Outsourcing is about relationships. Relationships are about trust. The key to successful outsourcing is a quality relationship built on open communication, teamwork, and mutual commitment to a common goal.
Sounds simple. Yet why are so many outsourcing deals so clearly unsatisfying?
borrow from Leo Tolstoy, each unhappy relationship is unhappy in its own way – unique circumstances or business challenges, unrealistic expectations, and mismatched capabilities can all contribute to spoiling a once-promising partnership. Ultimately, however, relationships sour because of ineffective communication and a failure (either real or perceived) to meet commitments. Subsequently, a gradual breakdown of trust leads to mutual recrimination and finger pointing.
The dynamics driving relationships in today’s outsourcing environment affect client organizations and vendors in a variety of ways. Specific communication techniques can help build a positive relationship, as well as recognize and address common pitfalls of outsourcing, and determine whether to salvage or terminate a troubled outsourcing relationship.
All the wrong reasons
Often the problem with an outsourcing situation is that the initial decision to outsource is made in isolation, and those most affected have no input.
In some cases, corporate management simply doesn’t want to deal with understanding the complexities of IT; calling in an outsourcing “”expert”” allows them to meet their due diligence responsibilities in a relatively painless manner.
Another common problem is the misguided management notion that outsourcing will be cheaper – and here vendors should be faulted for perpetuating this myth by their tendency to blithely promise substantial cost reductions.
Although cost cutting is possible when the outsourcer can leverage economies of scale and when the client is less mature and efficient than the outsourcer, the discovery that the best of both worlds – added value at low cost–isn’t possible often comes as a shock and can threaten the relationship’s foundation.
In other instances, outsourcing is driven by short-term financial considerations, since a well-timed cash infusion from transferred assets can spike the bottom line just when a financial report is due.
CIOs can do little about ill-advised outsourcing decisions after the fact. However, in many instances senior management indifference to IT reflects a fundamental disconnect between the CIO and boardroom. And here the CIO bears some responsibility: If senior executives don’t understand or appreciate IT’s contribution to the business, then the CIO may not be doing an adequate job of communicating that contribution or of establishing their credibility and relevance.
One fundamental obstacle to quality relationships is the fact that the “”weak matrix”” organizational structure typical of outsourcing deals by its very nature impedes effective interaction.
In a weak matrix, the vendor’s staff has a dotted line rather than a direct report relationship to the outsourcer’s senior executive. This means the individual “”managing”” the deal has no direct reports involved in the work, while the people executing the work have no direct responsibility or accountability to the senior executive.
Such circumstances often fuel an unhealthy dynamic whereby the client will play one member of the outsourcer team off against another, while the outsourcer ends up internally rather than client focused.
The solution to this conundrum is for the client–prior to outsourcing–to negotiate for effective personal interaction up and down the chain of command.
Both sides must recognize that relationships are built at every level – from top to bottom.
Every level on the retained services team therefore has to interact in a positive way with their counterpart on the outsourcer’s team.
To institutionalize this multi-level communication, the negotiation and implementation process should allow for the client and vendor teams to compare organizational charts and implement changes in one, the other, or both to ensure interaction from top to bottom. Escalation processes must be clearly defined and documented so each organization understands the processes to be used to resolve the more challenging issues as they arise.
The importance of senior level involvement to a successful outsourcing relationship is largely accepted as gospel. But goodwill professions of commitment and promises of access when the deal is being negotiated are one thing. Following through on commitment months later, when other obligations and new opportunities compete for attention, is quite another.
The simple and obvious truth is that senior executive time is valuable and expensive. The client might feel entitled to regular meetings with the outsourcer’s senior executives to discuss strategic goals and objectives, but in reality, unless such meetings are explicitly negotiated for and specifically defined in the deal, they won’t be a priority for the outsourcer.
While a solid structure that defines clear and specific goals, objectives, and actions is essential, maintaining flexibility is also important. The organizational structure initially negotiated will likely require changes in response to lessons learned and emerging requirements.
Many outsourcing contracts today are reaching the end of their initial terms, leaving client organizations with a decision: Do they take operations back in house, renew the contract with the incumbent vendor, or rebid?
Once an organization has invested in and transitioned to outsourcing, repatriation is rarely a viable option.So the decision to be made is typically whether to renew or rebid.
If the relationship is either idyllic or unbearable, the decision is easy to make. Most situations, of course, are more complex and involve dilemmas and trade-offs.
When in doubt, repairing a damaged relationship is usually preferable to starting a new.
Client organizations typically underestimate the effort and time required to reinvent the wheel of defining requirements, soliciting bids, and evaluating vendors.
And, contrary to expectations, the process is usually just as painstaking the second time around. The same lessons must be learned, and the same mistakes will often be repeated.
Compass has observed situations where client organizations–convinced that their outsourcer is incompetent – undertake a rebid only to discover to their consternation that the outsourcer is in fact doing quality work, and that they need to do a better job on the management side.
In some instances, when a relationship seems beyond hope, putting new faces in place on either the vendor or client side (or both) can enable a fresh start. Renewing an agreement under difficult circumstances requires additional effort to repair the relationship and extra sensitivity to its fragility. As in any relationship, once trust is broken, it’s difficult to re-build but easy to break again.