After the Ink Is Dry

Adhering to these eight critical principles can lead to mutually beneficial outcomes in any outsourcing relationships.

by Mark Hodges

Seeing the ink dry on any just-completed outsourcing deal is a cause for celebration, but now the hard work starts. Now is the time for launching and administering a new service provider relationship on a scale more complex and riskier than anything most companies have ever done before. It takes money, people, process, and technology to govern and manage an outsourcing relationship effectively. A company should expect to spend 3 to 10 percent of its annual sourcing budget to manage a given contract. Although that may seem high, it is not. Look at it as a required investment to protect the outsourcing business case expected to yield 15 to 40 percent in savings. Most successful outsourcing relationships have sound outsourcing management practices. Companies that use the following eight principles of good governance will ensure their management processes work effectively.

1. Balanced Stakeholder Needs Companies that successfully outsource continuously “take the pulse” of all stakeholder groups to balance their needs over time. Stakeholder groups include senior executives, IT personnel in both retained and outsourced groups, the service provider, and the “users” of the services (employees, customers, suppliers, and others). While it may be impossible to please all these stakeholder groups at the same time because service availability or variety has been deliberately restricted to cut costs, the company’s outsourcing management group can strive to balance each group’s needs.

2. Pursue Stakeholder Involvement Formal governance boards and steering committees are essential, but informal stakeholder involvement is the way successful relationships are built and maintained over time. Stakeholder involvement results from an effective combination of information exchange and action. For example, a governance team can set up ad hoc advisory teams, actively pursue the opinions and participation of key business leaders, and offer informal educational presentations that stimulate the exchange of information.

3. Seek Cultural Synergy Outsourcing teams can achieve improved results by identifying and building on shared strengths. For example, if both cultures are process-oriented, shared process development can be an effective way to work together. Interestingly, improved results can also be obtained by avoiding shared cultural weaknesses.

4. Drive Out False Agreement False agreement occurs when someone agrees to do something without any intention of actually doing it. Although not unique to outsourcing relationships, this can be particularly damaging. Driving out false agreement requires diligence—documenting agreements, consistently following up on commitments, and holding others accountable.

5. The Customer Is “Not” Always Right Outsourcing  teams must keep their minds open and reach across organizational boundaries to understand the motivations of all stakeholders. Communication is an imprecise science, and misinterpretation increases when people attempt to bridge the language and experience gaps across functions and cultures. By taking special care to develop a deep understanding of stakeholders’ motivations and expectations, outsourcing teams can negotiate more creative and mutually beneficial solutions.

6. Experience Matters When outsourcing teams are drawn exclusively from the client company, they begin with an experience deficit that puts them at a real disadvantage. Moving from a traditional management role to managing complex outsourcing relationships with little or no training on the critical differences between the two can lead to costly mistakes. It is possible for outsourcing management teams to rapidly fill their experience deficit through the use of coaching and other outside support from an independent third party with real hands-on experience in company-side governance.

7. Avoid The Paradox Of Alignment Alignment between the company’s goals and the provider’s actions has long been considered the Holy Grail of outsourcing, yet alignment remains elusive. Companies want to cut costs and increase service quality, while providers want to increase revenue and decrease service-delivery costs. Companies need to seek true alignment around mutually beneficial outcomes rather than gain false agreement to one-sided goals.

8. Service-Level Agreements Are Not Enough SLAs are extremely important and should be continuously refined and improved over the life of the agreement. However, they must be augmented by other methods to ensure satisfaction.

In the end, excellent outsourcing management requires many components: leadership, tools, processes, personnel, skills, and principles. Operating from shared principles can create the basis for the high-trust relationship required to deliver the complex results expected from today’s outsourcing agreements and therefore avoid value leakage throughout the supply process.

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