Sourcing advisory, which services are out there, part 1?

Sourcing advisory has come a long way and there are several well established (boutique) players which providing a broad scale of services. There are basically three types of advisory firms:

• Independent one-stop-shop. Firms like KPMG, PWC and Deloitte have a broad spectrum of skills and knowledge, including people which focus on sourcing advisory, tax and SAS 70 assurance.
• Independent niche players. Firms like Equaterra, TPI, Quint Wellington Redwood, Everest Group, Gartner and many more focus on helping clients with the design & implementation of a shared service centre or finding a suitable vendor to outsource certain activities to. Other nice players focus on helping clients to draft an adequate legal contract, deal with specific HR topics, benchmarking or optiming the tax structure of the deal.
• Supplier-dependent niche players. Suppliers themselves have sometimes (small) departments which also provide advisory services in the area of outsourcing (e.g. setting up a sourcing governance framework, making a business case)

I already summed up the majority of the services that are provided by these firms when writing on the types of advisory services I identify, but hereby a repeat and with some additional info:

Strategic sourcing advisory: optimizing the value chain from a strategic and holistic perspective. Outsourcing is seen as one of many ways to create more value.
Pro’s: The core business of these firms is not making as many deals as possible and may thus offer a more balanced view on the scenario’s available to optimize the value chain.
Con’s: If the best scenario’s turns out to be outsourcing, the client might have to engage another advisory firm to support the outsourcing itself.

‘Traditional’ outsourcing advisory: the bulk of the advisory revenue is in this area: drafting a business case, supporting with the selection of a suitable vendor, creating the exhibits/schedules of the contract, supporting the negotiation and facilitating the client during the transition/transformation.
Pro’s: These companies have typically a lot of experience with driving outsourcing projects and know how to mitigate risks related to pricing and quality.
Con’s: Outsourcing is for these guys their bread and butter and thus the solution, they rarely question a decision to outsource. This might result in painful situations after the advisors have left. They also typically focus 90% of their time on $$$, and the requirements (activities/quality) and might thus miss other important area’s (e.g. how to ensure regulatory compliance in an efficient and effective manner).

Benchmarking advisory: comparing the current cost and/or quality levels of a company with peers can provide valuable information to build an initial business case or to check during the contract term whether the rates of the supplier reflect prices paid by the market.
Pro’s: Benchmarking allows for a ‘health’ check of the organisation and can be used for many more purposes than just outsourcing. As the terms of outsourcing contract are typically between 3 and 10 years are benchmark clauses useful to enable midterm adjustments.
Con’s: Some smaller benchmarking companies draw conclusions based on a too small group of peer companies, significantly reducing the value of the outcomes. Another disadvantage is the limited ability of taking non-standard services and quality levels into account. This also can reduce the usability of the outcome substantially.

Legal advisory: many lawyer firms have also discovered that outsourcing is a lucrative market and have created practises which specialise in drafting (Master) Service Agreements (MSA), which capture the essence of the deal in legal clauses. These services are typically used by clients as the 3rd parties have specialised lawyers which do this kind of deals on a day-to-day basis.
Pro’s: Most legal departments of client companies do not have the knowledge to draft an outsource contract or know what the pitfalls are if the client decides to work with a contract provided by the 3rd party. I recommend that clients should only consider using a contract from the 3rd party (and make amendments to it) in case of simple standard services or products. In situations where the client is outsourcing services/products with a high risk/high $ value, I advise to hire a specialised lawyer and let him draft the contract (specialised firms have a standard template to start working from).
Con’s: These guys/gals are expensive and they do in most cases not really know what an IT or Accounts Payable process is about. This means that the lawyer has to work closely together with other (advisory) specialist to create the necessary exhibits/schedules and to align these with the MSA. Another risk is that all kinds of operational items end up in the MSA because the lawyer does not want to miss anything.

HR advisory: especially within Europe can the labour laws be quiet complex and strict. In those cases where a lot of employees are in scope of the planned outsourcing do both the HR department and the labour counsel hire advisors specialised in HR & outsourcing.
Pro’s: Like with legal is HR also a subject that has some specific attention points related to outsourcing and most companies do not retain specialised knowledge in this area. Hiring this kind of services reduces the chance of missing important attention points and also allows the workers counsel to provide a well balanced advise on the matter.
Con’s: None that I know of.

More on additional sourcing advisory services in a future post and also on the advantages and disadvantages of the different types of advisory firms.