Home Career

Having established definitions for outsourcing, contracting and facilities management, we can now move on to examine some of the differences in the approaches that can be taken to acquire systems and services using each of the three methods.

Traditionally, a Request for Proposal (RFP) or Invitation to Tender (ITT) approach has been used for all three, and this has been unfortunate.

Contracting and facilities management

For contracting and facilities management, and especially for contracting out services and systems that are far removed from the core business, the ITT may be a good approach. The customer will state exactly what they want, and the provider will state exactly what price they require to do exactly what the customer wants, and they can agree. The relationship between them may not have to be more than that: a simple offer and a simple acceptance, like any sales transaction.

It is highly unlikely that the ITT approach will allow the two parties to enter into a real business partnership. We shall state some characteristics of the ITT approach for comparison with other approaches.

Characteristic 1: level

The ITT approach is usually based at the task level, rather than at the process level. This was discussed in a previous topic as being the normal level for contracting. An ITT will usually describe tasks such as:

• an individual IS application, such as payroll, stock control or financial systems;
• a clearly-defined "job" based on a single set of skills, such as a local authority’s waste collection, an insurance company’s claims management.

Characteristic 2: definition

The ITT approach often begins with a Statement of Requirements (SoR) or Statement of Work (SoW) that describes what the customer wants to be done. The SoR can be extremely detailed. The SoR can often describe:

• how: the skills and tools
• who: the skills and numbers of people
• where: the location or area
• when: the days and hours
• what: the products and outcomes.

Characteristic 3: service

The two main characteristics of the service levels used in the ITT approach are

1. They are likely to be pre-defined, and presented to the provider in the ITT on a "take it or leave it" basis.
2. They are likely to be at the same level of detail as the task descriptions.

Examples of the service levels that can be defined in an ITT are:

• an n-second response time for IS applications and hardware;
• an n household per week target for waste management.

Characteristic 4: expectations

An ITT will often lead to a contract that has a large number of penalty clauses: the ITT itself will often stress the outcomes that the customer wishes to avoid.

This is reflected in

• escalation procedures for failures;
• penalties for lack of performance or conformance;
• termination procedures for the contract.

In responding to an ITT, a large amount of the provider’s time can be spent on describing who will be responsible and what will happen when things go wrong.

Outsourcing

In outsourcing, it is still possible to use an RFP approach, although it has been realized that this will often prevent the real partnership that outsourcing requires.

"Full" outsourcing, instead of contracting or facilities management, needs both parties to be aware of each other’s business needs. This means that they must be able to appreciate each other’s strategic requirements, rather than concentrating on operational needs. Outsourcing allows the customer to entrust complete processes and their outcomes to the provider, knowing that the two parties will be able to work together to adapt those processes and outcomes to change, whether that change is driven by technical innovation or by market trends.

The customer should be able to entrust all of its information systems and services to an outsourcer, knowing that

• high quality service will be provided, even when difficulties occur;
• changes to the outputs can be suggested by either the customer or the outsourcer;
• discussions on those changes will keep the best interests of both the customer and the outsourcer in mind; and
• neither of them will do anything that will jeopardize the other’s business.

Mistakes will happen — they will always happen — even in the best-run relationships. The relationship must be strong enough to withstand those mistakes and to concentrate on putting matters to rights. Managers are exhorted to "catch people doing something right". The same should be true of the customer-outsourcer relationship.

Clearly the best results will not be obtained when:

• thinking about the customer’s business is focussed on the tasks and their intermediate outputs rather than on the business processes and their outcomes (Characteristic 1);
• the definition of the customer’s requirements is detailed, so that everyone loses sight of the real business drivers behind the relationship (Characteristic 2);
• the specification of the service levels required is detailed, so that there is little emphasis on a limited number of significant service requirements (Characteristic 3); and
• the expectations of the customer and the outsourcer are based upon things going wrong so that they have to be fixed, rather than on things going right so that they can be improved.

The Memorandum of Understanding (MoU) approach deals with these, by ensuring that a business relationship based on openness and honesty is in place from the outset.

	Contracting	Outsourcing
method	ITT; RFP	MoU
level	task	outcome
definition	detail	summary
service	detail	summary
expectation	negative	positive

Table 91.1: Differences between contracting and outsourcing

Significantly, the ITT and RFP approaches depend upon the provider showing that they are open, honest and capable. The MoU approach depends upon being open, honest and capable. Just as a provider could be eliminated from the ITT or RFP approaches if they could not demonstrate these attributes, a provider should be eliminated under the MoU approach if they failed at any time to continue to demonstrate them. The MoU approach looks "softer" in many ways than the ITT and RFP approaches; in fact, it is much tougher.