Sourcing Advisors: Getting Your Money’s Worth

We have heard clients comment that their advisors or consultants were either a waste of money, or in other cases an essential and valued part of the team. …

We have heard clients comment that their advisors or consultants were either a waste of money, or in other cases an essential and valued part of the team. Why the huge disparity in their perspectives? Questions that clients often ask are whether to use an advisor to assist with sourcing transactions and if so, how can you do it and obtain the most value? How can you make sure the result is the high value scenario instead of the alternative?

A Different Time

The sourcing advisory business really started in the late 1980’s. Experience in the industry was limited, outsourcing suppliers were just getting into the business, terms and conditions were not favorable to clients, and the financial size of transactions was often very large. An unfavorable transaction or inflexible contract could have severe financial and management implications and most contracts were for ten years or longer.

Compounded by the fact that some clients were “forced” into the transactions due to dire financial situations, utilizing experts made perfect sense. As the market matured, suppliers became more sophisticated and experienced due to the large number of transactions conducted. Clients may do just a few transactions per year so they may not have equivalent expertise in house. This disparity between the supplier and client led to a need for an advisor that could “level the playing field.” Advisors developed templates, processes, and methodologies that facilitated transactions and the sourcing advisory market flourished. Simultaneously, the sourcing advisory firms were undergoing significant change.

Explosive growth required firms to hire advisors as fast as they could get them on projects. However, over time, sourcing expertise became more common and the transactions became more unique and innovative. Locations expanded to include offshore, nearshore and everything in between. Now the cookie cutter processes and methodologies and the traditional sourcing advisor skill set are often inadequate to handle many of the current transactions a client needs assistance with. Mergers, acquisitions and entrance from a host of new players caused significant change within the sourcing advisory industry. Smaller, more agile firms began to grow, leveraging the more experienced advisors from the larger firms. In fact, we have seen a rise in engagements where a large firm was engaged and they were not able to handle the project, so the client sought expertise from a more experienced set of advisors.

Expand the Value

Having a successful engagement using a sourcing advisor is very dependent upon the quality of the advisor, client requirements, and the way the advisors are utilized. Unless a client is new to sourcing, just relying on the old methods of templates and canned reports is of limited value. We have found even experienced clients still rely on advisors that have the experience to solve more complex issues or problems and do transactions that are not the typical procurement. In some cases, the client simply does not carry adequate staff in procurement to handle the bubble of resources a large transaction requires. This is where an advisor can be invaluable by providing the necessary resources to meet the demand.

The advisor should also bring current market thinking to the table and the ability to go toe-to-toe with an experienced supplier negotiator, or assist the client’s negotiator. Sourcing advisors also add value in instances where there is a lack of communication between clients and suppliers. With an understanding and independent view of both the buying and selling sides of the sourcing market, advisors can make it easier for clients to find a good fit. An independent view is critical. Beware of advisors that have a financial relationship with a supplier which may influence their recommendations.

Consider the following when selecting an advisor: 

1. Know Your Advisor – This is the most important variable. Do not rely on the representative resumes provided by a sales person. In the last few years there has been a significant shift/exodus from large consultancies (TPI, Equaterra, Everest, etc.) by some of the more experienced advisors. Some, like myself (formerly of TPI), now work in smaller firms where we have direct control over the resources assigned. Others have gone to client organizations or, in some cases, work for the suppliers. Some of the most skilled advisors have left the larger firms so it is even more important to not only rely on the “name brands” of consulting firms assuming they have all of the talent available for you. Ask for specific transaction experience and a list of engagements they have completed. Personality is important as well. Consider whether they can work within your company culture and the team chemistry. These factors may be hard to evaluate but are critical determinants of success. Ask about some of the more difficult business problems where they have used creative approaches to solve or give them one of yours you are currently facing. Seeing how the advisor reacts and can discuss your issue may provide important indicators of future success or a failure to meet your expectations.

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2. The Advisor’s Value – First understand where you have the need; for example, a negotiator vs. a project manager. There are also more economical resources for lower value activities such as document preparation and data collection. This keeps you from paying a high cost for a resource to do lower level skills (right-tasking). In any case, conducting an honest review of the in-house skills you can dedicate to the project will tell you what is required. Do not expect to put the advisors on auto-pilot. Make sure you do not rely on them to make critical decisions that are yours to make. They should help frame the problem and identify options, but in the end you must own the decision. Ask for and track progress on deliverables that are tangible and are easily used and communicated. Check to make sure they can adapt tools and processes to your needs rather than rely only on their toolkits or templates. These days, out of the box thinking and innovation are a must but they should be able to leverage templates and best practices to save time.

3. Flexibility in the Delivery Model – Having a small army of onsite advisors is a thing of the past. Think of the team as navy seals or commandos vs. a large army. A small but effective team can be rapidly deployed and most of the time, that is all you need. Can some of the tasks be done offsite? Can some of the resources be assigned part time? If you can utilize an advisor in a leveraged approach you may be able to obtain just the right expertise for a lower cost. The key is to balance the right amount of engagement and project knowledge that you get from a fulltime, on site advisor vs. a leveraged one. This can be difficult depending on the schedule, but working closely with the advisor using a creative approach can make a big difference in value. Utilize a flexible agreement that allows you to end the services with relatively short notice. If the advisory firm is not delivering value, you should not be obligated to keep them around. A longer term agreement may lead to lower prices but just make sure you have the ability to ramp down the resources with reasonable notice.

I may be inherently biased about this topic since I am an advisor, but I did spend some years as a client where I also used advisors and I have seen savvy clients manage consultants well. I was very particular about the firm and individual advisors I utilized. I found it was most effective if I used the best available resource, in the right deployment, complemented my own team, assigned them the right tasks and roles, and measured their contributions. So take a little time to find the right advisors for the project, use them properly, and hold them accountable for deliverables and you will optimize the value you receive from advisors.

Tony Mataya has been in the IT and outsourcing advisory industry for over 25 years as a supplier, client, and advisor. Currently, Mataya is Managing Partner for ThinkSolutions, Inc., an innovative management consulting firm that assists clients with improving agility, cost structure, and overall business performance through transformation and sourcing.

 

 

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