Sourcing advisory, which services are out there, part 2?

This post is a follow up on this post in which I started with an overview of the different types of sourcing advisory services out there. This post continues with an overview of the different services. In a future post I will look into the (dis)advantages of the delivery models deployed by sourcing advisory firms and where I think sourcing advisory services are heading too in the future.

Tax Advisory: when outsourcing activities in many countries or setting up a captive in another country it might be wise to ask a tax specialist for help. Tax specialists can help with some financial reengineering allowing for a reduced slice of money going to the government and with ensuring the company does not run the risk of breaking any country specific tax laws. These services are provided by Big 4 firms and boutique firms.
Pro’s: optimizing the tax structure can potentially reduce the total cost of ownership of the engagement and make sure the company stays compliant with country specific tax regulations.
Con’s: This kind of services is only relevant for large, multi country sourcing engagements or when setting up a captive in another country. Large multinational companies might also have this type of knowledge in-house.

Sourcing governance advisory: Setting up an adequate retained organisation is one of the key success factors for any sourcing engagement (SSC or outsourcing). There are several types of advisory and other services in this area:

• Designing and implementation support of governance framework. This kind of work is typically executed parallel to the actual outsourcing or establishment of a SSC.
• Designing and (temporally) running the retained organisation (e.g. TCS for IT InBev, Accenture for IT of ING Netherlands). In most cases there is a multi vendor strategy and a third party is asked to provide the role of integrator. This service is also sometimes refered to as Managed Service Provider (MSP)
• Providing reporting services over the SLA’s by collecting data from the vendor(s) and integrating it into a comprehensive report.

Pro’s: As said is adequate attention to managing the relationship one of the key ingredients for a successful and lasting outsourcing and shared service centre. There are various best practises and proprietary models out there that can help you (e.g. eSCM, ISLite, SGF)
Con’s: There is a tendency (within some Dutch companies at least) to opt for a more ‘light’ retained organisation where in the past whole departments where established with elaborate processes and new role/function descriptions. An overkill of processes and procedures may reduce the return on the engagement (more is not always better).

Sourcing Research Advisory: there are various companies out there which provide data and information which can be useful to guide sourcing decisions (e.g. Forrester, Gartner). Some of the data available is:

• Overview of vendors and a their ranking,
• Overview of near/offshore country destinations and their ranking,
• Overview of outsoureable activities and where they are in their lifecycle.

Pro’s: If done well the information provided can support the decision making on whether or not to outsource certain activities, or select a vendor or country.
Con’s: Many service providers spend part of their marketing budget on research companies and one can thus question the independence and thoroughness of the results (an interesting piece in this topic can be found here). If the research companies would include experiences from client companies dealing with certain 3rd party suppliers and countries, those rankings would become much more valuable than they are today.

Auditing Services: this type of services includes also various sub-services which might be useful during various stages of the life cycle of an outsourcing engagement. Some of these relevant audit services are:

• SAS 70 type I and II assurance reports, including ISA 402 and ISAE 3402. In this case will third party auditors (in general from the Big 4) perform an audit for the 3rd party and assess the control maturity of (a part of) the delivery organisation. More on that topic here

and here.

Assess the control maturity of a 3rd party using a specific set of controls and control objectives. The scope and thoroughness is typically less compared to a SAS 70 and the project is normally not executed by a certified auditor. It is more an assessment than an audit and is thus in most cases cheaper, but also less detailed in its findings.

Audit/assessment during the due diligence. Some clients send their own auditors to get an idea of the control maturity of a 3rd party they want to do business with, while others hire a advisory firm to do an audit/assessment.

Pro’s: Auditors can provide a very thorough insight into the control maturity of an company. Assessments can provide basically the same insight, but at lower cost (and lower level of assurance). Use auditing services thus only in area’s of high risk and use other control mechanisms to gain assurance over area’s of lower risk.
Con’s: Auditing is expensive and auditors approach the matter often from a very theoretical perspective, disregarding the needs of the day-to-day business. I see guys/gals in their twenties with check lists in their hands looking very black & white at evidence and without one hour of real business experience on their resume. To me is the cost-benefit ratio of these audits therefore often negative. The concept behind auditing is however very valuable, but the potential is often not realised.

Mediation Advisory: Like with any relationship can things go wrong and where couples can go to a therapist can client and vendor opt to get a mediator to repair the relationship. In my experience is this a valuable service and I expect I high demand for these services in the coming two years as there is quiet some outsourcing activity in at least the Dutch market and these deals are quiet often of the type ‘speed sourcing’. And fast does not always provide enough room for quality.
Pro’s: Already mentioned before.
Con’s: None that I know of.