No other TEM process has greater impact on your long-term telecom expenses than sourcing, which helps you secure best-in-market contract rates, terms, and conditions. Successful sourcing is a deceptively simple term to describe the negotiations process for a whole set of outsourced TEM services. Success comes when you need what you actually buy, buy only what you need, and pay what you should. It is the elusive, yet golden ring of telecom contract negotiations.
How does it happen? Not by luck I can assure you. But rather, a successful sourcing project involves a number of steps, each building on the one that precedes it. You need to pass through one to get to the other. No skipping, short cuts or assumptions.
Let’s give a high level look at the seven and then I will focus on the third one, benchmarking, to address why it’s important and how companies can be led astray with incomplete approaches.
1. Assess Current Environment
Start by assessing your overall situation – including current contractual, technology and business environment – focusing on telecom infrastructure and services and their cost and value to the enterprise.
2. Build Demand Set of In-scope Services
It is important to establish a baseline of your telecom demand by taking inventory of your in-scope services, including:
3. Benchmark Rates, Key Terms & Conditions
Benchmarking compares your rates, terms, and conditions against the best available for similar spend in your market. The benchmark database you rely on is key to the success of this step and the validity of your sourcing targets.
4. Analyze Service Optimization
Next, determine the most cost-effective way to acquire the services you really need. For example, can you reduce cost or improve service by migrating from switched to dedicated T1.5 facilities? Are your wireless pools and plans providing the voice, text, and data services you need, while minimizing overages.
5. Develop Sourcing Strategy
Now that you have a handle on your needs and optimization objectives, it’s time to look beyond pricing to the vendors, contract terms, and offer type (full or limited RFP) that will meet your requirements.
6. Manage Competitive Bid Process
This step is essentially a weeding out process, by which you evaluate vendors and their offers on the basis of their ability to meet your requirements.
7. Negotiate Contract
Here’s where all the previous steps pay off – in a contract that secures best-in-market rates and terms for the services you require.
The single most critical step in sourcing can be benchmarking. It answers the question of how to define success in contract negotiation. Benchmarking enables you to compare your rates, terms, and conditions against the best available for similar spend in your market.
Is a 15% overall cost reduction a win? Is expecting 33% realistic? What is the market price for interstate-dedicated toll free service? How much should I pay for a SIP concurrent talk path? Should I agree to an 80% commitment level? Benchmarking gives you the answers.
Most corporations do not have visibility into the true state of the market relative to pricing, terms and conditions. You probably won’t find benchmarking data by searching the web or talking to friends. Negotiating telecommunications contracts is totally different from sourcing computers, office furniture, etc. These contracts are negotiated infrequently, terms are not standard commodities, and vendors have various names for similar services. This makes it difficult to compare the offerings of multiple vendors.
Truly accurate market information can only be gathered from working with a large base of corporations over time, helping them manage their telecommunications costs on a daily basis, and supporting their sourcing and optimization initiatives. This creates a large, reliable source of benchmark data. Some people believe market research firms are capable of obtaining this information with a high degree of accuracy, but are you really going to trust information gathered through anonymous online surveys or phone interviews?
Benchmarking is the key to successful telecom sourcing – it’s the only way to define realistic, best-in-market rates, terms, and conditions you should aim for. But benchmarking requires highly specialized market information that is hard to come by. So when you are considering a sourcing engagement, make sure you ask your vendors about their benchmark database – the number of years and contracts it represents. When it comes to data, there’s no substitute for top-notch benchmark data…or the sourcing outsourcer who can bring it to bear on your behalf.
For more on how to benchmark in telecom sourcing, download our whitepaper. It provides some of the risks and pitfalls organizations need to avoid to gather reliable benchmarking data.