Many of my clients make use of outsourcing, some quite extensively. Yet, I don’t know of a single one who is happy with the relationship. Has everyone made a mess of contracting for their services, or are they missing something else?
I think they are missing something: proper management of their outsourcers.
Oh yes, they spend a lot of time dealing with issues in the relationship. But no one has shouldered the job of taking the relationship where it needs to go.
For instance, few if any of them have spent enough time rethinking their IT processes in order to deal with their outsourcers effectively. Broken processes now span the two organisations, and delays are frequent. At the same time, too much is assumed — it’s just expected that the outsourcer “knows” the client — and not enough time is spent giving explanations, background and briefings on plans and expectations.
Clients had tried, in most cases, to buy a utility service — “Give me a low unit price for this service or that” — and didn’t think through the implications. Neither they nor their outsourcing partners were necessarily equipped to manage this. Tools and processes were missing; there was no sense of a strategy. One client, for instance, tied staffing to servers, then quickly found that the result was server proliferation.
However, effective sourcing relationships are possible. They require a serious investment on the part of the buyer. It’s not uncommon to see up to 7% of the outsourcing bill each year going to support internal relationship managers, service delivery managers, planners and the like. Sourcing relationships require that the buyer’s overall organisation become more coordinated and controlled so that a structured plan for services can be delivered and agreed upon. Governance of IT inside the buyer organisation tends to become more highly centralised. It’s also necessary to continually review spending on IT in the business, to make sure that new IT staffers and resources aren’t being used to circumvent deficiencies in the outsourcing relationship.
On the outsourcer’s side, a similar commitment must be insisted upon and adhered to.
The buyer must be prepared to be continually “sold” — often too much is given away by the supplier during negotiations in order to win the deal and so value-added services are required to grow the supplier’s business. It is appropriate to buy some of these, where they make sense. It is also appropriate to continually reopen the list of services in the interest of migrating offerings that will be used repeatedly into the core services list, and perhaps move low-usage items out into the value-added section (where they can be managed out of use altogether).
Both buyer and outsourcer must work together on certain items. If there is a shortage of skills or labour in your region this affects both of you. It’s helpful to jointly address the problem, whether by changing your technology requirements of the moment or by helping the outsourcer recruit or retain staffers. There have been cases where an outsourcer’s cost structure has been so compromised that deals have been terminated prematurely. It is better to give a little now than to have to recover later from an outsourcing deal gone under.
Outsourcing will probably not save money; it may bring expertise if you manage your deal to gain it. And that’s the key word — manage. Nothing good happens without effort!