New Skills for a New Outsourcing Arrangement

Spend Matters would like to welcome a guest post from Vantage Partners. See Part 1 of this series here.

Dealing with the transitions involved in a complex outsourcing arrangement requires new skills, behaviors, and significant changes in mindset and assumptions. Those charged with working with the provider have to transition from accomplishing results by directly managing the team doing the work, to accomplishing those results by managing a relationship with the provider. For many, this transition is complicated by the fact that the individuals who accomplished critical results on a day-to-day basis are former colleagues who now work for the provider. And service providers often have the mentality that outsourcing arrangements are more about results than process, so the customer should only care about the results, not how they happened. But they often find that simply telling their customer's staff they shouldn't care about something doesn't often work.

In addition to the demands of these often jarring transitions are the requirements posed by the kind of relationship the organization seeks to have with its service provider. Outsourcing relationships are complex and often subject to significant change over their five- to ten-year terms. Managers must think and act in new ways -- particularly those involved in relationships that need to be far more collaborative and jointly managed than a typical shorter term customer-vendor relationship. The Williams Companies business process outsourcing (BPO) experience is fairly telling. "Prior to outsourcing, we had mostly contracted out tasks and retained most of the responsibility. But when we entered into a major BPO arrangement with IBM, we had to learn to let go and let them do their job," explained Nancy Gustine, Director of BPO. Both partners have also had to deal with external changes. "When we started down this path, we were retrenching and trying to survive. But a couple of years later, the energy market had changed, our strategy was paying off, and we were in growth mode. That required changing how we worked together and the levels of service we could provide our stakeholders."

In general, more complex and transformational outsourcing arrangements have less clear scope and are business results-oriented. As a result, they require more ongoing negotiation, scope management, joint problem solving, and change management. For example, consider the different attributes of a collaborative outsourcing relationship in Figure 1 below.

Figure 1

In an outsourced environment, collaboration between buyer and provider are important drivers of expected cost savings, service improvements, and eventual business process improvements.

While some degree of collaboration is important in nearly every outsourcing arrangement, relationships aren't one-size-fits-all. As Helen Newton, Director of Supply Chain Operations for Capital One says, "Not all relationships provide the same value and involve the same risk. Different relationships involve different goals and challenges, and therefore require different relationship management processes and different skills. We started out by trying to understand what we wanted from each relationship and what it took to achieve that, and then mapped people and competencies to those different types of relationships."

For example, consider an arrangement that is primarily about generating efficiency and cost savings across many sites by applying a provider's economies of scale, like a telecommunications company outsourcing its global print services. For a supplier to be able to generate cost savings through economies of scale, it will likely need to limit customization and roll out some standardized print services and devices. Those people on the buyer side charged with making this arrangement a success will therefore likely need to be quite skilled at engaging with business units and geographies to understand how much customization they need, as well as engaging with the provider to find out how much their value proposition is dependent on standardization, and whether or not they can deliver on the requests of the business units/geographies. "We as the provider also need to be sensitive to the challenges our buyer counterparts are facing in getting their internal customers aligned. Working together to map the stakeholders, their interests, and the relationships among them, will help us come up with a plan to work towards the alignment we need to execute effectively," noted Tom Knight, a Global Program Executive with Xerox, at the conclusion of a workshop focused on the challenges of multi-line, multi- geography outsourcing relationships.

Contrast that arrangement with a relationship that is less about efficiency and cost savings and more about effectiveness, such as an FAO arrangement intended to rapidly and dramatically decrease the time required to close the books at the end of a quarter. Because a relationship like this one is about dramatic change, scope can be challenging to manage; the parties may disagree over what changes are within or outside the boundaries of the engagement, or who is responsible for driving them. These relationships therefore require strong skills for understanding needs and interests, and for working through creative solutions that take into account multiple perspectives, both internal and external.

- Danny Ertel, Partner at Vantage Partners

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