As outsourcing rises in popularity, so does the business-criticality of the services companies choose to outsource. Thus, the rewards for successfully achieving the anticipated value outcomes are more strategically beneficial, but the consequences of failure are more stark.
Key to the successful delivery of outsourced services is the creation of a strong, mutually-beneficial relationship between the parties. It’s counter-intuitive, though, to want the other party’s business to succeed, grow, and be enriched as a priority ahead of one’s own quest for successfully achieving top- and bottom-line objectives. Indeed, there are hundreds of case studies where, even though the parties to an outsourcing agreement appeared to be simpatico at first, it became difficult to maintain that attitude toward each other as business challenges arose over time.
A need for security exists in all relationships involving people, and relationships are short lived where there is not a foundation for confidence in each other. When the parties don’t grow together in the same direction toward goals, either of them may begin thinking the other is taking advantage of them.
In our study of what makes outsourcing relationships fail, we found executives on both sides of the fence who, because of corporate scenarios causing them not to consider the impact of their actions to the other party, appear to be taking advantage of each other.
One could compare such scenarios to “con games”–not only because the customers and service providers seem to be pitted against each other’s ability to win, instead of being on the same team–but also because the “games” they play result in destroying confidence in their relationship. The following four “con games” are common in outsourcing arrangements. Each is counter-productive to building confidence in the other party and maintaining a successful relationship.
This game has three scenarios. In the first, someone in the customer organization has the attitude of “I’ve done my part of this deal.” The person may have been involved in provider evaluation/selection, developing/negotiating the contract and service level agreements, or planning/implementing the transition. But when issues arise later, they toss the hot potato to someone else; the attitude is: “my compensation isn’t riding on this and I’m not the point of contact . . . let somebody else solve this problem.”
A slight variation of this situation exists when the newness (and “photo opportunities”/bonus opportunities) are no longer an enticement for someone to take responsibility. Like hand-me-down children’s clothes, the hot-potato management issue just keeps being passed down to subordinates with already-heavy workload issues. This scenario can also happen where a leader wants to be a strategic “star” for a while, involved on Day One in shaping the vision, but does not want to be involved in the time-consuming headaches arising later on.
Not having been the one who eventually bought into and shaped the vision/mission, the person eventually responsible for handling the hot potato has a low level of enthusiasm and persistence.
In the third scenario, the points of contact keep changing. Both customers and providers are guilty of this. Each time such a change occurs, it can erode the trust that was built up to that point and also delete the historical understanding of why certain decisions were made.
Win-Win Game Plan for Hot Potato: Both customers and providers must have an ownership mentality and take responsibility for the care and feeding of the ongoing relationship. There must be an executive on both sides who is committed to the ongoing details and change efforts, as well as the vision, for their relationship.
This outsourcing game, associated with resource allocation, is like the children’s game where one in a row of chairs is removed, leaving one child without a chair–and out of the game–when the music stops.
Again, there are two scenarios. In one, the provider removes some of its best resources from one customer’s account in order to work on a new account. In the other scenario, the customer ensures the necessary resources to get the outsourcing arrangement closed and transitioned but does not allocate enough resources to govern/manage the ongoing relationship. In both cases, the players are suddenly focused on solving new business problems apart from, and problematic for, their relationship. Although still in a game together, they don’t notice at first that suddenly there are not enough chairs to be able for both to win.
Win-Win Game Plan for Musical Chairs: The parties need to examine their relationship on a regular basis to ensure they both are still focused on mutually-beneficial goals. In addition, the relationship must have a strong governance agreement that includes effective, proactive communication and resource-planning processes.
The Shell Game
Like the gambling game where an object is hidden under one of three shells and a player loses unless he or she can correctly guess which shell is covering the hidden object, outsourcing relationships lose when the customer’s relationship manager keeps being shifted to another “shell.” This scenario occurs more and more these days, as enterprises downsize and as they move people around in globalization efforts. This shifting manager is also a problem in long-term government outsourcing arrangements where the customer’s relationship manager may be a political appointee only for a limited period of time.
Win-Win Game Plan for the Shell Game: Individuals tasked with relationship management should not only be capable in relationship-management skills but also be available to remain in the position over the long run. For this crucial position, buyers should not select someone whose job is fluid, who frequently travels, or who has high odds for leaving the job (either from dissatisfaction, desire for upward career move, or retirement). Furthermore, relationship management must be a priority and should not be crowded out by the individual’s “real” job.
In this outsourcing game, similar to the card game where children engage in drawing from a larger pool of cards in order to obtain what they lack for a winning hand, the root cause of problems is that the companies’ interests are no longer aligned. Originally in it for the long haul, both lose their commitment to the relationship when this happens. Symptoms of the problem show up in attitudes such as “The provider is not meeting our needs” and “The customer is trying to gouge us with scope creep.”
Having lost confidence in their ability to trust one another to look after each other’s interests, contractual “promiscuity” occurs. The buyer threatens to re-compete the contract. The provider begins looking for another big fish.
Win-Win Game Plan for Go Fish: Providers must have dedicated, skilled, customer-focused executives managing the relationship to ensure they understand their customer’s evolving needs and can take the necessary steps to maintain a healthy relationship.
Buyers must remember that a foundational key to success in outsourcing is the enduring nature of the relationship; although short-term service level agreements tied to specific objectives and services scope facilitate flexible contracts, an attitude that the overall relationship itself is also short term is a mistake with potential failure results.
Finally, both parties must frequently jointly review the status of their relationship (not just the provider’s performance) to ensure it still meets both companies’ objectives; where this is not the case, the parties need to jointly make changes to realign their interests.
Lessons from the Outsourcing Journal:
- Key to the successful delivery of outsourced services is the creation of a strong, mutually-beneficial relationship between the parties.
- Relationships are short lived where there is not a foundation for confidence in each other. When the parties don’t grow together in the same direction toward goals, either of them may begin thinking the other is taking advantage of them.
- Both customers and providers must have an ownership mentality and take responsibility for the care and feeding of the ongoing relationship.
- The parties must have a strong governance agreement that includes effective, proactive communication and resource-planning processes, along with frequent joint reviews of the relationship to ensure their interests are still aligned.