More than product lines and processes, a business is a collection of people, says Mary Vaughn, Account Executive for Computer Sciences Corporation (CSC). She says the problem with focusing on process--as outsourcing does--is that people behave according to their maturity and don't always behave as instructed by procedures. In disruptive business transformation/outsourcing initiatives, this can become a root cause of significant problems for buyers of outsourced services. When people do not understand what management ultimately wants to achieve, they do not commit to the effort. Their behavior then impacts the organizational culture crucial to successful outcomes for such initiatives.
But this is a two-way street; often a service provider's organizational culture creates problems too. For example, if not planned well, transition can be very disruptive to a buyer's business. Problems can also arise from a less-than-adequate level of provider responsiveness, less-than-expected level of support, and even a provider promising more than it can deliver. Each of these causes is an element of behavior within organizational culture, states Vaughn.
Micromanaging an outsourcing provider is a well-known cause of failure. While many analysts point to buyers as being at fault for micromanaging their providers, Vaughn has a different, experiential perspective on the business dynamics. "If a provider is just barely meeting service levels, or not meeting service levels, and not addressing a client's needs, then the client will micromanage the situation," she explains.
Whether an outsourcing arrangement is still being structured, is already troubled, or wants to move to the next level in enhancing the relationship's mutual benefit, she says the key to success is a holistic model that takes a systemic approach to outsourcing. Organizational culture is the core of that model. The core is embedded in a company's structure, processes, management systems, and information systems. The holistic model helps promote the types of behaviors that lead to success.
Some Operating Models Clash with Outsourcing's Ability to Achieve Objectives
In her upcoming book, The Gruntled Employee: How to Succeed in Business by Really Trying (2005, Metargy, Inc.), Vaughn provides a three-tiered view of operating models in business structures today: dependent, independent, and interdependent. The goal for successful outsourcing, she says, is to use the interdependent model.
Figures 1-3 highlight the cultural behaviors of companies operating within each of these models.
In an outsourcing context, management systems in a dependent operating model focus only on the short-term and meeting financial numbers and service levels. A lot of controls and sign-offs as well as overlapping responsibilities can impede work flow. Additional cost (for both parties) occurs because of inefficiencies in the operating model such as systems and processes not being integrated. In the outsourcing marketplace, this model is often described as one-size-fits-all, reactive, and inflexible. It is the supplier/customer or "us versus them" approach; and this model encounters frequent failures in outsourcing.
The independent model is often used in product-centric business units or account-centric outsourcing engagements. Strategies are business-unit or account specific, and the model competes with other business units in the organization. Its weakness is its autonomy, allowing resistance to process standards and lacking leverage capabilities to promote a higher level value (for both parties) through integration/synergy. This model can be described as responsive to developing solutions for existing business problems, and the service provider is viewed as a "credible source."
The interdependent model yields the most success in outsourcing, as it creates a paradigm of cooperation and collaboration to leverage each other's capabilities and resources to create something mutually beneficial. This model depends on a shared vision and strategy with both parties' willingness to do their part in achieving the vision, open and up-front communication styles, accountability, aligned interests, and shared risk and reward. This top level of business model is described in the outsourcing marketplace as proactive and consultative, with the parties describing each other as "trusted advisor" or "trusted partner."
Leveraging Problems into Commitment and Collaboration
Micromanaging a relationship occurs when the parties are operating from a dependent model. Vaughn, who often coaches companies involved in an outsourcing relationship, says the way to address the failure-prone micromanagement situation is for the provider to demonstrate that it is responsive, cares about the client's viewpoint, and takes care of client needs. It starts with the provider connecting with its client on a deeper level, then moving to the level of "credible source" (the independent model). At this point, she explains, "The client no longer discounts what the provider says because the provider pays attention to the client's complaints and issues and then responsibly takes the right action. So the client no longer feels the need to micromanage the provider."
Outsourcing service providers, Vaughn advises, should view problems with a client as a time to connect at a deeper level. "If issues never arise, everything stays on a superficial level. But where there is a problem, the provider can show the client how responsive it is and to what lengths it will go to correct the problem." Rather than a dependent model of behavior (evidenced by a provider's cultural defensive attitude of "people make mistakes, you can't expect perfection"), Vaughn says an emerging problem is a time to show the client the provider's willingness to be accountable for results.
Just following through on solving a problem should not be the end of a demonstration of responsiveness, she continues. Providers should proactively seek a client's input on how to improve the relationship; this leads to working more collaboratively. CSC has experienced notable success with this approach to client relationships.
In her efforts to move companies up the value chain (from a dependent, to an independent, then to an interdependent model), Vaughn often recommends the establishment of behavior metrics in addition to key performance indicators and balanced scorecard approaches. Behavior metrics, for example, provide drill-down capabilities that provide details of when people (at any level) are not being responsive and accountable. She advocates using a balanced scorecard for goals that help both parties meet their commitment to each other, then rolling it down to the individual level so everyone can understand their part in making the goals happen.
CSC has been using the interdependent model to establish more effective relationships at the outset. The model becomes the foundational cornerstone for the operating principles, values, beliefs, and standards of conduct in the governance agreement for new outsourcing relationships. "Then we set up procedures and information systems that support those operating principles and the desired interdependent behaviors, along with appropriate measurement systems to make sure the parties are meeting the objectives for their relationship," she adds.
In some respects, there is nothing new about the interdependent model Vaughn promotes in her book. "It's not earth shattering or something difficult," she states. "It's just a more holistic focus on the business environment; and the model helps to align everyone. Outsourcing always requires a large change-management effort, and that is especially crucial in helping people through the transition to a new way of thinking and operating." The interdependent model helps both parties in that effort and then helps them figure out how, together, they can bring extra value to their relationship.
Vaughn's book, The Gruntled Employee: How to Succeed in Business by Really Trying, will be available in bookstores and on Amazon.com in February 2005. She intends to establish a user group among companies that are interested in collaborating on furthering the ideas in the book to promote better business relationships and environments.