the working aspects of the relationship requires skillful negotiations, but has a much better chance of unlocking the real value of outsourcing.

In handling several renewal and resourcing negotiations, the main complaint from customers is very rarely that a supplier is not meeting service levels, or is too expensive. The major complaint is almost always around a lack or proactivity on the outsourcer’s part. They are simply not acting strategically. A supplier’s ability to work with its customers on a daily basis to solve problems, become involved in a customer’s business and recognize opportunities are arguably the most valuable skills in a supplier’s arsenal. Yet, the traditional competitive process tends to downplay this skill in order to achieve relatively simply down-selection scenario. The skill of surviving a competitive process is a skill that is useless to anyone but the supplier’s sales team. This can easily result in a misaligned service delivery model that is equally problematic for the supplier and the customer.

I have found that the best way to negotiate any deal as complex as an outsourcing is to employ a process that is based on inclusion, not exclusion. In conducting a Process of Inclusion, the customer does what it can to keep each of the bidders in the process as long as that bidder is viable. This means that the customer must give each bidder a chance to remedy whatever problem(s) may be keeping it from winning. The flip side of this is also part of the process. The customer should eliminate a bidder the instant that the customer knows the bidder cannot be selected. Integrity is paramount to this process and each bidder should be comfortable spending the time, effort and money to do its best. That will not happen if the process is compromised by including a bidder who is simply a stalking horse.

Anyone who has ever been in sales will appreciate the difference betweenhaving the opportunity to overcome an objection, versus wasting time pursuing business that cannot be won because of a condition. The Process of Inclusion only allows elimination for conditions.

Interestingly, by allowing suppliers to work through objections, the customer often learns quite a bit about its requirements. In very complex deals, defining requirements is as much an art as a science, and it is pointless to run a process that does not allow for process redefinition as the customer’s knowledge grows. It is also pointless to run a process that discourages the suppliers from really selling. An expert sales team will focus on requirements qualifications, examining a customer’s propensity for change, and solutioning. This is a tremendous resource to tap that most suppliers are happy to provide as long as there is strong deal potential and they are not just providing free consultation.

For this process to work, the customer should state its strategic objectives as best it can at the beginning of the process and challenge the suppliers to help them achieve these objectives. It is unfair and senseless to spring surprises on bidders at the last minute. This requires that the customer knows how the end product of the negotiation should look, and where its own weaknesses are. If proven expertise is not available in-house, then the customer should retain advisor(s) to help and possibly lead the customer through this.

By knowing its own weaknesses, the customer is in a position to negotiate them away up front. At the initial stages, there are many potential problems that can easily be couched as opportunities. For example, if you have a situation where your operations people are leaving at a faster rate than normal (outsourcing can cause this sometimes), a supplier project team comprising people with in-house operational experience would be beneficial. Additionally, dealing with these types of issues in the RFP or pre-RFP stage normally results in very little if any negative impact to the deal, whereas introducing it at a later stage can make the deal fail and will certainly tarnish the relationship.

The Process of Inclusion represents a change of mind-set in procuring complex technology and outsourcing services that is part of far more comprehensive strategy. Although there are several other aspects of this strategy that are beyond the scope of this article, following the few basic rules above is a good start. The power of creating an environment that allows learning and problem solving instead of fear and intimidation cannot be overstated.