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For example, Everest Group, an outsourcing consulting firm, is stirring up the waters. Peter Bendor-Samuel, president and CEO of Everest, says that his company has a desire to improve the quality of transactions and lower the cycle time of the procurement process. "We have really focused on increasing the quality of the service and now we are able to do it quicker and make it more cost effective for our customers," Bendor-Samuel says. As a result Everest is able to approach an entire market space. In the past companies have been unable to hire consultants for outsourcing deals in the area of $500,000 a year. Basically it didn't make sense to bring in high-priced consultants to assist with an outsourcing of this size because it might cost anywhere from $250,000 to $500,000 for the consulting and attorney's fees alone, he says. Unfortunately these companies still needed the services - process definitions, service descriptions, service levels, and contract pricing structure - but because the attorneys and consultants have been so expensive, the companies have been left on their own and end up in a very poor situation. Setting a StandardLowering the cost and the cycle time has been made possible by not only continually improving the process, but also by reusing service descriptions and pricing structures. Of course the model is modified some to fit the needs of the customer, but it is still a very standardized approach. Recently, Everest worked with Ultrak, a designer, manufacturer and purveyor of security and surveillance systems, at a fixed price offering of less than $100,000. Along with the consulting services, attorneys were also provided. And it took only two months, whereas the normal procurement process takes anywhere from four months to a year. This fixed-priced offering can be used in many outsourcing areas including SAP, desktop and mainframe. For example, the Ultrak deal was an SAP procurement. "Together we were able to stand on the shoulders of the arrangements that came before this one," Bendor-Samuel says. "We were able to build on everything that we have been doing for the last nine years and incorporate it into the process. They were able to get a high quality contract, everything signed, sealed and delivered, with a good transition plan for less than it would cost just to bring in outside legal assistance." Hurdles to OvercomeBendor-Samuel states that typically if a mid-market or smaller company is working with an outsourcing consultant there will be initial resistance from the suppliers because they are used to having their way in the smaller market. The supplier community is used to signing unfair contracts, which are poorly defined and favor the vendors, he says. They are also used to getting away with higher margins and less accountability because companies haven't been able to afford the necessary help in the past. "So you have to convince the suppliers that you're serious about this process, and we help do that," he says. "Suppliers know of Everest and if you are working with us they realize that this is serious." Another challenge he points out is that since the time period is contracted, a company has to be able to get the organization focused in a short period of time. And it leaves little time to contemplate the magnitude of actually transferring the ownership of a process to the supplier. So there is always the gut-wrenching element at the end of the negotiations of following through and signing the transaction, he says. Looking to the FutureIn the past Everest has not done these types of arrangements, and Bendor-Samuel says that that he knows of no other firm of Everest's size and experience that offers these services. "Historically outsourcing has been something that only the big companies could do, but increasingly mid-market companies are embracing outsourcing as a vehicle to preserve capital and focus on their core competencies. And since outsourcing as a vehicle is exploding, companies are finding business processes outside of IT to outsource and new markets to outsource in," he says. "Now there is a whole tier of suppliers that are coming into existence to service these mid-market companies, and large companies are also starting to cater to this market. A fixed-price product provides these mid-market companies with access to the kind of assistance they need with a cost effective break." Lessons From the Outsourcing Primer:
Publish Date: November 1999
For more information... Copyright © 1999 - Everest Partners, L.P. |
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Offering fixed price consulting services in
the area of outsourcing is relatively unheard of. And unless the services are provided by a stand-alone consultant, and not a full-fledged consulting group, mid-market companies and smaller
organizations have been hard pressed to find quality consulting for outsourcing deals under $3 million. This is changing though, as standardization takes hold of the market.
