Eliminate Outsourcing Angst: Two Vital Steps to Effective Third-Party Engagement

by John Bober and Rita Garwood August 2019
Engaging professional service providers is common in the equipment finance and leasing industry, but as the capabilities of these firms have expanded, the decision to outsource has become more complex. Monitor assembled a panel of experts who discuss the two vital steps of third-party engagement: deciding if a project should be outsourced and choosing the right provider.

In the early 20th century, a self-contained business philosophy — epitomized by Henry Ford’s development of the River Rouge Complex — was common practice. But as the years passed, business leaders began to realize the importance of being open to the world and utilizing the knowledge and experience that existed outside the four walls of their businesses. Today, unless you want to roll back the clock, you probably run your business with the help of third parties and rely on professional services and advisory firms for advice and expertise.

For many years, leasing and finance companies have engaged accounting, appraisal, legal and tax professional service firms, often on a transactional basis, to supplement in-house knowledge and experience. But times — and capabilities — have changed.

While our industry continues to call upon these firms for their technical knowledge, we also seek their assistance with business activities and processes. In response, third-party firms have broadened the scope of their services to include the business solutions their clients need. Today, companies continue to seek solutions within a relatively narrow field, but the vision for the third-party role has changed.

Unfortunately, a one-size-fits-all formula for engaging a firm doesn’t exist. Since the scope of services can vary greatly depending on a company’s needs, the engagement might involve technical advice, project management, an outsourcing arrangement or a combination of these components.

On the positive side, companies can keep best practices top of mind while deciding to outsource and selecting a professional services firm. This article outlines two vital steps in this process:

  1. The critical questions leaders must ask themselves, and their teams, before engaging a firm — particularly vendors specializing in accounting, IT and business processes.
  2. Trends to consider while establishing the nature of the engagement, plus several hot-button issues companies often encounter while selecting a professional services firm.

Monitor assembled an experienced group of leaders from several finance and leasing companies to weigh in on these major issues: Kyle Elken, controller, and Peter Smith, global procurement manager, DLL; Joseph Guage, CFO, First American Equipment Finance; and Vincent Tesoriero, vice president, corporate controller, Marlin Capital Solutions.

Step 1: Ask the Critical Questions

Should we outsource?

Evaluating which work should be done in-house and which activities need outside expertise requires a firm grasp of the day-to-day processes that doing business actually entails. You must consider your company’s capabilities, experience, capacity and risk levels along with the costs and benefits of seeking outside help versus utilizing internal solutions.

Sometimes the decision arrives easily when you realize that your company has the capabilities and experience to tackle certain projects but lacks the time and available resources to solve the problem effectively.

Several guiding questions can help your company make the right decision about outsourcing:

  • Do we have the resources to accomplish the task or to unearth the answer?
  • Do we have gaps in our knowledge and experience?
  • Is the need recurring or is it a one-off?
  • If we bring the activity in house, can we stay current?

For projects involving knowledge-based areas, such as the accounting, legal and tax fields, you may be able to staff these functions, but keeping employees current in their fields and offering them a solid career path may be difficult. This may lead to long-term dissatisfaction and turnover, which is very expensive. While the short-term cost of engaging a professional services firm may appear higher than a home-grown solution at first, the cost savings will quickly disappear when these longer-term considerations are taken into account.

What is the scope of this project?

Hand-in-hand with resourcing, you must also consider project scope. Ultimately, determining where a project begins and ends, as well as establishing boundaries, are the most critical decisions that “directly impact the success of the project” as Tesoriero observes. He also advises that “having the proper framework and oversight” for scoping, selection of a service provider and project oversight “makes the process more efficient and consistent, especially for critical projects and critical vendor selection.”

If the project is within a single area, such as tax structuring, then the oversight framework will be easy to organize around the finance and tax function. However, if it involves several different teams and functions, more formalized governance will be required. This may appear bureaucratic, but it is critical to the process.

How much is a third-party’s knowledge worth?

One of the perks of engaging a third party is benefitting from their knowledge and experience. A company may have deep knowledge around its operations and market, but it does not always have access to broader market and management trends. Conversely, professional service firms are well-versed in current trends and make it their business to keep up with new and developing market phenomena.

Similarly, firms specializing in business processes have broad experience from serving a series of clients and engagements. While companies may be aware of these perks, they should seek to maximize the benefits gained from third-party interactions. As Guage observes, these benefits should be “equally weighted in the evaluation of the value proposition.” Whether the engagement involves a technical or process matter, companies and their employees gain when third-party interactions help to train and develop in-house talent.

Step 2: Selecting the Right Service Provider

Once your company has decided to engage a third-party vendor and outlined the project’s scope, the next step is selecting the right firm. Once again, a one-size-fits-all model does not exist as the needs and preferences of companies can vary greatly. Establishing a list of firms that have the basic qualifications for the task is a starting point. The hard work begins in the next step, after you apply a series of screens.

Some factors to consider include:

  • Do we need subject matter expertise, or is this a process-oriented project?
  • Does the question require coordination among functions?
  • Is this a discrete need, or is it part of a more complex evaluation?

The answers to these questions will guide you down the right path. The more specialized the issue, the less coordination required and the more discrete the project, the more likely your evaluation may encompass boutique firms. On the flip side, a broad, process-oriented project that requires coordination among functions will likely require firms with broad capabilities and scope.

Creating a screening process

One business leader, who has engaged and supervised both professional service and outsourcing firms, bases his selection process on two factors, a risk assessment for the business and business needs. His screening process follows:

  • If the engagement is significant to the business, the advice is highly differentiated and/or if the experience is highly dependent upon one individual or his/her team, then the choice of advisors is highly personal. This is often the case in transactions that are significant and critical to the business’ success, such as significant investments or acquisitions.
  • If the engagement is a large-scale project and/or a longer-term outsourcing arrangement, then the firm’s resume, experience and reputation are of greatest importance.
  • If the need to engage a professional services firm is related to supporting management’s judgements, the selection is based upon both reputation and cost considerations.

This screening process illustrates how one person weighs the inputs in the selection process, in particular which characteristics guide the decision to engage a firm or an individual.

Data privacy and risk management 

Reputation and pedigree are elements that deserves more focus. Bringing a third party into your business gives them access to confidential information, which, according to Guage, leads to a number of questions regarding data security and management.

Others shared these concerns, including Elken and Smith, who note, “The ability of the supplier to protect data and agree to data privacy policies is very important.” Professional service firms in legal, tax, accounting and valuation are accustomed to guarding confidential information, but new players may be less sensitized, or they may even seek ways to profit from your data.

Ultimately, a company must perform due diligence regarding a service firm’s methods of managing your data and risk. As Guage notes, “If you are going to be reliant on the third party for critical business processes, we would ask a lot of questions regarding business continuity.”

Concerns pointing to accountability and continuity were also important to other leaders interviewed for this article. Professional service firms and other advisors are always changing, and, as mentioned earlier, firms are shifting from providing specific advice or services into a broader range of business solutions.

Tesoriero adds that your business and the capabilities and business lines of the third-party firm may change over time. “Not only is it important to assess the professional services firm at initial selection, but it is also important to periodically re-assess the quality and adequacy of service levels being provided relative to your company’s ongoing and changing requirements,” he says.

Determining the width of the net your company casts in the selection process must also be tackled. A company could sole source the work, solicit engagement through a broad-based RFP or opt for a strategy that falls between these ends of the spectrum.

Smith explains that a company can follow many paths. “If the services are provided by a preferred supplier where a proper master agreement is in place, the service could be sole sourced through an incumbent supplier,” he says. “If the service is new, but low risk/spend and there are several options of suppliers who provide the service, an informal RFx (i.e. RFQ/RFI) could be followed. For those services that are risky, high spend and/or strategic, following a formal RFP process is appropriate.” In essence, the path depends upon the spend, risk, timeline, availability of services and resources available to devote to a formal RFP process.


By following the steps outlined in this article, your company will be able to determine if you need to engage a professional service provider and choose the right firm to meet your needs. And with effective oversight, your company will reap the ongoing benefits of expanding beyond your in-house limits and embracing the wealth of knowledge and experience that third parties provide. •

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