Should service be bought standard or custom?

For software buyers, this is a standard question: "Do I buy a standard package or do I do custom development?" The more nuanced version of this question is: "How much do I customize the standard package?"

In the outsourcing world, we're seeing the same sorts of questions being asked. When is it appropriate for a service buyer to buy the standard service provider offering, and when should they require changes to that offering? If we link this to the 3C framework I wrote about some weeks back, we have a decision approach for this question.

As with any decision that has implications over time, it is crucial to have clear objectives, especially in terms of the 3Cs of "cost, capability and capacity". In addition, there is a strong need to understand the implications of customizations on the long-term profile of all the 3Cs--something that is easy to forget in the heat of negotiating a first transaction.

For example, a heavily customized service offering not only typically costs more, it can also lead to reduced capacity as the service provider finds it more difficult and costly to assign its staff to deal with short-term demand spikes.

Likewise, the ability to leverage capability enhancements, something that is reasonable to expect of every leading service provider, becomes more difficult if the services have been heavily customized.

How will you answer this question and which framework will you use to help you develop that answer?

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Michael Rehkopf

Michael has more than 20 years of experience in operations, strategy and sourcing covering all major parts of the globe. He has also worked for Australian, Canadian, German and Japanese companies in both business process outsourcing and IT outsourcing.
Michael's industry experience includes the financial services, manufacturing, telecommunications and travel sectors. He leverages this diverse industry experience and his university background in accounting, IT and his Master of Dispute Resolution, to assist clients in the development of business strategies and the implementation of sourcing strategies. These include the associated evaluation, negotiation and organizational change.
Michael is currently a partner at TPI, the world's oldest and largest sourcing advisory firm. Prior to joining TPI, Michael held leadership positions with Siemens Business Services, OpenPlus International, Mitsubishi Electric and Netron.