Days that Outsourcing Buyers Want to Forget – Study Reveals Important Factors in Service Provider Selection Criteria | Article
You know the feelings that surround a day you’d like to forget. Stress. Anxiety. Embarrassment. Regret. Revisiting a decision. Now place all of that in the context of an outsourcing relationship on a day when something goes wrong – really wrong. A revenue-generating, ERP, or payroll system goes down. A hurricane or tsunami wipes out crucial resources. A data privacy breach occurs. Invoices are sent with incorrect amounts. A parking garage collapses on top of a data center. A dissatisfied user shows up, toting a weapon. And add to the bad feelings of stress, anxiety, etc. the negative “noise” from stakeholders.
All of that and more is the focus of several comments from 65 buyers of outsourcing services who participated in Outsourcing Center’s 2009 Outsourcing Excellence Awards study. A question in the study asked each buyer to describe what happened on a day they would like to forget in their relationship. More than half of the participants reported very dramatic events – and most with large cost impacts; the remainder stated they experienced “unwanted” events but nothing so consequential that they hope they can forget it (see Exhibit 1).
Exhibit 1: Percentage of buyers that had days they would like to forget
For a description of important service provider characteristics that come into play when challenges arise in an outsourcing relationship, download Outsourcing Decision Perspectives on Service Provider Selection.
How the parties worked through their situations to recover from the events is important information, but not from the angle of what they did as much as why they did it. In analyzing the “why,” the study revealed some important criteria for buyers to consider when selecting an outsourcing service provider.
The study revealed three primary types of causes for the events that happened on the days the buyers would like to forget. As Exhibit 2 shows, the majority of the causes were associated with technology failures or miscellaneous causes such as hurricanes or unanticipated attrition. Only about 25 percent of the events were “avoidable” and happened because of human error.
Exhibit 2: Types of causes of events studied
Exhibit 3 breaks down the percentage of responsibility for the events in the percent of human errors indicated in Exhibit 2. It is natural that the service provider bears the most responsibility because it is the party handling the outsourced process and also owning or responsible for much of the technology enabling the process.
Exhibit 3: Responsibility for human errors in events studied
Unanticipated events are inevitable in an outsourcing relationship. How the parties address the issues surrounding the event is always a valuable opportunity for partnering.
But during the time it takes the parties to diagnose and address the issue, the buyer incurs a lot of angst among its user base, its executives, and sometimes its customers. The event may even be one that results in news for media coverage. And it may have lasting consequences in the impression it creates. Several buyers in the study described their situations as follows:
- “There is pressure from everybody to solve the problem, and the answer is not obvious.”
- “Since you’ve outsourced, you no longer have everything under your control, and you don’t know if or how you can help your outsourcing provider solve the problem.”
- “The message that users took away from the incident was that the provider can’t do the work as well as our employees.”
- “It put us into a productivity hole.”
- “We were only down for one day, but because of all the turmoil it felt like several weeks.”
- “Several other important projects were dependent on that project, and I had to answer to our CEO for it.”
- “It was one of those days where all the naysayers around outsourcing got their chance to say ‘I told you so.'”
- “It was a very, very, very difficult time.”
Service providers are not equal in the way they address problems
Once the parties get to the point where they understand exactly what the issue is, they still need to determine how to address it. That is where an important differentiator occurs because of the buyer’s selection of an outsourcing service provider.
The study found that addressing the problems resulting from the incidents the buyers described did not depend on the level of severity. It also did not depend on which party was responsible for the problem. Nor did it depend on flexibility, as all of the buyers stated their service providers were flexible.
The buyers’ descriptions of the timing as well as the amount of effort and capital that service providers expended in addressing the incidents depended on a service provider’s mindset.
Another question in the study asked the buyers to select among four terms to describe their relationship based primarily on the performance and outcomes to date. The four terms were roller-coaster, waiting, balancing the scales, and passion. As Exhibit 4 displays, the majority of the buyers characterized their providers’ performance as “balancing the scales” or “passion.”
Exhibit 4: Buyers’ description of performance and outcomes
Both mindsets – “balancing the scales” or “passion” – are effective approaches to addressing problems as well as opportunities in an outsourcing relationship. And both result in decisions to “do what it takes to get the job done.” Both result in successful relationships.
However, the study found that in every case where “passion” characterized performance and approach, the parties resolved the issues around the incidents more effectively.
The study participants also described how a “passion” or “balancing the scales” approach deals with the volatility or stability in their relationships. Hence, the implication is that these characteristics are important decision criteria for buyers in initially selecting an outsourcing partner or in deciding whether to renew a contract, depending on the degree of stability or volatility they anticipate in their outsourcing objectives.
For more information about the study participants’ descriptions of service provider mindsets, download Outsourcing Decision Perspectives on Service Provider Selection.
How the study was conducted: Outsourcing Center studied comments provided during 2009 by customers in 65 IT and business process outsourcing relationships worldwide, whose outsourcing relationships had been in place for longer than one year. The information was provided in telephone interviews of each buyer.
Lessons from the Outsourcing Journal:
- The majority of problem incidents in an outsourcing relationship arise from technology failures, natural disasters, or other unanticipated, unavoidable causes rather than avoidable human error. Regardless of the cause or which party is responsible, buyers will need to deal with the negative impact the incident creates on end users and executives who are naysayers about outsourcing.
- Addressing issues around problem incidents requires a significant amount of effort and, often, a capital investment that one or both parties need to bear. There is a difference in the effectiveness of the problem resolution based on the service provider’s mindset of “passion” or of “balancing the scales” when approaching problems.
- A service provider’s mindset toward resolving problems is an important criterion when selecting a provider, especially considering the degree of stability or volatility the buyer anticipates in the outsourcing engagement.