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No substitute for experience: the value of a third party

Posted: 04/14/2016 - 20:28

If cooperation in client and outsourcer relationships is so highly prized, why is it so difficult to achieve?

In her excellent article ‘The Value of Cooperative Strategy‘, Kate Vitasek discusses Professor David Faulkner’s work on successful alliance relationships. These are “characterised by higher levels of commitment, collaboration, communication, and trust than are less successful alliances.” Faulkner concluded: “Alliance partners must collaborate to achieve their strategic objectives. And this is equally true for outsourcing relationships or joint ventures.”

We agree. Alliances bring together two or more parties with complimentary needs, in the hope of creating mutual benefits. So why do we constantly hear that many organisations are not realising the benefits of cooperative relationships?

Maybe we need to realise that the reality of cooperation is very different from the rhetoric. Cooperation, collaboration and alliances are all words that resonate at a conference and in the boardroom. But on the ground, corporate and individual goals are usually strict objective measures such as revenues, profits, savings and sometimes customer and employee satisfaction. On the basis that “you get what you measure” perhaps we should not be surprised that cooperation and collaboration are low priorities. They are difficult to quantify, hard to translate into commercial practice, and heavily reliant on trust.

Our experience of outsourcing relationships shows that each stage has different behaviours. A protracted contracting phase may seriously undermine or even fatally damage any goodwill and cooperative behaviour.

If there is a honeymoon period, it can be drastically short, as the demands of delivery come to the fore and the reality of cost effective service delivery to exacting SLAs can squeeze the life from innovation.

Many organisations display magpie tendencies where the newest and shiniest grab their attention and mature client relationships can easily become second-best to emerging clients, and the promises of a prospective vendor can sound more alluring than those of an incumbent.

So what is to be done?

We have clients seeking value, speed, innovation and the ability to adapt to competitive threats and opportunities at short notice.

We have suppliers seeking long-term relationships that play to their market strengths, utilise their capacity and generate predictable earnings.

In order to create true cooperation, all parties need to align their business interests from the get-go. It is no longer sufficient to strike the deal and then manage the contract.

However, there is a problem. Whilst the depth of expertise and experience has improved many simply lack the experience to see beyond the deal. The situation is only exacerbated by the focus on securing short-term financial goals resulting from the ever-reducing contract lengths.

The C-suite may have talked a good story of cooperation, but the people in the room are talking money. That’s how they get paid.

Those striking the deal do not get rewarded for seeing the other party’s point of view and if they cannot easily codify collaboration and cooperation, then we should not be surprised when it does not happen.

Research by HFS tells us that whilst 77% of the C-suite wishes to see their legacy services providers replaced, this number falls to just 27% for middle management.

Their conclusion is that leadership needs to force the issue and break the cycle of inertia.

Experience tells us that the simplest and most effective way to overcome these behaviours is to engage a third party to facilitate the alignment of interests.

Selecting the right independent third party will bring you the right experience and expertise. Clients seeking to engage a long-term outsourcing partner can benefit from the store of knowledge that an independent party brings: of good and bad contracts; of successful and unsuccessful relationships; of realistic and unrealistic expectations and of value-adding alliances.

Over time, there is no doubt the respective parties will build in-house capability to forge alliances and to operate in an environment of genuine cooperation. The signs are there. For example the emergence of “strategic or enterprise procurement” functions working alongside buyers and customers.

In the meantime, continuing as before, with an adversarial approach to contracting, will inevitably lead to the same result.

The alternative is simple, available and easy to access:

Engage an independent person or third party who can see both points of view, who is neutral and who can help align the business interests of all parties.

Second Author: 
Peter Colley

About The Author

Michael Steer, Programme Director at Mongoose & Swan, helps companies navigate the challenges of transformation, integration and remediation with a focus on programme management and collaborative working across captive, outsourced or hybrid shared services. He can be reached at michaeljsteer@monswan.com.



Peter Colley

Peter heads Colley Enterprises Ltd, an advisory company providing expertise to outsourcing clients and vendors. He specialises in quality assurance and risk management, improving commercial processes and troubleshooting problematic contracts.