This year I had the august responsibility of interviewing every buyer who felt its outsourcing relationship was a paradigm of partnership and profitability. What surprised--and pleased--me was how many of them actually could have taken the gold medal. Selection was excruciatingly tough. Maybe the industry is finally figuring out how to do this right!
Common threads were woven through most of the interviews, which spanned November 2005-January 2006. Here are some of the most important lessons learned:
1. Buyers must have a disaster-recovery/business continuity-plan in place.
The Awards interviews underscored the fact that you never know when a disaster--man-made or natural--will suddenly appear and take out your business.
Last year's devastating hurricanes affected two of this year's winners. Hurricane Wilma shut down Citrix's Fort Lauderdale headquarters for 15 days, a lifetime for customers clamoring for its products.
Because of its location, Citrix (Best Business Challenge) had a business-continuity/disaster-recovery plan in place. At the flip of a switch, Citrix shifted its ERP, ordering system, and fulfillment to its supplier, HP Services. HP took over the complete delivery of Citrix's entire product line, which has 670 SKUs.
"It took five minutes to move our factory from one side of the country to the other," marvels Michael Martin, Senior Manager, Customer Care for Citrix. Eleven Citrix employees also set up shop at HP's Nashua, New Hampshire headquarters for eight days. "We didn't miss a single shipment," says Martin. Delta Air Lines' (Best Offshoring) call centers located in the hurricanes' paths were similarly affected by last year's troika of terrible storms. Delta outsources many call center functions to Wipro. The supplier helped out by routing extra calls to Mumbai and Pune. "We knew they needed our help during this crisis. We stretched our resources and made sure we were there to support them," says Hoshedar Contractor, Vice President, Operations, for Wipro.
Mother Nature was not the only one setting a disaster-recovery plan in motion. One candidate, Cool Systems Inc., had a Fourth of July barbecue for its employees. A smoldering fire in a barbecue grill burned its warehouse to the ground the next day.
The company outsources its telecommunications and data transmission systems, both phone and Internet, to Call Tower. The fire was Friday night. By Saturday morning, Call Tower had routed every employee's office phone to his or her cell phone. "From our customer's perspective, nothing happened," says Marty Reed, VP, Finance and MIS for Cool Systems.
2. Offshoring actually saves and creates American jobs.
After September 11, the American airline industry found its profitability in a nosedive. Delta had to find a way to answer phone calls quickly and efficiently while providing good customer service. Gloria Richard, General Manager, Outsourcing Delivery, says "it was very challenging to hire an adequate number of people at US salaries and benefits."
Offshoring gave Delta the cost savings it needed and protected the jobs of Delta's American call-center workers. "If we hadn't found a way to bring down the overall costs, we might have had to outsource the entire department. The savings Delta generated by outsourcing some of its business saved US jobs instead of eliminating them," Richard says.
The airline did not jettison any employees because it outsourced. Instead, it simply did not replace employees who left; the company's intrinsic attrition rate solved the problem.
Commendo Software, a start-up software company, sent its applications development work offshore. Early on, Cemex, a global cement company, was interested in its application. "Cemex told us, 'We're going to give you one shot to pass our internal test. That's it.' We said, 'Holy smokes.' We had to come up with something creative to meet their requirements or we're dead," reports CEO Reynaldo Gil.
Sierra Atlantic, the supplier, delivered a bug-free product and Cemex became a customer. "We're growing now, so we're hiring here. We have hired 10 people and doubled the number of our US contractors. We're also expanding relationships with other local companies that create jobs. Offshoring is creating jobs in America," says Gil.
3. Even though it's business, it's also about friendship.
Marc Tison, CEO of Alfinanz, (Best Financial Services) has worked in the financial services sector his entire career. He says his mentor told him on his first day at work that the only way to build long-term relationships is to "make your business partners friends." Whenever a challenge occurred, he asked himself: Will my decision destroy our friendship?
"Outsourcing worked for us because we helped each other," says Cornie Foord, COO of Channel Life, a South African insurance company, of his relationship with Alfinanz. "And we learned to become smart friends." When Foord heard Tison was taking his family on a Caribbean cruise before traveling to New York City to receive the Outsourcing Excellence Award, he asked if his family could join them. They did!
Vanguard Car Rental and Perot Systems (Best ITO) have created the same esprit d'corps. When Tyler Best, Vice President and CIO of Vanguard, hired Perot Systems, he felt the two parties needed to view themselves as one team. He ordered Vanguard Car Rental business cards for all Perot Systems staffers. The bottom of the card reads, "In partnership with Perot Systems."
Today he says the IT department is a collaborative team that not only works well together but enjoys competing in sports activities on the same team. Additionally, they make it a daily practice to lunch together in an effort to increase information without having to hold a meeting.
4. Suppliers are going the extra mile for their buyers. In outstanding outsourcing relationships, it's not just about the money.
What do you do when a hospital has a fiscal crisis and can't staunch the bleeding? Some suppliers would cut off the air supply when the money ran out. But not Eclipsys. (Best Healthcare). It lowered its monthly fees until the hospital recovered, putting patient safety before profit.
"Let me tell you, Eclipsys has been a real partner," says Tommye Billing, CIO and Vice President of Information Technology for St. Vincent Health Care System. "I don't know what we would have done if it hadn't figured out how to maintain this relationship. If I hadn't outsourced, we would have had to have a huge layoff, which would have impacted patient care."
5. Outsourcers can meet impossible deadlines.
Invista (Best EU), which owns brands like Lycra, had promised the industry an online fabric library. The CEO had sent letters to thousands of companies announcing the system would go live by October 4 at an important trade show in Paris. So there was a great deal of internal pressure to deliver.
INVISTA outsourced the coding to a supplier. The daunting project required data from 600 suppliers in 40 countries using eight languages.
In June INVISTA realized this first supplier was failing. "We were in a valley of despair," says Norman Beveridge, Global eBusiness Manager, Apparel, for INVISTA.
INVISTA then hired Freeborders, a supplier that agreed to meet the demanding deadline by putting together teams in the US, Europe, and China who literally worked around the clock. With eight weeks left, the buyer asked Freeborders if it could deliver the library three weeks early so it could demonstrate the program at a trade show in Miami. And Freeborders did.
ACS (Best BPO) also accomplished the impossible for Hughes Network Services. Hughes, 15th largest American Internet service provider, hired ACS to take over its existing call center. The outsourcer had to train its staff to sell Hughes's complicated product. Hughes also asked the supplier to write an interface to its ordering system. And then Hughes asked ACS to help launch a new version of its product. And oh, by the way, ACS had to get all this done in 30 days. And it did.
6. Healthy outsourcing relationships have a clear dispute-management process.
"No outsourcing agreement can expect to always have a smooth road. There will always be challenges. But things work out if you have commitment," says Duncan Mears, Senior Client Director, Accenture HR Services (Best Partnership).
In 2003, Accenture's relationship with BT was strained. "The services were OK, but Accenture wasn't bringing us the ideas we needed to transform us," says Sue Gooch, HR Outsourcing Manager for BT. BT, for its part, expected Accenture to provide changes to the scope of service at no additional charge. "Both sides recognized there were issues and both sides wanted to get it right," says Mears. They did and Accenture is now in its second contract with BT.
At Vanguard, Best says, "We close the doors. Eugene (Pizinger, Client Executive for Perot Systems) and I beat the hell out of each other and then go to lunch. Nobody would know we just had a vigorous discussion. I told him we don't have to always agree, but it has to look like we are on the same page. To date, no dispute has gone beyond the account executive level."
Of course, governance is key to outsourcing success. I will discuss governance lessons in a future article.
Lessons from the Outsourcing Journal:
Here are six lessons gleaned from the 2006 Outsourcing Excellence Awards:
- Buyers must have a disaster recovery/business continuity plan in place.
- Offshoring actually saves and creates American jobs.
- Even though it's business, it's also about friendship.
- Suppliers are going the extra mile for their buyers. In outstanding outsourcing relationships, it's not just about the money.
- Outsourcers can meet impossible deadlines.
- Healthy outsourcing relationships have a clear dispute-management process.