Outsourcing Arrangements: Helping You Help Me

Spend Matters would like to welcome a guest post from Vantage Partners.

In Part I of this five-part series, we will share an overview of some of the top reasons a buyer decides to outsource. Additionally, we will explore how you, as the buyer, can enable the outsourcing service provider to effectively deliver on the arrangement, thereby helping you reach your own objectives.

Despite the continuing growth and maturity of the out¬sourcing industry over the last twenty years, too many relationships are still failing to deliver the value they are expected to generate [1]. While it is tempting to point to providers' shortcomings in service delivery or "oversell¬ing" in the sales process as the source of most outsourc¬ing failures, experience tells us that success or failure in outsourcing is rarely one-sided. Many buyers have gotten so good at delineating contractual responsibilities (using RACI or other models that detail a separation of roles between buyer and provider), that they forget that there are things they can do to make it easier (or, as is often the case) harder for their provider to deliver the results they want.

Most outsourcing arrangements, regardless of which business process they focus on, are complex enough to require some degree of collaboration and joint effort. When these relationships fail to reach their potential, there is usually contribution to be found all around -- from buyer and provider alike. That is not to say that you shouldn't insist in a strong contract with clear account¬abilities. Nor are we suggesting that you should accept poor performance from a service provider. But when you understand the root causes of the problem and how you may be contributing to the situation, you are better posi¬tioned to figure out how to make things better.

While it is easy to assume failures are the "provider's problem," unfortunately, it is your organization that is stuck with the poor business results. And SLA penalties are rarely enough to compensate for not meeting your fun¬damental goals for the arrangement. The bottom line is, to get the value you are seeking you need to help your providers help you.

The Kind of Value You Want Matters
Managing outsourcing relationships effectively takes considerable effort and expense, and that effort and ex¬pense should look different based on the nature of the arrangement. It is easy to imagine that a deal focused on lowering cost and providing a predictable level of service (such as a basic facilities management or payroll deal) should be managed differently than one intended to dra¬matically enhance a business process or deliver a significant degree of innovation.

According to research conducted by Michael Corbett and the International Association of Outsourcing Professionals (IAOP), some of the top reasons companies outsource include: [2]

  • Reducing cost (48%)
  • Focusing on core capabilities (17%)
  • Moving to more variable costs (13%)
  • Accessing needed skills (9%)
  • Innovating (3%)
  • Improving Quality (3%)

With such different kinds of business goals for outsourc¬ing, how can you best direct your investment and fo¬cus your efforts to ensure that you get the value you are seeking? And how can you avoid doing things that break your provider's business model, or otherwise inhibit their ability to be successful? At the highest level, you need to get clear on your goals for outsourcing, understand how your provider plans to deliver on those goals, and act in a way that enables your provider's success.

In the subsequent parts of this series, we will explore ways in which the buyer often inhibits success and lay out potential steps you can take to help your provider help you. In Part II, we will focus on ways you can help your provider deliver you cost reductions.

- Danny Ertel, Partner, and Sara Enlow, Principal, at Vantage Partners

[1] See, for example, IAOP Research Committee Membership Baselining Results, 2006, or CIO Insight's Vendor Value Study, 2006.

[2] Research collected by Michael Corbett and reported at the Outsourcing World Summit, 2005.

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  1. Kevin Nielsen:

    I look forward to receiving the complete series.

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