All outsourcing relationships are adversarial in nature because vendors want to be paid as much as possible for delivering as little service as possible, while customers want as much service as possible for as little money as possible. That, in a nutshell, is how Dean Davison, analyst, Meta Group, sees the industry.
“If we take that as an underlying assumption,” he said, “what we really have to do to overcome that adversarial relationship is to make sure that the contract and service levels transcend those individual objectives. Then you end up with the vendor getting paid for doing what is most important to the client.”
Attempts to accomplish that goal are what has driven experimentation with different types of contracts, according to Davison. He cited the contract between EDS and the City of Chicago as one of those experiments.
“EDS is effectively paid on commission,” he said. “They’re paid a certain amount per overdue traffic ticket they collect. EDS put into place the mechanisms to do that, and they get paid on the success of their organization.”
While that deal is “pretty straightforward,” Davison said similar structures can breed adversarial relationships because of the difficulty in measuring success in such areas as service levels, performance statistics, availability and responsiveness.
“It’s the classic problem that all IT organizations face,” said Davison. “The network was available for 97.5 percent of the time, but a building in Philadelphia was down for two whole weeks. You run into these dilemmas of people not believing the numbers, because they’ve had some negative experiences themselves.”
Although conflict can begin with the negotiation and vendor selection and continue through mistrust of the validity of measurement metrics, those are not the only points of contention.†
“There are all sorts of places, ways and manners for a relationship to remain adversarial,” said Davison, “including the frustration that comes from a vendor that doesn’t appear to be responsive even though they may be meeting service levels or a vendor who’s unwilling to adapt to new requirements or specifications that are needed by the business, even though they may be meeting the service levels of the original agreement.”
When It’s Broken…
In discussing how to ‘fix’ adversarial relationships, Davison falls back on one of his favorite outsourcing analogies, marriage. As in a marriage, he said, the partners “have to talk a lot, communicate, have to understand the needs and objectives of both people in the relationship.”†
“So the IT organization has to understand that the vendor needs to make money and that they’ll probably want to increase the revenue they’re making on the account over time,” he said. “The vendor needs to understand that there’s a certain amount of fixed budget and that they’re going to be perceived as encroaching and aggressive if they seek new business opportunities with the client.”
A Two-Way Street
The best relationships, according to Davison, are the ones where the vendor and customer understand each other and talk about their relationship. In those situations, he said, the internal relationship manager frequently becomes an advocate for the outsourcer and, in internal meetings, suggests new business opportunities for the vendor.
“But that doesn’t happen,” said Davison, “if you can’t transcend the tooth-and-nails fighting that can go on.”
The benefits cut both ways, according to Davison. In smoothly functioning relationships, he often sees vendors who understand the concerns and dynamics of what the IT organization is trying to accomplish, whether they’re trying to save money, improve performance levels or attain some other goal.†
“If the vendor understands that,” said Davison, “they can help the IT organization by focusing on those issues and by helping provide statistics and analyses to show how they have done. So the vendor makes themselves successful by making the people who manage the relationship within the client company successful.”
Trust is a necessary component in such relationships. When that trust is absent, the relationship can deteriorate. In those situations, Davison said, both parties should hark back to the marriage analogy.
“If the only thing you have is an adversarial relationship, then you have a problem, and you probably should seek the equivalent of marriage counseling,” he said. “Admit that you aren’t getting along and get some third party in there to help find some common ground and get back to where you can be a functional, productive relationship again.”
Walls That Divide
What happens, said Davison, is that people build up walls instead of communicating and then start defending those walls. When people fail to break out of those ruts, he said, the confrontational relationship ultimately ends up in court or arbitration.
“That may not happen with the first relationship manager,” Davison said, “but maybe in five years when two more rounds of people on both sides have begun to manage the relationship, they may not even remember why they outsourced in the first place. So they start gnawing at each other and end up in court or arbitration, which is very expensive and counter productive. “That’s not a relationship; that’s just conflict and confusion.”
Although the adversarial nature of outsourcing relationships can be tempered with open communication and the development of trust, Davison cautions that even the best of relationships still will face some conflict. “There still will be things they have to negotiate, problems they have to solve,” he said. “There are going to be mistakes on both sides, but they have to be tolerant and understanding.”
Two steps can be taken in the initial negotiations to forestall some of the conflict, according to Davison. He recommends that customers reserve the right to choose the account manager and that problem resolution procedures be clearly outlined. “The process takes the personal attack out of those situations,” he said.
Meetings tell the story of the nature of a relationship, according to Davison.
“As I travel around and sit in with IT organizations around the country and the world, I can tell who has a compatible and who has a confrontational relationship just by where they sit in the room,” he said. “Do they sit next to each other and talk about how their weekends went and how their kids’ ball games came out, or do they sit across the table and look like this is the last place they want to be. It’s very obvious.”
Lessons from the Outsourcing Primer:
- Although outsourcing relationships a re adversarial in nature, steps can be taken to transcend individual objectives.
- Communication is key to minimizing conflict.
- Each party in a relationship needs to understand and appreciate the other’s needs.
- Trust is a necessary component in an effective relationship.
- Even the best relationships will face some conflict.