What it Takes to Really Win in Outsourcing
Did you ever notice that, among athletes headed for the Olympics, no one ever proclaims, "We're going for the Bronze!" or "We're going for the Silver"? No . . . they train intensely for years, study others' failures and successes, follow the advice of experts, and ensure everything that might enhance their odds of winning a gold medal is in place.
But in outsourcing--where the odds of losing your return on investment (ROI) are high--companies often don't "go for the gold." In fact, because many buyers do not structure their outsourcing arrangements for success at the outset, they barely have a chance of achieving bronze-level returns on their investments. Unlike Olympic athletes, some companies enter outsourcing games without the necessary skills and stamina.
Staying on Course
Outsourcing is a cooperative alliance that leverages a service provider's expertise, resources, and collaboration to achieve competitive advantages for a buyer's business. But such alliances usually will face problems generated over time on several fronts. Success is dependent on the key concepts of "cooperative alliance" and "collaboration." Certainly, a provider's expertise, resources, and high-quality services are essential. But these characteristics are like an airplane's engine thrust, fuel, and wing design. Achieving altitude and staying on course depends on the pilot.
In an outsourcing context, such a "pilot" is the relationship itself. If it does not continually produce outcomes that are mutually beneficial to both the provider and buyer, the plane will sputter and may eventually crash.
We might, hypothetically, designate outsourcing outcomes as follows:
- Either the buyer's objectives were not achieved, or
- The objectives were achieved but, at contract-renewal time, the buyer looks for another provider to perform the same services with newer technology and/or a lower price
- Outsourcing solved the buyer's tactical resource problems
- Both parties adhered to their contractual commitments
- At the end of the contract term, the parties renew the contract
- Outsourcing solved the buyer's tactical and/or strategic business needs
- Both parties are satisfied with each other, and both benefited from the arrangement
- At contract renewal time (or perhaps earlier), the buyer included additional scope of services and/or new initiatives in the arrangement
- The outsourcing arrangement achieved more benefits than anticipated at the outset
- Both parties view each other as "trusted partners" and continually strive to create new opportunities to forge a deeper, more integrated, relationship; share risks and rewards; and move their objectives to increasingly higher levels
Since 1996, part of Outsourcing Center's mission has been to gather information from its annual Outsourcing Excellence Awards (OEA) program and share actionable advice on best-practice processes and elements that create successful outsourcing alliances. The OEA program has studied a number of outsourcing arrangements that do achieve the "gold" level in outcomes. For example, 68 buyers in the 2004 OEA program achieved higher value outcomes and greater ROI than they anticipated at the outset of their arrangements. Figures 1-5 display the types of original objectives these buyers hoped to achieve along with the unanticipated added benefits they achieved through outsourcing.
As shown in Figure 6, process enhancements were the preponderance of the 68 "gold" buyers' objectives with business transformation and growth strategies nearly tied for the second-most frequently stated objectives for outsourcing.
But because these relationships were so highly effective, the parties achieved a high degree of financial and business transformational benefits even where these were not the original objectives. (See Figure 7)
Hollywood Endings Happen in Outsourcing, Too
So what does it take to ensure that the concepts of "cooperative alliance" and "collaboration" become realities in an outsourcing arrangement? What does it take to build a highly effective, mutually beneficial relationship?
Perhaps companies can learn from Herb Brooks, who coached the 1980 US Olympic hockey team to a shocking victory at Lake Placid--one of the 20th century's greatest sports achievements now known as the "Miracle on Ice." The Russians had won gold medals for 20 years, and the underdog Americans hoped, at best, to avoid embarrassment. But Brooks took a group of college players (who had formerly competed fiercely against each other) and trained and motivated them to win as a team. How did it happen? Besides pushing hockey basics, Brooks stressed chemistry over talent and stressed teamwork as a "family." He worked to unite the players in Team USA so that they could grab whatever opportunities came their way in a match against the better-skilled Russian team.
Rather than choosing players with the best records, Brooks claimed he chose the "right" players, based on what he knew what they were each capable of doing and what they would do if motivated.
Through Outsourcing Center's empirical OEA research, we have concluded that "gold" achievements in outsourcing happen in the same way as Brook's team that performed the "Miracle on Ice." Buyers of outsourced services who intend to go for the gold in outsourcing must, like Brooks, first choose the right provider. It involves ensuring cultural compatibility and looking beyond resources/capabilities to the long-term value proposition and possibilities.
Second, they must build a "team" [alliance] between the two organizations. Buyers and providers participating in the OEA program in 2004 discussed with Outsourcing Center their efforts in this regard. In all of the 68 "gold" outsourcing arrangements, the parties agreed that focusing on enhancing the relationship is the key differentiator in the level of success they achieved. (See "Symptoms of Outsourcing Success")
By doing so, they created alliances that are (a) strong enough to collaboratively withstand challenges and (b) are mutually beneficial and thus motivated enough to grab opportunities that come their way in a competitive marketplace.