Outsourcing - The ASP Outsourcing Exchange



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The ASP Outsourcing Exchange
By Peter Bendor-Samuel, CEO, Everest Group

handshake Application Service Providers (ASP) are transforming the business world by providing a novel way to access critical applications. It is outsourcing applied to the Internet.

In today's new "plug and play" world, the old caveat, "buyer beware," is even more important. Now problems with the infrastructure belong to the suppliers, making ASP buyers even more dependent on their outsourcing partners. And the cost of switching suppliers or bringing the function back home have climbed higher, too.

Success is critical. In an outsourcing relationship, future of the relationship is determined during the procurement stage. The requirements for long term success are more than wringing the lowest price from the bidding suppliers during the procurement talks.

The only way buyers can actually enjoy the results they want is to be clear about their expectations before they go to market. But establishing black and white boundaries can be difficult because most ASP customers are buying a service, which is much harder to define than a process.

Buyers should NEVER allow their prospective suppliers to define these boundaries. Too often they enlist definitions that are too vague to guarantee the buyer it will receive exactly what it needs.

Historically, the only way for buyers to safeguard their interests was to hire outside professionals to represent them at the bargaining table. Attorneys and outsourcing consultants have the expertise andexperience to provide the protection buyers need, but their fees can be costly. In an ASP deal where the contract size tends to be smaller, there often is not a lot of wiggle room for big cash outlays to professionals.

But buyers who chose to go it alone often make costly errors that plant the seeds of failure. Buyers who have never negotiated an outsourcing contract can be at the mercy of suppliers who have negotiated hundreds.

So, how does a buyer find an ASP in a cost effective manner without sacrificing the necessary safeguards? A third option is to use The ASP Outsourcing Exchange, a sister organization to this journal. The Outsourcing-Center created The Exchange to change the dynamics of outsourcing procurement to take advantage of the new digital economy. It was designed to streamline the procurement process, reduces costs, and build outsourcing relationships that achieve maximum success. The goal is to produce a win-win contract for buyers and suppliers.

Here's how it works. A buyer registers for a particular Exchange, which represents the process it wants to outsource. After registration, the buyer receives an Exchange package. The comprehensive packet inludes all the tools and techniques a buyer needs to submit and conduct a bid through the Exchange, negotiate the contract price, and award the work to the chosen supplier. The package features online videos to help buyers hone their bidding techniques.

Customizing The Bid Document

Buyers customize their Bid Document using templates. The Center built this document based on industry best practices from prior outsourcing relationships. The document allows Exchange users to benefit from our consultant's expertise without having to pay the expensive fees of on site professionals.

The Bid Document components include:

Service Description. Buyers describe the scope and the boundaries of the services the supplier is expected to deliver.
Service Levels. Buyers describe the service levels at which the supplier is expected to perform.
Contract. This is a balanced document that is flexible enough to withstand the inevitable technological changes that will occur in the marketplace during the length of the contract.
Pricing Structure. This includes costs, incentives and penalties.
Alignment. This ensures both parties work to achieve the buyer's objectives.

The buyer then places the customized Bid Document on line for bids. Buyers can select qualified vendors from The Exchange's supplier database and invite the chosen few to respond. The Exchange package includes worksheets that help buyers evaluate suppliers' bids and understand negotiation strategies.

Buyers then narrow the field to three or three bidders. They ask these suppliers to resubmit their bids reflecting the negotiations that have taken place. Then the buyer selects a winner. The Exchange Package includes strategies and advice about creating the transition plan and forming a governance team.

This service is free to the buyers. Suppliers have to pay a fee to register with The Exchange. The successful supplier also has to pay a success fee when a buyer accepts its bid.

The only cost to the buyers is if they choose to use any additional consulting or legal services. At any time throughout the procurement process, a buy may request remote or on site help from The Exchange's outsourcing consultants or its legal partner. Since outsourcing agreements can become complex, it's comforting to know help is at hand.

The ASP Outsourcing Exchange allows both buyers and suppliers to conduct the bid process without leaving their offices. Its confidential email and message boards provides easy communication between all parties.

The Outsourcing-Center will launch The Exchange on August 1.

Lessons from the Outsourcing Journal:

Buyers should hire outsourcing consultants and attorneys when negotiating outsourcing contracts, especially if it's their first contract.
A successful outsourcing relationship is created during the procurement process.
The ASP Outsourcing Exchange uses the new digital world to help buyers and suppliers negotiate outsourcing contracts.
The Exchange reduces costs, shortens the procurement cycle and cuts travel costs.

Publish Date: July 2000

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