The traditional outsourcing contract is on the brink of extinction. As the capabilities of modern IT become ever-more closely aligned with businesses needs, so too have the requirements around the classic outsourcing deal changed and matured. Yet despite a burgeoning trend of more strategic outsourcing relationships, the majority of contracts are still renegotiated within two years of signing and second or third generation deals are still the exception, not the rule. Is there a way to ensure modern outsourcing marriages are built on genuine compatibility and survive beyond the honeymoon period?
The good news is: things are already changing; the bad news is: it’s because the entire process has become more complicated. Gone are the days of straightforward 'facilities management' outsourcing models, where basic IT functions such as data centre operations, software development or desktop management were directly outsourced to third parties. Now, the more complex IT requirements of modern businesses demand a completely different procurement and contractual approach factoring in complicated multi-sourcing contracts, sub-contractual agreements and the potential transfer of large numbers of staff to multiple sites. Off-shoring, in particular, brings additional logistical and cultural complexities - the outsourcing of a government call centre is clearly a far more sensitive proposition than a standard infrastructure management contract.
As a result, the old-fashioned adversarial approach to procurement is, thankfully, also dying out. To best manage these additional complexities, outsourcers must forge genuine business partnerships, built on genuine organisational affinities, with their customers. For an outsourcing provider to deliver core business management and transformation services, it is vital they are engaged as a strategic business partner, not an arm’s length supplier.
The responsibility for honouring this partnership lies on both sides of the fence. To get the best out of the deal, the client needs to do more than just scattergun a few RFIs at the usual suspects. A focused market research process is required to identify a short list of potential organisations whose business models, size, experience, objectives, culture, and increasingly their CSR and green credentials, demonstrate a real compatibility with the client’s own business.
This is even more important if you plan to outsource business processes rather than datacentres. To get the right BPO partner you may need to probe that bit deeper: Will you have full visibility of the provider’s processes? What previous service failures have they experienced and how did they rectify them? And most importantly, are the financial projections accurate and are adequate provisions in place to allow for economic and organisational change within your business? There is also some basic information about the business that is important to collate up front, but not always obvious e.g. staff attrition levels, geographical presence, experience of transforming/re-engineering processes and internal governance structure. Similarly, the outsourcing provider cannot simply rely on wheeling out their tried and tested professional bidding teams to wow the client with sales-speak and then proceed to handover to an entirely separate delivery team whose sole purpose is to recoup the costs of the bid by exploiting costly change processes.
Even if both the client and the provider have self-selected on a partnership basis, getting the contract right from the outset is critical. Ensuring this is clear, considered and mutually beneficial is key to securing a happy and long term relationship. The devil is very much in the detail however; whether it’s service level agreements, timing, specification of deliverables or even the dreaded termination provisions, all parties need to be in full accordance and understanding. Most importantly the scope of the services to be delivered and the roles and responsibilities for doing so, must be in no doubt. Any mismatch in expectation must be ironed out at the beginning or it is liable to explode, with much more damaging consequences, further down the line.
This shared understanding should set the tone of the entire relationship.
It is important to remember that the client is choosing a service in place of an in-house alternative. The outsourcing provider needs to be a seamless extension of the business, providing the flexibility they would expect from their own in-house resource, but obviously ensuring the cost and time benefits of using an external provider. Personal chemistry is, therefore, as important as technological capability and even cost. Providing a quality delivery team goes without saying, but it’s no good putting in place great people who then move on week in, week out. Continuity of personnel, on both sides of the agreement, is a key element to its success. Problems will inevitably arise in any outsourcing deal, but strong personal relationships can help you withstand the pressure. Churn, particularly at a senior level, has a hugely de-stablising effect and can compound the day-to-day stresses and strains of the contract.
Choosing and keeping the right people and aligning expectations from the start will ensure an outsourcing deal begins life as a truly strategic partnership, rather than simply a commoditised service. But like any long-term relationship, making it last is the real challenge. With outsourcing arrangements becoming ever more complex and critical to business delivery, changing supplier every year is damaging to both parties. The deal needs to be able to weather that tricky second year phase of the relationship, when the novelty has worn off and the tactical delivery taken hold. Continual reviews, performance assessment and regular reappraisal of objectives can help keen focus, but also provide an opportunity to adjust expectation and output as the situation and needs of the client evolve.
Part of the reason why focus can wane in the middle stages of an outsourcing deal is the assumption on behalf of the client that they can step back and simply allow the provider to drive the necessary change management or business process through. For large scale outsourcing contracts, it’s simply unrealistic to expect the provider to manage the process without any internal advocacy. Clients have a responsibility to ensure any changes to IT provision are fully communicated, and understood within the business at both senior and end-user level. You’re outsourcing the technology or the business process, not the responsibility. Leaderless change and lack of internal ownership can turn the entire process into a false economy and ensure the deal never sees a third year, let alone a third generation.
Long-term, strategic outsourcing partnerships are not just a nice-to-have – they are fast becoming a commercial necessity, so it is vital we start to get these deals right. It goes without saying that identifying the right delivery partner takes significant investment, but not just in cost terms. Clients and providers alike need to ensure that they are investing the right effort in vetting their shared credentials, agreeing a way of working, securing a stable team and sustaining a fresh approach. Without shared interests, the relationship is unlikely to reap shared rewards, and could end in a premature and costly divorce.
