Spend Matters would like to welcome a guest post from Vantage Partners.
The transition into an outsourcing arrangement requires individuals to acquire new skills, exhibit new behaviors, and make some significant changes in mindset and assumptions. This is the first of a four-part series that will focus on the skills and behaviors necessary for outsourcing success, as well as point out a few key organizational levers (e.g., communications plan and incentive plans) that an effective change management program for these new skills and behaviors would utilize.
Outsourcing on a significant scale -- anything more than selectively contracting out specific tasks or narrowly defined functions -- requires effective governance and relationship management. Without it, buyers fail to achieve the value they sought, and providers cannot be profitable. Experienced managers of outsourcing deals will tell you: there's a great deal of real money at stake in how the relationship is managed (See Figure 1). Estimates of the value at stake vary, but the picture that emerges is clear: there's very little else in an outsourcing arrangement that buyers can assert some control over that matters more.
Figure 1 (Source: Vantage Partners, Managing Outsourcing Relationships: Essential Practices for Buyers and Providers, 2006.)
Over the last 15 years or so, organizations have developed interesting governance structures through trial and error -- specifying different types of committees, topics they handle, their membership, and the frequency of their interactions. They have also implemented processes for making sure that decisions are made, requests for additional resources are properly reviewed, performance is monitored rigorously, and contractual terms, credits, and payments are well managed. They have even hired experienced managers to lead their outsourcing arrangements. Yet it has become clear that structures and processes don't work without the right mindset and skills, and the touch points are too many for a few skilled people alone to manage complex outsourcing relationships with myriad internal and external stakeholders. Moreover, many of the most critical challenges begin to manifest themselves early in the relationship, when the parties may be least equipped to deal with them.
In the next part of this series, I will focus on how the type of outsourcing arrangement you enter should influence the type and range of new skills that will be needed to enable and lead to outsourcing success.
- Danny Ertel, Partner at Vantage Partners