Something seems to be fundamentally broken in the outsourcing world.
The C-suite is not happy with their legacy service providers and 77% want a change, as demonstrated by HFS Research, while lower down the organisation only 27% of middle management agrees with the C-suite and wish to see any change in the service provider. So, how do we explain such an apparent large disparity between the C-suite and middle management?
Well, perhaps middle management are too wrapped up in managing the service providers that they cannot see the wood for the trees whilst the C-suite are out hunting the latest unicorn to be seen on the horizon.
If the truth were known we would probably find it to be a little bit of both. So how can we get better alignment between the C-suite and their middle management? What steps can we take to pull these two disparate views together?
There are many entry points for this discussion and we will focus on the view from the top. We need to better understand why the C-suite have the perspective they do. We can do this by better and clearer communication, both up and down the line, and by removing the distance between the C-suite and the provider.
The C-Suite needs to provide clear guidance on what it expects from the service providers it is using – not some woolly abstract statement about positioning for future growth, which could be seen as an abrogation of management and a lazy cop out approach to leadership, as it leaves too much to be shaped by those lower down the organisation. This could be achieved by the C-suite getting real and giving some tangible hard facts about what is wants to see from its providers:
- revenue growth in product x by y%;
- reduction of $XXMM in debtors;
- cost reduction of x% in fuel usage.
Middle management can then fill in the gaps and work with the providers to deliver these or, as may well be the case, highlight why they cannot be delivered. Either way you get better alignment and buy-in up and down the organisation and out into the provider base as all parties know and understand what is being looked for.
For example, using the above examples the respective service providers could be challenged to:
- Improve stock availability at the right times by using real-time data analytics to understand current and short-term future demand for specific products linked to shelves and tills telling them when product is moving fast.
- Adopt better invoicing and collection processes by exploring the use of robotics in the creation of invoices, encouraging pre-payment, moving to self-billing and adopting Straight Through Processing techniques
- Explore more efficient delivery models by considering the use of pick-ups from locations convenient for the buyer, reducing the number of delivery journeys and piggybacking on another delivery.
Middle management will then be able to provide a simple snap shot of the positive outcomes the service provider has delivered based on the objectives agreed by both parties.
There also needs to be a turning down of the continual chatter and internal sell from the C-suite surrounding “strategic partnerships” based on fairly loosely defined objectives such as innovation. Again, this just leaves the rest of the organisation scratching its head as to how to deliver this contractually.
Once more, greater clarity in what exactly is being sought from the providers can only be a good thing. To be frank strategic partnerships sound great when talking up and out to your investor base and external market. Internally, unless there is real clarity around the outcome, they can quickly become a many-headed hydra slowing innovation and the desire for change. This area warrants its own book and we can only skim the surface in this article.
Stripping it back to basics, contracting for something which is ill-defined, which it will be without any clear view from the top, and which requires both parties to see the others point of view is never going to be simple and straightforward, especially when you factor in the respective reward models of those actually undertaking the negotiations.
For example, it is rare to have procurement rewarded for accepting a slightly higher price but with an innovation clause in the contract which may deliver some upside at some point in the future. The people in the room deal in money with one side actively encouraged to seek the lowest price and the other to sell as many of its services as they can.
Procurement are usually rewarded for delivering $$ savings, so are likely to favour the lowest price backed up by benchmarking and, if you cannot easily codify collaboration and cooperation, then we should stop being surprised when it does not happen.
From the provider side the team are pushed to up-sell their offerings, even where there does not seem to any apparent pull from the client side, further muddying the water and only adding an extra layer of complexity and noise to the process.
Banging the drum about transparency, maybe the C-suite need to step up to the mark and help by setting clear outcomes along the lines of:
- Adoption of robotic process automation will deliver xx% of services within Y years lowering cost to serve by $ZZ.
- xx% of services will be delivered via digital platforms within Y years driving customer revenue growth of $ZZ.
- Both parties will invest $ZZ in exploring and exploiting innovative ways of working.
No-one is saying this will be easy and there will be challenges.
For example, it is not unusual for either side to focus too much on what the number is during negotiation rather than the outcomes being sought. So you end up down a rabbit hole for days on end arguing whether the XX% of services should be 5% or 6%. Rather missing the entire point about working together. The important element is not the number it is the intent in the contract to explore how to deliver the outcome.
At this point you can hear those lawyers and procurement teams reading this article taking a sharp intake of breath, and sharpening their pencils, as they get ready to put forward all the reasons why this cannot work. Once more the dead hand of both will squeeze any innovation out of the contract in a desire to protect and lower cost.
To smooth the way in the delivery phase the greater the alignment between the client and provider during the sales process the better the outcome will likely be. We have previously covered this in another article: 'No substitute for experience: the value of a third party'.
Moving into the run phase of the arrangement the need for a well-structured approach to governance comes to the fore and this needs to be so much more than the usual contract management approach of hard metrics around % of suppliers paid to time, error rate in sales invoices, etc with an occasional measure of client satisfaction thrown in to make everyone feel as if they are listening to the customer. We all know and understand the scenario of everything showing "green and good" yet the customer is not happy.
Wait a minute though: "What’s in it for the service provider?" I hear you asking. Well, putting it bluntly: keeping the business. The C-suite will make changes if they feel they are not getting what they want from the legacy service providers.
From our perspective you can only expect alignment between clients and outsourcers when the C-suite are aligned with their own management.
About the Authors
Peter Colley 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.
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 firstname.lastname@example.org.