Outsourcing: A Recipe for Success
Introduction
There is a body of research that suggests many outsourcing deals are not delivering the benefits expected by client organisations.
Common themes centre on a mixture of unexpected costs and issues surrounding the relationship. Yet despite these well publicised challenges there remains a significant client investment in outsourcing. In fact, the move towards outsourcing more core or strategic elements of the business coupled with the growing importance of greater collaboration with outsourcers is viewed as a way to achieve greater flexibility and agility
These challenges and developments suggest that outsourcing continues to be viewed overall as significant in the realisation of business goals and strategies although there are many who are currently in existing outsourcing arrangements that are failing to deliver the benefits expected.
It is our belief that outsourcing can be an effective strategy however there are a number of aspects that have to be understood and actively managed both from the outset and throughout the life of the contract to realise the expected benefit for the clients' business.
The right blend of ingredients
Having the right ingredients alone is not enough to form the basis of a successful recipe
Any memorable gastronomic experience has behind it an exact blend of quality ingredients and other elements including skills, experience, preparation, timing, tools and monitoring to ensure the delivery of a successful outcome for the customer. At Aurora Partners we believe the same can be said of outsourcing.
The objective of this article is not to describe an end to end process for outsourcing; after all there are plenty of articles about that. It is looking to explore, from a client perspective, those aspects of the "outsourcing recipe" that we know from experience are often overlooked or undervalued and yet we believe are critical in terms of delivering the required value throughout the term of the contract.
Looking at these aspects in more detail will help those involved in the procurement and management of outsourcing to better understand their existing outsource challenges and provide some insight into how to improve the successful prospects of future outsourcing ventures.
Having said this is not an end to end guide to outsourcing it is important however to provide some context. The outsourcing process can be broken down into 3 key stages; Business Case Development, Tendering & Selection and Managing the Contract.
Creating the right conditions
At the outset it is important to ensure the right "conditions" are created so it's worth recapping on a few basic outsourcing principles
Understand what your organisation expects to achieve through outsourcing and what services it is planning to outsource:
Cost saving is one driver for outsourcing but many organisations also outsource to obtain access to skills, drive innovation and to manage complexity/scalability more effectively
Outsourcing is typically more attractive and less complex for routine/repeatable activities or commoditised services
Outsourcing those aspects of the business that are considered core, critical or strategic carries with it a high impact associated with any failure. This type of outsource requires a higher risk profile to be understood and managed and requires a more mature, collaborative based approach.
Ensure that the business requirements, and how systems and capabilities can be leveraged, are clearly understood as this is essential to defining the service, the appropriate service levels, contract clauses and ultimately the price of the contract.
Recognise that the business strategy and technological developments may change during the term of the contract and therefore there is a need to build in the appropriate level of flexibility and responsiveness into the contract to avoid excessive cost through subsequent changes.
Understand the benefits and drawbacks of different contract lengths:
Current trends are towards a business outcomes based approach with shorter deals that are more focused and managed more closely
Any outsource inevitably results in losing knowledge/experience to the outsourcer making it difficult and risky to move to another provider or back in-house later
If the business or service requirement is not sufficiently understood then the right conditions for success will not be created. A clear understanding of the requirement enables the development of an optimum balance between Quality, Cost and Control.
Client & Outsourcer Relationships
Why are good relationships a key ingredient for successful outsourcing?
It is a common misconception that if there is a contract in place then that takes care of everything. A contract does indeed document what service has been bought and to what level. But not all contingencies can be explicitly incorporated into the legal contract and it is therefore necessary for parties to also rely on more implicit agreements or the spirit of the contract. In reality, the everyday working of the contractual relationship is governed by the individual's more subjective interpretation and therefore reliance on the legal contract alone is insufficient.
Ultimately, it is the individual's beliefs and perceptions of these obligations, rather than the actual written contract, that drive behaviour encompassing the parties' perceptions and beliefs of both the explicit written terms found in the legal contract and implicit unwritten terms.
The perception of outsourcing success or failure is often associated with the extent to which the non-contractual aspects (implicit beliefs & expectations) have been or are being delivered.
Have you experienced the often familiar situation where the SLAs have been achieved but it still does not feel as though you are receiving the service you thought you had signed up to?
Having established why relationships are so important to the success of an outsourced contract let us consider the factors that can influence the establishment of good relationships
It may seem a very simple question but what type of relationship do you want with your outsourced service provider?
We often hear the phrase "I don't want a service provider I want a Partner" but what does this really mean and are all contracts suitable for this?
The starting point is to consider what type of service you are outsourcing.
For relatively simple and repeatable or commoditised services it is more usual to have a typical client/outsourcer relationship. If however you are looking for an outsourcer to support a more complex arrangement comprising core business functions then you will need to invest in a
collaborative relationship often viewed as an extended enterprise that requires greater innovation and thought leadership.
Collaborative relationships often cost more as there is a greater investment required by the outsourcer. Therefore the type of relationship you have with your outsourcer is very much driven by the type of services you are buying and consequently contributes to the cost vs. value debate.
Contracts and relationships are complementary in that both need to be strong to produce positive outsourcing outcomes
Organisation
The management of outsourcing contracts requires interaction between client and outsourcer at different levels. The early development of both formal organisational roles in conjunction with successful interpersonal relationships is key to the efficiency, effectiveness and evolution of the contract.
The establishment of a good relationship takes a combination of the right people within the right organisational structure who are empowered and supported to make decisions. There must be a mutual understanding by both client and outsourcer regarding how they wish to conduct business together with behaviours that do not undermine the relationship even when under pressure.
On the client side it is beneficial to have a retained organisation that has the breadth and depth to understand and if necessary challenge what the outsourcer is saying and doing. Enlightened organisations recognise that the skills needed go beyond procurement, finance and legal and extend into other areas such as Se
There is a body of research that suggests many outsourcing deals are not delivering the benefits expected by client organisations.
Common themes centre on a mixture of unexpected costs and issues surrounding the relationship. Yet despite these well publicised challenges there remains a significant client investment in outsourcing. In fact, the move towards outsourcing more core or strategic elements of the business coupled with the growing importance of greater collaboration with outsourcers is viewed as a way to achieve greater flexibility and agility
These challenges and developments suggest that outsourcing continues to be viewed overall as significant in the realisation of business goals and strategies although there are many who are currently in existing outsourcing arrangements that are failing to deliver the benefits expected.
It is our belief that outsourcing can be an effective strategy however there are a number of aspects that have to be understood and actively managed both from the outset and throughout the life of the contract to realise the expected benefit for the clients' business.
The right blend of ingredients
Having the right ingredients alone is not enough to form the basis of a successful recipe
Any memorable gastronomic experience has behind it an exact blend of quality ingredients and other elements including skills, experience, preparation, timing, tools and monitoring to ensure the delivery of a successful outcome for the customer. At Aurora Partners we believe the same can be said of outsourcing.
The objective of this article is not to describe an end to end process for outsourcing; after all there are plenty of articles about that. It is looking to explore, from a client perspective, those aspects of the "outsourcing recipe" that we know from experience are often overlooked or undervalued and yet we believe are critical in terms of delivering the required value throughout the term of the contract.
Looking at these aspects in more detail will help those involved in the procurement and management of outsourcing to better understand their existing outsource challenges and provide some insight into how to improve the successful prospects of future outsourcing ventures.
Having said this is not an end to end guide to outsourcing it is important however to provide some context. The outsourcing process can be broken down into 3 key stages; Business Case Development, Tendering & Selection and Managing the Contract.
Creating the right conditions
At the outset it is important to ensure the right "conditions" are created so it's worth recapping on a few basic outsourcing principles
Understand what your organisation expects to achieve through outsourcing and what services it is planning to outsource:
Cost saving is one driver for outsourcing but many organisations also outsource to obtain access to skills, drive innovation and to manage complexity/scalability more effectively
Outsourcing is typically more attractive and less complex for routine/repeatable activities or commoditised services
Outsourcing those aspects of the business that are considered core, critical or strategic carries with it a high impact associated with any failure. This type of outsource requires a higher risk profile to be understood and managed and requires a more mature, collaborative based approach.
Ensure that the business requirements, and how systems and capabilities can be leveraged, are clearly understood as this is essential to defining the service, the appropriate service levels, contract clauses and ultimately the price of the contract.
Recognise that the business strategy and technological developments may change during the term of the contract and therefore there is a need to build in the appropriate level of flexibility and responsiveness into the contract to avoid excessive cost through subsequent changes.
Understand the benefits and drawbacks of different contract lengths:
Current trends are towards a business outcomes based approach with shorter deals that are more focused and managed more closely
Any outsource inevitably results in losing knowledge/experience to the outsourcer making it difficult and risky to move to another provider or back in-house later
If the business or service requirement is not sufficiently understood then the right conditions for success will not be created. A clear understanding of the requirement enables the development of an optimum balance between Quality, Cost and Control.
Client & Outsourcer Relationships
Why are good relationships a key ingredient for successful outsourcing?
It is a common misconception that if there is a contract in place then that takes care of everything. A contract does indeed document what service has been bought and to what level. But not all contingencies can be explicitly incorporated into the legal contract and it is therefore necessary for parties to also rely on more implicit agreements or the spirit of the contract. In reality, the everyday working of the contractual relationship is governed by the individual's more subjective interpretation and therefore reliance on the legal contract alone is insufficient.
Ultimately, it is the individual's beliefs and perceptions of these obligations, rather than the actual written contract, that drive behaviour encompassing the parties' perceptions and beliefs of both the explicit written terms found in the legal contract and implicit unwritten terms.
The perception of outsourcing success or failure is often associated with the extent to which the non-contractual aspects (implicit beliefs & expectations) have been or are being delivered.
Have you experienced the often familiar situation where the SLAs have been achieved but it still does not feel as though you are receiving the service you thought you had signed up to?
Having established why relationships are so important to the success of an outsourced contract let us consider the factors that can influence the establishment of good relationships
It may seem a very simple question but what type of relationship do you want with your outsourced service provider?
We often hear the phrase "I don't want a service provider I want a Partner" but what does this really mean and are all contracts suitable for this?
The starting point is to consider what type of service you are outsourcing.
For relatively simple and repeatable or commoditised services it is more usual to have a typical client/outsourcer relationship. If however you are looking for an outsourcer to support a more complex arrangement comprising core business functions then you will need to invest in a
collaborative relationship often viewed as an extended enterprise that requires greater innovation and thought leadership.
Collaborative relationships often cost more as there is a greater investment required by the outsourcer. Therefore the type of relationship you have with your outsourcer is very much driven by the type of services you are buying and consequently contributes to the cost vs. value debate.
Contracts and relationships are complementary in that both need to be strong to produce positive outsourcing outcomes
Organisation
The management of outsourcing contracts requires interaction between client and outsourcer at different levels. The early development of both formal organisational roles in conjunction with successful interpersonal relationships is key to the efficiency, effectiveness and evolution of the contract.
The establishment of a good relationship takes a combination of the right people within the right organisational structure who are empowered and supported to make decisions. There must be a mutual understanding by both client and outsourcer regarding how they wish to conduct business together with behaviours that do not undermine the relationship even when under pressure.
On the client side it is beneficial to have a retained organisation that has the breadth and depth to understand and if necessary challenge what the outsourcer is saying and doing. Enlightened organisations recognise that the skills needed go beyond procurement, finance and legal and extend into other areas such as Se
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