When an outsourcing relationship sours, remediation can make things right.
When issues arise in an HRO relationship, such as unrealistic implementation timelines or a lack of scalable solutions, the blame tends to fall on the service provider for having overpromised and under-delivered. When these situations escalate into a series of missed deadlines or service delivery compromises, clients are apt to consider other options, such as bringing the work back in-house, or seek another service provider to take over the work. Although these options may be appealing at first blush, they are fraught with challenges.
Early termination of the current service provider arrangement is more than likely to invoke a significant financial penalty. In addition, the other options have their own issues. For instance, clients are unlikely to have retained HR staffers who previously performed the work or the proper system infrastructure. This set of circumstances negates the client’s ability to pull back some or all of the outsourced service. Seeking a replacement service provider will take time (even having retained the market knowledge from the first time around), and there will be implementation challenges. Furthermore, there is no guarantee that moving to another service provider will result in better service or cost savings.
Clients should first consider attempting to rebuild trust and improve the existing outsourcing relationship. In TPI’s experience, the wisest course of action is to attempt to remediate rather than move directly toward terminating the relationship.
Generally, the issues facing troubled relationships fall into the following categories: contractual, financial, and service performance. Whether the problems stem from differences in contract interpretations, a lack of expected savings, late deliverables, or a combination, root causes must be addressed for the relationship to survive.
The first step is to consider seeking an objective third party who can analyze the problem and assess the state of the “marriage.” Analysis typically begins with a review of the contract terms and pricing with an assessment of the performance results to date. This allows for a full understanding of the scope and obligations for both parties and whether the requirements fit the situation. In addition, the client and the service provider should be interviewed to capture perspectives and gather facts about what’s working and what’s not. This assessment period typically runs 30 to 90 days.
Next, the client should form a team that assesses the results to determine answers to the following questions:
• Is the relationship salvageable?
• Is the agreement still competitive (at market rates)?
• What steps need to be taken to resolve the relationship problems and elevate the outsourcing to desired service levels (similar to a root cause analysis)?
One common problem we see is that a service provider fails to meet all of the mandates in the contract. Interviews often reveal a range of possible root causes such as a vague scope of service definition or ambiguity in defined roles and responsibilities. Quite often, there’s also inadequate or ineffective governance on the part of the client.
Putting Things Right
A successful remediation requires a detailed plan with meaningful milestones and metrics. Most plans call for a six- to nine-month turnaround and often include service level agreement changes, including capturing “out-of-scope” items. Senior management on both sides must agree to the changes.
Yet, no matter how much time you allocate for remediation, it’s critical that short-term fixes become a high priority in the process. Without “quick-hit” successes, it will be difficult to keep stakeholders engaged in establishing a solution to the problems.
Ultimately, an outsourcing relationship is a partnership. Even if the client has a well-written contract that enables it to threaten or invoke penalties against its service provider, moving to an adversarial approach will rarely solve problems. Besides, more often than not, the client organization bears some of the responsibility. And without strong governance, the remediation effort may fail to take hold.
For instance, in a global services engagement, client managers may lack experience directing HR service providers located in other countries or time zones. There may be cultural or management style differences in need of attention.
Sometimes, however, some service areas are just too broken to fix. In these instances, the client organization must absorb the cost, staffing, and contractual challenges of reclaiming the work or giving it to another vendor. Still, remediation is almost always the best initial course of action. If remediation proves unsuccessful, the bitter pill of contract termination remains an option.
Jeff Krynski is a director in TPI’s CHRO Services Group. He can be reached at email@example.com.