Outsourcing Nightmares: four steps this industry needs to take to avoid engagement failure in the future
1) Less focus on the deal, more on the relationship.
Providers are all-too-frequently being forced into the position of saying what they need to win the deal, as opposed to having a structure to propose a realistic partnership that works for both sides, with specific milestones and balanced delivery expectations.
Possible Solutions: Advisors need to create a more collaborative RFP process that allows for more interaction between the buyer and interested providers. Advisors also need to set better expectations for their clients and potentially get their governance consultants involved earlier in the down-selection process. In addition, providers need to take a stronger look at how to develop their existing clients – and view them as future growth opportunities, as opposed to always chasing that next deal simply because there’s more immediate money on the table, which means more consultative account managers and less out-and-out salespeople.
2) Buyers need to get real proof-points on provider culture, performance and capability.
Buyers need access to pragmatic experts who talk to a multitude of peers in other organisations in order to get a stronger view of the post-transaction performance of providers. Simply relying on the rose-tinted references ponied up to the advisor, or reading inaccurate analyst reports (usually premised on rose-tinted client references) isn’t going to give them the accurate expectation of what they are likely to experience down the road with each provider.
Possible Solutions: Buyers need to do their own research and exploration and use the expertise of advisors and analysts to validate their strategy. Talk to other buyers, go to conferences, seek them out on social media groups. Ask advisors and analysts to make introductions to other buyers, and if they can’t do that you are probably wasting their money on them. Buyers should also try to hire at least one inhouse expert to work with the internal and external parties to add a dose of realism and experience to the whole process – there are plenty of experience experts in advisor/provider shops who are interested in getting off the road to get some buyside experience.
3) Early exit provisions should be implemented as an insurance from “value disappointment”.
There needs to be smarter forethought in the whole process where the buyer and provider prepare in advance for failure to meet expectations. Outsourcing relationships need to be marriages with pre-nups. Providers really do not want miserable clients and buyers need providers prepared to invest in them, or give up trying to outsource, as they clearly aren’t cut out for doing it properly.
Possible Solution: If providers are being shoe-horned into responding to a price-squeezing, innovation-sapping relationship, there should be an early exit provision for both sides (for example after 36 months). If the relationship isn’t working, it probably makes sense for both sides to exit quickly, cost-effectively and painlessly.
4) Buyers need to recognise the profession of services and sourcing governance.
After seven HfS summits, we can declare officially that most corporate staff have little knowledge or understanding of what services and sourcing governance people do and why they matter (or even exist). In fact, we estimate that 90% of employees are ignorant of the role and value a services governance profession provides – or should provide. Until services and sourcing governance is recognised as a crucial professional discipline, we are going to continue to be an industry struggling for an identity littered with flawed relationships and ignorant perceptions of what we all do.
Possible Solution: Appoint a Chief Services Officer (CSO). Many CPOs are proving ill-equipped to manage services governance, so surely it’s time for smart organisations to create the CSO function, with a direct reporting line to the top of the company? It’s hard to convince top talent to work for buyer governance teams when they are submerged four layers down the organisation from any decision-making authority. With the concerted move to increase investments in offshoring, shared services and outsourcing, not having an empowered senior corporate officer responsible for transforming operations is lunacy for so many of today’s organisations.
To read more of our lead feature on ‘Outsourcing Nightmares’ from the Autumn 2014 issue of Outsource, see the article index here.
About the Author
Phil Fersht is the Founder and CEO of analysts HfS Research and the author of the leading outsourcing blog ‘Horses for Sources’.