Ten deadly mistakes of outsourcing and how to avoid them

Deadly Mistake Five: Having One Team Negotiate the Deal and Another Manage the Relationship

One of the worst things a company can do in the outsourcing process is to charge a team of people with negotiating a deal that none of them will be responsible for implementing afterwards. In this

situation, negotiators will be open to the temptation to engage in relationship debilitating behavior and one-upmanship unless they are held accountable for and made to live with the results of their efforts. This is true for both sides of the negotiation, as many a chagrined buyer has discovered when a clueless group of strangers from the provider show up the day after the contract goes into effect. Not only should you include your own key staff responsible for implementing the deal in the negotiations, but you should also insist that the vendor do likewise.

The implementation team also needs to be deeply grounded in the context of the negotiations and the deal that ultimately transpires from them. This will enable them to understand the underlying motivations for all aspects of the contract and to avoid having to carry out activities or pursue goals that they don’t understand or with which they may not agree. The fewer ‘hand offs’ from one group to another the fewer opportunities there will be to “drop the ball” and get things wrong. It will also help to ensure a much smoother start to the relationship if both sides don’t have to go through a familiarization and learning curve process.

Knowledge transfer — from the user to the provider and vice versa — must not be neglected. Successfully executing any process in an outsourcing context requires a great deal of knowledge sharing between the customer and provider. The customer brings deep understanding of their business and their organization. They have valuable industry and market know-how as well as a strong familiarity with the organization culture and context — how decisions are really made and how things really get done throughout the organization. At minimum, the provider will need to be brought up to speed on this tacit knowledge and plugged into informal networks in order to effectively perform their work. Some of this knowledge may be explicitly embedded in procedures, software and products and will need to be effectively transferred as well. The same is true for formal and informal knowledge that exists on the supplier side, which will need to be shared with the customer. Companies need to put the appropriate mechanisms in place to effect the desired cross transfer of knowledge. For example, training and orientation workshops can help to facilitate the sharing of formal expertise and know-how. Forming joint customer-provider teams and assigning “buddies” and mentors from both sides can help to enable the transfer of tacit knowledge.

Deadly Mistake Six: Underestimating Cultural Incompatibilities

Odd couples make for entertaining TV shows but frustrating outsourcing relationships. Common ground must exist between the two parties in an outsourcing relationship if it is to succeed. It is important therefore to pay attention to explicit differences in organizational culture and practices such as how work is organized and how decisions are made in the provider organization and the extent to which these differ from your own.

One critical area of organizational compatibility to address is decision making. For example, is the provider’s organization centralized and are decisions made mostly from the top or is the company decentralized in structure with widely distributed decision authority? If the gap between the two organizations is great and not closed, the ensuing friction will jeopardize the entire relationship. Another vital issue is how people are rewarded for performance. Is individual achievement encouraged or is group and organization success stressed more? Significant differences in how people are measured and rewarded will make transfer of employees from the customer to the provider especially challenging and joint projects and teamwork between the two organizations problematic.

Implicit cultural differences are harder to gauge but can be devastating to a relationship. For example, differences in how the work is viewed by the two respective organizations can lead to difficulties. Is the work of the organization seen as a systematic process requiring standard methods and ways of doing things or is it viewed as more art than science with an emphasis on creativity and crafting unique solutions to each problem that arises? Bridging the gap between a rule-following culture and a rule-breaking one is often an insurmountable obstacle to implementing a workable outsourcing relationship

Kodak’s experiences with outsourcing illustrate the importance of culture compatibility. A pioneer in IT outsourcing, the company established a very successful outsourcing relationship with IBM, but failed to do so with Digital (since acquired by Compaq). A key factor in both experiences was cultural compatibility. IBM and Kodak had very similar cultures, values and ways of working. Kodak was very process-oriented and metric-based as was IBM. They favored standardized ways of doing things and ongoing measurement of performance. The Digital culture on the other hand was entrepreneurial and individualistic. Its staff prided itself on creative approaches to problem solving. Doing everything the same way and keeping detailed performance scorecards was viewed as constricting to performance. Kodak and Digital were unable to bridge these differences in culture and the relationship proved problematic throughout its life.

It is critical therefore, to surface and weigh all the explicit and implicit differences between the cultures of the organizations and to establish enough common ground on which to build a relationship before moving ahead to serious negotiations.



Tony DiRomualdo is with Next Generation Consulting.</

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