Health checks: an ounce of prevention
One of the most common complaints that I hear from both buyers and providers alike is that they just don’t have the time to root out the underlying causes of systemic problems in their arrangements because they are so busy putting out fires. While it is true that the more firefighting you do, the better you get at it, if you don’t make the time for prevention, you will always be in the mitigation business.
One useful technique that more and more organisations are adopting is a periodic health check, as a way to identify problems early (before there are flames to put out). I have seen “health checks” take different forms, and be called different things. Whether you call it a “relationship assessment,” a “deal audit,” or a “health check,” these engagements should provide an opportunity to:
- have key stakeholders in the business make their interests heard;
- identify areas that are working well, and potential improvements in the way parties work together;
- diagnose the root causes of any issues;
- benchmark the relationship against other outsourcing deals;
- develop action plans for addressing relationship challenges;
- identify means to capture more value.
To be clear, health checks should not be an effort to determine who’s at fault for the relationship’s shortcomings, nor should they be an analysis of all of the things that could have been done differently in the past. They are also not a customer satisfaction survey. Rather, they should provide a foundation for joint efforts to improve results and relationships going forward.
For example, we recently worked with a European telecommunications company to perform a health check on one of their major provider relationships. While the company had realised initial cost savings, they found themselves wondering where the innovation was. People were asking – is the service provider adding value that we wouldn’t have eventually achieved without outsourcing? Though we got through a rocky transition, could we avoid three more years of difficult scope conversations? Key performance indicators (KPIs) are in place and understood, but do they measure the right things and drive the right behaviour?
Through the health check process, the parties discovered that they had very different definitions of “innovation,” and as a result, they often found themselves at odds over whether the relationship was generating the innovation intended.
Having recognised this difference in perspective, they were able to quickly come together on a shared definition of innovation, and establish some processes for ensuring that innovation was given the attention it deserved. They also modified their performance management process to provide bonuses for good performance where the contract lacked them, and they worked to develop a six-month rolling window for KPIs that would impose stricter penalties for recurring problems. The parties also began engaging in more productive scope conversations after using prior years’ data to create a service catalogue. While financial discussions persisted, the customer and provider began leveraging previous agreements on the value of services to make future discussions more efficient.
As this example illustrates, the most effective health checks proceed collaboratively, with both organisations helping to define some hypotheses to be tested, clarifying precisely how they will test them (via interviews, surveys, historical performance data, contract reviews, etc.) and then jointly interpreting the results and developing action plans. It is useful to have a starting point for hypotheses to be tested. My experience suggests that the most relevant questions to be explored fall into several categories:
- continuous improvement and innovation
- governance structure and decision-making
- mindset and trust
- processes and tools
- stakeholder engagement and alignment
A health check doesn’t have to be a lengthy, expensive endeavour; there are many ways to collect data on the relationship: interviews, survey, joint working sessions, focus groups, and review of contracts, performance reports, and governance data. The intensity of the data collection process should take into account the scope and complexity of the engagement. A simple survey might be appropriate for engagements that are relatively small in scope or are fairly straightforward; interviews of a broad cross-section of individuals who are involved in the relationship might be added for engagements that are more complex; and some joint working sessions and/or focus groups are probably appropriate for the most complex, broad-scope arrangements.
I’m often asked who should pay for health checks. Jointly-funded health checks are often most successful, because joint funding ensures that both parties have a financial stake in the process (which results in greater buy-in to both the process and the outcomes). However, health checks don’t have to be equally funded. They can also be funded by one side or the other, and implementation of the recommendations arising from a health check can be funded differently than the health check itself.
Health checks are a great way to step back from the day-to-day firefighting, and put in place means to avoid problems and achieve greater value. Consider putting in place a regular health check process as part of the way you manage your outsourcing arrangement – before you have big fires to fight.