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Given today's demand for outsourcing, it is probably fair to say that there will be a number of potential service providers bidding for your business.

Characteristics of service providers

Existing service providers will have two significant characteristics:

1. Experience in providing the services that you need.
2. Compulsion to have you as a customer.

It is useful to place these characteristics in a matrix as follows.

Figure 53.1: Capability and attitude

Here, you can rate each service provider in the following terms.

1. Do they have the capability to perform the services? You can rate them from "inexperienced" to "proven".
2. Will you be a significant customer for them? You can rate them from "indifferent" to "eager."

Scanning the market

This exercise need not be long and involved and certainly should not involve issuing tender documents.

List the service providers

First, you should obtain a list of the potential service providers.

You can do this through a public announcement. In some circumstances, you may have to make a public announcement as part of ensuring "contestability"; this can be true of government ministries, departments and agencies.

Alternatively, you may be able to do it through trade advertising, through your contacts and networks, or through finding out which service providers are used by organizations you admire.

Determine their capabilities

Second, you should determine the service providers' capability to provide the services that you seek.

You can do this by talking to their existing customers.

Assess their attitude

Third, you should assess their attitude to you. You can base your estimate on how many other customers they have, how significant the revenues from you will be to them, and whether you will be a minor or a significant customer to them.

Examining the Relationship

You can now examine the relationship that you wish to have with your service provider.

Figure 53.2: Examining the relationship

Proven, indifferent

Service provider "A" has great competence in providing the services. You will probably not be a major customer to "A".

This implies that there is unlikely to be a much opportunity for you to transfer assets and people to "A". It is probable that "A" will offer a standard service, based on its current infrastructure, without a need for additional staff. As a result, you may have to consider your staff issues more closely when dealing with "A".

Even if you did not develop a closeness with "A", it could be an excellent choice to provide services that were "useful commodities" to your business.

Proven, eager

Service provider "B" is more likely to consider acquiring your staff and assets.

It is common to find that the service providers to whom you will be a significant customer will have a lower capability than those like "A". This is not a problem, if you recognise that providers like "B" need customers like you in order to increase their capability and accept that you may have to assist them to gain that capability.

What can be a problem is that, as "B" welcomes more customers like you, it may become more capable but you may become less significant. They would thus tend to move to be more like "A", occupying the top left quadrant. This is a matter for your agreements and contracts with "B".

"B" may be a good choice for delivering "critical commodities". You may not be prepared to take such a "hands-off" attitude with critical commodities as you would with useful commodities, so "B" could be a good match for you. As your confidence with outsourcing your critical commodities rises, you may become happier with a "hands-off" attitude towards them. This could match a rise in the capability of "B" and a decrease in their day-to-day involvement with you.

Inexperienced, eager

Service provider "C" is even more likely to consider acquiring your assets and staff, as this is usually the profile of a new start-up.

You will have to decide whether you wish to outsource to an established provider or to a new entrant. Your agreements and contracts with a new entrant could ensure that you share its benefits from any new customers; you would act as a reference for the provider in its sales efforts, and it would reward you for increased business on a "gain-sharing" basis. Gain-sharing is not a revolutionary concept in outsourcing, and is useful in ensuring that new entrants can establish themselves against the existing, stronger players.

There is no service provider shown in the fourth and final quadrant. You really do not want to do business with someone who has no existing proven capability and no strong motivation to work with you. (This, of course, applies beyond outsourcing.)

It is useful to complete this exercise before you make decisions about what you would like to happen. If you have already decided what it is that you want to do but there is no service provider available to do what you want, then you may be tempted to consider creating a new service provider yourself. By scanning the market first, you can make decisions based upon what you can get.

Setting the expectation

The expectation of what a service provider will do can now be set.

Figure 53.3: Sample matrix

The matrix for service providers may look like this, with most of them clustered in the top-left quadrant. In this case, most service providers are likely to be large, established organizations who can provide proven capability in managing functions that are useful commodities for your business.

Figure 53.4: Sample matrix

Alternatively, it may look like this, with most of them clustered lower in the top-right quadrant. In this case, most service providers are likely to be smaller, less experienced organizations who can provide some capability in managing functions and who will be keen to grow. Because of the preferential deals that you can strike with such outsourcers, they may be better able to approach the outsourcing of functions that have a bearing on your own competitiveness.

Naturally, all of this is only for guidance, but the shape of market will largely dictate what the market can do for you.

Examples

You can find several highly competent service providers with a large customer base in areas such as finance, catering, fleet management, cleaning and maintenance, and non-core information systems.

These functions are all likely to be useful commodities in your organization.

You are more likely to find smaller, newer, more specialized service providers in areas such as fixed asset management, inventory management, and information systems that support core activities.

Increasingly, however, these functions are being supported by larger providers, who have grown over the past few years. Any list of this kind becomes out-of-date rapidly.