Empower the Project Team

There is often a big gulf between senior decision makers on the Project Steering Committee and the team leading the outsourcing process. Senior people determine their business objectives and set strategic direction but have limited knowledge about how service providers deliver services. The outsourcing project team works very hard to deliver what they believe senior executives want. The team may feel reluctant to propose alternatives to the Project Steering Committee if the alternatives aren’t exactly what senior management asked for. As a result, in their quest to deliver what the Project Steering Committee asked for, they may require customized processes that disregard the service provider’s proven processes. The project timeline stretches out while the service provider tries to develop customized processes or the project team spends unrecoverable time backtracking to redesign parts of the solution.

The best way to avoid this totally unnecessary slow down is to spend time up front establishing ground rules for the Steering Committee, project team and the service provider, building trust and empowering the team. Good leaders delegate real authority, actively listen and build trust. Senior leaders need to be aware of their positional power and ask the right questions, and the outsourcing team and the service provider need to feel comfortable raising issues and proposing solutions.

Do your Homework

The decisions made when establishing an outsourcing relationship have a long-term impact on your company.  Service delivery is the service provider’s core competence; time and again I’ve seen the buyer succumb to the temptation of letting a service provider guide their decisions regarding in-scope services and how those services will be delivered. This is particularly true when there is a pre-existing relationship or when the business development lead has exceptional relationship-building skills. This approach often seems like a great time saver because the service provider appears to have all the answers. When entering into any type of outsourcing relationship — large or small — it’s always a case of pay me now or pay me later.

The time you invest in external market research, emerging competitors and solutions, site visits to service providers’ customers and developing exit scenarios is time well spent. Internally, it will save you time and money if you invest in a detailed current state assessment, which includes baseline costs, systems and process documentation, service standards and performance data, employee profiles and so on. Investing in these two steps allows you to develop a fact-based point of view in the context of your organization. You will make better long-term decisions about which service provider is the best fit, which of the service provider’s capabilities and services you will evaluate, and which solution will help you achieve your goals. Your investment in market research and competitive intelligence ensures that your expectations and the provider’s ability to deliver are well aligned. In the long run, you’ll have realistic expectations and save both time and money. Travelling in a straight line is always the shortest route.

Invest in Governance

Transition and change management plans invariably lay out detailed plans and controls for orderly transition to new technology, processes and workflow. They include detailed internal communication strategies and user training. Intense discussions take place and energy is invested in developing detailed employee retention agreements and severance packages, followed by timed communications about job elimination. Typically, limited resources are invested in developing good governance and management practices and protocols. Sometimes this important work isn’t started until transition is underway.

While you can get by with weak governance processes, you are denying your organization and your service provider feedback. This minimizes the likelihood that you will ever reach high levels of performance and systematically engage in continuous improvement activities with your provider. The provider will invest their time and energy in those clients that have good practices and allow them to thrive and grow.

In the absence of thoughtful governance, you’re placing a whole lot of faith in the service provider to meet your sometimes changeable expectations. The only predictable route to excellence is investing in governance – the controls, tools, competencies and communication processes necessary for proficient supplier management and a healthy relationship with your service provider.

Conclusion

It may seem counter intuitive that you can shorten the timeline to achieving your outsourcing goals by spending more time in three key areas. Empowered project teams craft better solutions. Informed leaders make better decisions. And comprehensive governance programs ensure you and your service provider stay focused on all the right things.

Linda Tuck Chapman is a seasoned Outsourcing Advisor and Governance expert. You can reach Linda at (416) 452-4635, lindatuckchapman@ONTALA.com or visit ONTALA Performance Solutions at www.ONTALA.com

Clients and providers must now develop outsourcing contract renegotiation skills as part of their core competencies in order to ensure the provider’s services are aligned with the client’s needs in terms of price and performance, and the client is prepared for the future in terms of technology platforms and geo-political risk management.

This white paper discusses how to set the right relationships and contract governance processes in place in order to quickly and adequately manage any issues or concerns that may come up during the outsourcing contract renegotiation process.

Click here to download the White Paper.

A weak rupee, for example, theoretically boosts the top line of Indian service providers while their clients see no benefit, and a stronger rupee should erode their margins. However, most providers each have their own complicated long-term currency hedging strategies in place, meaning some will fare better during currency fluctuations either way in the short term while others will take a hit. At the same time, Indian providers are spending an increasing amount in U.S. dollars to pay for growing operations stateside and must import software and hardware to run its operations on the subcontinent, both of which cost more when the rupee falls.

“The global recession created a volatile market for currencies,” says Ben Trowbridge, founder and CEO of outsourcing consultancy Alsbridge. “Understanding how to manage these risks is extremely challenging for companies as well as the providers.”

“Currency fluctuations may be less of an issue today because of the tendency to sign shorter deals,” says Helen Huntley, research vice president with Gartner. Neither outsourcing party is locked into inflexible contract pricing for seven to ten years the way they were in the past. “However,” continues Huntley, “we do know currency fluctuations can impact deal pricing.”

“Offshore outsourcing clients are beginning to incorporate currency risk clauses into their contracts,” Huntley says. There are several options for addressing the issue of foreign exchange rates in an outsourcing deal.

The least risky is a currency risk-sharing clause. Such a term ensures that neither the customer nor the supplier is advantaged or disadvantaged as a result of vacillating currency values during the course of the contract term, according to Huntley. The clause should provide a method for calculation—for example, the mid-point rates of the day before the invoicing date as published by Bloomberg. The provision further cites which party will be initially responsible for exchange rate variances—for example the service provider absorbs a plus or minus five percent shift in exchange rate variances, after which the client and service provider then share the variance equally. Such adjustments are usually made on a monthly basis, says Huntley.

Another option is to require the service provider to bear full currency risk. This option—the most common—is popular with smaller and less experienced outsourcing customers who lack the time or talent to hedge foreign exchange rate risk themselves. It’s also a good option for those who want to avoid the uncertainty of potential increases in prices due to exchange rate swings. Under such an arrangement, the provider signs the contract in fixed U.S. dollars regardless of currency value fluctuations. But such a provision comes at a price. “Typically, the provider will increase its price by some amount to cover future currency fluctuations or the costs of hedging the currency risk,” says Trowbridge. If the provider hasn’t built in a safety net, adverse swings in currency valuations could hit the customer in the form of decreased service levels.

At the other end of the spectrum, the client may assume foreign exchange risk. By accepting a contract priced in Indian rupees then converted to the U.S. dollar rate on the day of invoice, the client not only bears the downside risk of adverse exchange rate fluctuations in the form of increased service fees but also acquires potential upside benefits of any favorable changes in exchange rates in the form of lower prices. That’s a roll of the dice some sophisticated multinational clients are willing to make if they have in-house currency hedging and risk management expertise—and one that could be paying off this year.

The most extreme—and rare—exchange rate risk mitigation tactic is a contractual provision giving the customer the right to renegotiate or terminate the deal if the exchange rate shifts beyond a certain threshold. Service providers may be less likely to agree to such a clause because it exposes them to sudden, unavoidable revenue loss.

There is no one right way to address currency issues in an offshore services deal. But as with any aspect of an outsourcing relationship, the goal should be a workable outcome for both the customer and the provider. To figure out what mitigation strategy is best for a particular situation, Gartner advises analyzing historical currency fluctuations between your country and your providers’ countries to determine the potential impact of exchange rates during your contract term and involving internal finance or treasury departments in deciding what option will work best.

Sourcing change management guru Deborah Kops defines change management as, “A structured approach to transitioning stakeholders – organizations, teams and individuals – from one business model to another that incorporates shared services and/or outsourcing to third-party providers. The goal of sourcing change management is to efficiently assist stakeholders to change their ways of working, first adopting, then embracing and expanding the new model in order to deliver a business case.”

In his book “Devil’s Dictionary of Global Sourcing,” outsourcing attorney William Bierce defines it this way: “Change Management, n. 1) pre-agreed protocol for unlocking a stable process, agreeing on modifying it (including corresponding impacts on scope of work, roles and responsibilities, service levels, terms and pricing), and re-freezing the new process; 2) service provider’s toll booth for minting new nickels and dimes; 3) bureaucracy, delay and conflict; 4) trigger for relationship governance and dispute management.”

While Mr. Bierce’s description sounds more like change control than change management (and the entries in his book are to a large extent intended to be hugely entertaining), the reality is that many people use the two terms synonymously. This may in part be because change management in outsourcing is all about getting stakeholders to rapidly comply with the change of control of the outsourced processes.

Some people think it’s pretty PowerPoint presentations and clever communiqués (or posters, mugs and mouse pads, as Kops quipped), but there really are several critical components that define successful outsourcing change management:

• You must have a highly strategic, fully-fledged change management plan, not a tactical program comprised of warm and fuzzy emails from HR or an occasional proclamation written by marketing and delivered by a senior executive. Face it — outsourcing causes significant disruption throughout the organization, and you need to get to the hearts and minds of all, especially those directly impacted, to guard against derailing forces. Additionally, the plan must be constructed and implemented in symmetry within the organization’s corporate context.
• Change management must start on Day One, during initial formulation of the sourcing strategy and business case. If you initiate change management when the transition plan is being developed, at transition or when preparations are being made for the announcement of the outsourcing engagement, you’re heading for a rough ride of resistance and rebellion.
• Every individual on the sourcing team – client organization and service provider members alike – is a change manager. And every team member must be equipped with the knowledge and capabilities to strategize, influence, resolve, listen, intervene and respond to any situation that may arise.

Change management isn’t easy or glamorous. It’s misunderstood, and all too often mismanaged. It’s highly complex, and requires specialized skills and capabilities. But it is an absolute imperative to outsourcing success.

In June 2011 I was interviewing the COO of a California-based bank as part of an application strategy engagement. At the end of the conversation, he asked if Alsbridge had any data on the number of contracts in which the client repatriated all of the services. My answer was, “Off hand I don’t know, but I will find out.” After asking several fellow consultants, I found little or no useful data that would provide a fact-based answer. So, I started digging.The facts uncovered several “AH HA’s!” about the keys to success in outsourcing and the truth about the three R’s of outsourcing.

Click here for a free whitepaper from Alsbridge.

Why Focus on the Value of Contract Terms?

Being able to identify, estimate and articulate the business value of the contract terms in an outsourcing agreement can help you to:

• Make smart choices between lower prices and better contract terms.
• Balance the desire to “get it done now” against the value of “doing it right.”
• Invest appropriate amounts of time and resources in drafting and negotiating contract terms.
• Focus negotiating energy on the high-value contract issues.
• Describe to your leadership why it is worth investing in contract terms and how your negotiating success created value for your company.
• Achieve better results for your company.

The value in contract terms is in securing commitments, obtaining options, aligning incentives and supporting a successful relationship.

Securing Commitments

Contract terms can help to secure a commitment to provide specified products and services at firm prices. That commitment may include contract terms such as sweep clauses, service warranties, rights to make immaterial changes without additional charges, continuous improvement obligations, “all-in” pricing, audit rights, and a clear and complete definition of scope.

Without these contract terms, the pricing is more of a forecast than a commitment. Customers without these contract terms often find themselves compelled to sign change orders and pay unexpected charges to avoid going without vital services.

To estimate the value of one of these provisions, multiply your best estimate of the amount that the supplier could increase charges by exploiting its proposed provision by the probability that the supplier would choose to increase its profits in that way.

Obtaining Options

Contract terms can provide the customer options to, for example, obtain out-of-scope services at reasonable prices, in-source or re-source, change technical or operational requirements, impose reasonable rules and restrictions, relocate customer facilities, change customer technology, adjust prices through benchmarking, have services provided to related companies (including divested companies), terminate the agreement or obtain additional services such as M&A support or termination assistance services.

Options are valuable because they reduce the size and risk of charges for changes; their value increases with the volatility of the markets, which seems to be on the rise. Customers’ financial models tend to overlook the value of options because those models assume that all will go as planned—an increasingly unlikely possibility.

A straightforward approach for calculating the direct economic benefit of an option is by estimating the probability of exercising the option and multiplying that by an estimate of the economic benefit achieved by exercising the option. For example, if the supplier agrees that a termination-for-convenience charge will be reduced by $1 million if related to a change of control, and you estimate a one percent probability that you will terminate related to a change of control, this calculation would be 0.01 x $1,000,000 = $10,000. If you can obtain that provision for less than $10,000, it would be worth obtaining. Scenario analysis, Monte Carlo simulations, the Black-Scholes option pricing model and similar tools can provide better estimates, but even a simple estimate provides better guidance to economic decisions than ignoring the economic effect of contract terms or merely calling it out as a risk.

Another approach to looking at the value of options is to look at whether your business can survive without the ability to change the outsourced part of its operations. As Charles Darwin put it: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”

Aligning Incentives

Contract terms can increase incentives for the supplier to act in the customer’s best interest. Contract terms such as service level credits, deliverable credits, holdbacks, obligations for the supplier to correct its errors at its cost, and indemnities against harm caused by the supplier support a successful relationship by aligning the interests of the supplier and the customer. These incentive provisions can also mitigate potential losses by requiring the supplier to pay some of the customer’s losses.

The value you place on incentives depends on your estimates of (i) the value of achieving your desired business outcome, (ii) the supplier’s ability to help you achieve that outcome, and (iii) the strength of the incentive. These estimates require judgment, so a good approach is to collect and aggregate estimates from people whose judgment your company trusts.

The strength of the incentive depends on its size relative to the supplier’s cost of achieving the desired result. Like you, the supplier is looking at the cost versus risk. For every $1 that you want the supplier to invest in reducing a risk by one percent, the supplier should have at least $100 at risk. Any less might make the potential liability more of a cost of doing business than an incentive.

Supporting a Successful Relationship

Contract terms can also support a successful outsourcing relationship by:

• Building trust. Trust increases when companies are willing to translate their communications into enforceable legal obligations. It is further increased when the contract terms make the two companies, to a degree, accountable to each other as “partners” in sharing the risks and rewards of operating the outsourced scope. Trust allows companies to work seamlessly together.
• Creating alignment on how to work together. Sourcing contracts create complex, multi- faceted relationships. Agreeing on how to work together allows these relationships to succeed across company boundaries. For example, reporting, governance and information rights simplify the communication process; agreeing on how work will be added or removed reduces the friction at important points in the relationship. Issue management and escalation provisions make it easier to resolve disputes.
• Giving you an understanding of where and how the supplier will provide the products and services. Contract terms can help you understand your entire supply chain. For example, they can help you understand which subcontractors will be assisting the supplier and what new risks have been introduced (location, handoffs, labor type, disruption, publicity, etc.).

These contract terms are important to obtain the benefits of the commitments, options and incentives obtained in other contract terms. Their value can be estimated using the tools and ideas described for commitments, options and incentives.

Summary

• The ability to identify, estimate and articulate the business value of the contract terms in an outsourcing agreement leads to better agreements.
• Contract terms provide value by securing the commitment to defined services for a fixed price, providing options, aligning incentives and supporting a successful relationship.
• You can estimate the economic value of contract terms and in doing so help your contracts and your company be more successful.

As a result, we at Alsbridge decided to write this little guide to help anyone involved in outsourcing understand what the main terminology actually means. It isn’t intended to be an exhaustive manual on how to outsource but it should help you understand what the common terms and concepts mean and what they are for. And if you don’t know your ARC’s from your Earnback, this white paper is definitely for you.

Click here to download the free whitepaper by Alsbridge.

Ingredient #1: Flexibility and Willingness to Invest

In addition to being flexible, the award-winning relationships all demonstrated a willingness for service providers to invest additional expertise and even hard dollars to make things work. No nickel and diming here! Interestingly, the majority of relationships faced difficult challenges during transition or in the early days. In every case, openness and honesty on both sides combined with a genuine interest in constructive problem solving laid the foundation for an excellent relationship. And these were not insignificant issues. For example, early in year two of a five-year deal the credit crisis hit the world. The customer asked the service provider to cut their costs. Being sensitive to the commercial needs of each company, the outsourcer recognized they needed to be flexible and creative. They reduced their client’s costs by moving work to the Philippines, which was a new location for the service provider, and met the savings goals. Another similar case was during a client engagement that went through “rocky moments because of the systems integration issues.” When the going got tough, the service provider stepped up to the plate and addressed the necessary issues. They provided the resources their customer needed to do some special recovery work or redesign. In a third case, it became apparent during transition because of major constraints that were unknown during the RFP process that a large body of work was removed from the original contract. The service provider stepped up to the plate, assumed responsibility and gracefully accepted this blow.

What can be learned from these hard lessons? In every case the service provider met their customers’ needs and made the necessary investments to resolve the issues even when it meant reduced profitability. And in every case, the customer was open and honest about their issues and willing to sign-off on appropriate changes to services and the contract. No table pounding, no standoffs.

Ingredient #2: A Personal Sense of Ownership

Service providers and service delivery aren’t always perfect, which leads us to ingredient #2 – personal ownership. What I mean by personal ownership is a willingness to be held accountable for the success of the relationship and the authority to make decisions. For example, a service provider missed their SLAs for three consecutive months, triggering service credits. With many people involved from both sides, the customer and service provider “got into quite a disagreement as to the amount of the service credits and the period they covered.” Too many opinions and politics were getting in the way. Rather than letting the problem put a permanent stain on the relationship, the customer and the service provider assigned one person from each side to reach agreement about what was fair and pragmatic. This gave them a chance to understand the other party’s point of view, to explore options and to appreciate the impact of the final decision. Another example is a service provider’s Operations Manager who really took their customer’s service level expectations seriously. In this case, a third party company proved to be integral to delivering services across the customer’s footprint. The Operations Manager led the process to integrate SLA’s and now oversees total service delivery for the customer. They are now meeting service levels at no additional charge to the customer for this above-and-beyond service. There are countless examples of services failing to meet expectations or even going off the rails. What distinguishes award-winning relationships is the strong sense of ownership, accountability to make things work, and the authority to make decisions.

Ingredient #3: One team, one goal

Fundamentally, these are commercial relationships between two companies. Each one has goals and financial and quality targets they must meet in order to satisfy their own management and shareholders. Consistently these award-winning relationships quickly developed a practice of formally establishing joint annual and long-term goals. These goals generally include commitments to improving service quality, process improvement, and managing financial impact. As one service provider described it, “this is not a perfunctory exercise.” The customer’s Chief Operating Officer and the service provider’s CEO are often directly involved, including approving the joint goals and committing necessary resources. One successful relationship was built on a combination of joint goal setting and what they called “embedding leadership behaviors.” These are five key behaviors that both parties agree to model in everything they do together. Customers pragmatically and universally leveraged their service providers’ capabilities, reaping substantial financial and non-financial benefits year after year. One award-winning customer summed it up by saying that their service provider is able to “add value without adding costs.” And the benefits from the service providers’ perspective are relationships that grow over time in size and complexity, bringing them more revenue, increased profitability and highly referenceable accounts.

Conclusion

There is so much to be learned from these award-winning outsourcing relationships between industry giants. By studying successful relationships and understanding what makes them great, you can avoid common mistakes and stress. It is said that “those who don’t study history are doomed to repeat it.” If you strive for operational excellence, words like cultural fit, trust, efficiency and transparency are just words unless you invest the time and effort needed to figure out what goes into your secret sauce for outsourcing excellence.

Linda Tuck Chapman, President ONTALA Performance Solutions (www.ONTALA.com) is an expert advisor in Outsourcing, Strategic Cost Management, and Vendor Governance. You can reach Linda at (416) 452-4635 or lindatuckchapman@ontala.com.

Determining which of the qualified providers will work best with you requires a close eye during the sales process. I’ve identified six important soft characteristic red flags that can lead to a potentially dysfunctional and damaging relationship. Keeping an eye out for these signs can help you spot a problem before it is too late.

1. Selling rather than solving. Is the provider listening to you and offering what you need to solve your problem? While challenges may be fairly similar from company to company, no two organizations are identical. There will always be nuances in the sourcing context and the organizational culture that calls for more than a cookie-cutter solution. A streamlined, outsourced process may be institutionalized, but how it is applied will be different in each client organization. The provider should be paying close attention to the particulars of how your company operates, not just selling you something that worked for another organization.
2. Telling rather than listening. During the sales process, does the provider want to do all the talking and follow its 80-slide presentation obsessively, squeezing out every last particle of its sales message before letting you get a word in edgewise? A provider’s listening skills and abilities are critical. A strong indicator that it won’t be an innovative provider is if it sells by presenting to you, rather than engaging with you. This could also indicate an inability to listen to your issues during the actual engagement, resulting in a strained, one-way relationship. Whatever the likely cause – immaturity or lack of skills are two likely possibilities – this behavior indicates fissures in any subsequent relationship.
3. Homogeneous rather than diversified. Homogeneity has its advantages (system interoperability, for one), but it is not what you want in a service provider, especially if your company is global. You want a provider with sufficient diversity to understand your cultural nuances. You want the provider’s diversity to mirror yours, with people from around the world of different ages, at different stages in their careers, and with different experiences and skill sets. Fundamentally, people develop the strongest business relationships with those who are like them. So a provider’s diversity – rather than geographic and cultural homogeneity – is important for the long-term growth of a relationship.
4. Complicating rather than simplifying. Does the provider seem to be making the sales process unnecessarily complex? Simplicity is a good thing, and the provider should be able to define its solution in very simple terms. If a provider overcomplicates, it strongly suggests it doesn’t understand your problem. The attempt to add “bells and whistles” and complicate the solution may indicate the provider is trying to exhibit superior insight and intelligence. It is simplicity that demonstrates a clear view, a true understanding of the right path. For example, if you have a simple order-to-cash process and the provider is trying to tack on more features and attachments, with more technology than required, the provider is overselling through a misunderstanding of your needs or because of a desire to broaden the engagement scope. And it’s critical to remember that a complicated solution is less transparent, which in turn creates more governance challenges.
5. Near rather than far. You want a provider with a geographic footprint such that relationships and decision-making are as close to you as possible. Be very wary if the relationship will require all decisions be made offshore. You need someone near you, onshore, with the authority to make decisions, because the farther away decision-making moves from you, the more it loses context and speed. You don’t want to have to wait until the middle of the night for a conversation with someone several time zones distant; you want a solution at the time you need it.
6. Arrogant rather than supplicant. The sales process offers excellent insight into the mindset of a potential provider. If the provider’s sales team overpowers you with arrogance – if it bosses you around, boasting it has solved problems like yours hundreds of times – you have a problem. Yes, on a certain level, the provider will be your partner, but its purpose is to serve you and its behavior should reflect that fact. Remember, the term is “service provider.” It is there to serve you, and that is how the provider should approach the relationship.

By paying close attention to these six potential red flags, you can make sure that a bad relationship never has the chance to get started. Even though a particular provider’s capabilities and expertise may appear to be your best choice, it still must be compatible with your culture, accessible, and interested in listening and serving you with straightforward solutions. Otherwise, you’re certain to pay a painful price over time.

Are you thinking about how to take advantage of the power of global sourcing? Have you signed a deal and then watched as the business case eluded you? Would you benefit from enhancing the sustainability of your supplier relationship(s)? Did you make a big bet on the business value of a long-term sourcing deal that is not producing as you promised?

Getting to a signed contract requires a lot of hard and detailed work. It is, however, only the end of the beginning; there is equally important hard work in preparing for a long-term, mutually beneficial supplier/customer relationship. It takes a lot of thought and effort too.

At Alsbridge we call this thought process Sequoia in deference to the resplendent redwood mammoths that seemingly live forever and remain impervious to weather, disease and anything else that might harm them. Enterprises need to spend as much time and effort sowing the seeds of sustainability and change management as they do in selecting their service provider! Six different elements comprise the ecosystem of Alsbridge’s Sequoia services that include transition readiness, communications management, retained organization design, operational alignment, vendor management and service management. However, detailing the depth and breadth of our Sequoia services is a subject for another conversation.

Today’s increased sophistication, subtlety and nuance in sourcing explains why the sourcing advisory niche, which came into being way back when, is more useful than ever. The pace and magnitude of the change in sourcing is still accelerating. We have a revolutionarily different animal today than we did yesterday or last year. Companies still need help in navigating through the difficult waters.The cost of failure is high in terms of career damage, legal fees to undo, cost of supplier substitution, etc.

A history lesson from the good old days

That was then. This is now!

Close your eyes and reminisce with me on how companies did sourcing in the good old days. More often than not, we called it facilities management. The principals typically crafted the deals themselves instead of using third-party advisors. No one had heard of offshoring; the service provider provided the services domestically.

Companies typically outsourced just payroll and IT. Provider sales-people worked with prospects to build a model of the prospect’s 10-year expense and capital forecast, which was often flush with inflation assumptions that pumped up the target case. Then they provided a price for that same work. Financial engineering was prevalent, creating off balance sheet financing for net present valued savings streams that they often monetized on day one.

Headlines in the Wall Street Journal read, “Company ABC signs 10-year $2 billion outsourcing deal with HGN, gets upfront check for $120 million.” Ten-year deals were the norm. The parties used external counsel to write an airtight contract.

And then came the dawning of the age of sourcing advisory firms. A niche industry was born. Early days saw inflexible, overly process-bound, highly controlled deal management. Selling became a lost art. Win/lose was the order of the day, with the providers finding it hard to eke out a profit. Contracts were confrontational and one sided. Contacting the prospect executives outside of the process was grounds for provider elimination from the competition. Customers got firm deals with clear economics, but the providers were often unsure if they should be happy if they won a deal. Often they saw future change orders as the only path to reasonable profit.

Today, we see a global palette of potential providers. Thomas Friedman explained this in his book “The World is Flat.” We have seen whole continents come to the party with highly educated professionals who permanently changed the labor equation and cost structure. Labor arbitrage routinely delivers savings, often upwards of 60 percent. The arrival of these new players caused people to think IP protection, geopolitical stability, exchange rate fluctuations, follow-the-sun work possibilities, cultural alignment, etc. in a different way.

These days we routinely see companies sourcing finance and accounting, HR, legal, procurement, customer care, pharmaceutical R&D, medical diagnostic imaging interpretation and even logistics. We have nearshore, offshore, shared services, captive centers, multisource, etc.

In the 1980s we worried about getting an airtight contract. Managing our mostly domestic account manager and the relationship were relatively simple, even though they may not have felt that way at the time.

Now we see signing the contract is merely the end of the beginning. The soft skills, change management and people preparation today determine the long- term, mutually beneficial relationships, not the almighty contract. We now see much more focus on transition management, extensive communications plans and strategies, vendor management offices, cultural training and user and customer training for a more complex delivery model, etc.

These are now the larger determinants of long-term sustainability and business case realization. Deals that get undone for the lack of realization of the business case or failed expectations are often the victims of a lack of time and effort in investing in ensuring sustainability through comprehensive change management. Here lies one of the value-add roles that companies are relying on their sourcing advisors to play.

Have you sown the seeds of long- term, mutually beneficial sustainability in your sourcing relationship?????