Getting the quality and focus of service desired from a service provider can be quite challenging for a number of reasons. First, it requires getting the senior executives talking with each other to agree on what they’re after. Second, conflicting goals have to be addressed. Third, organizations need to know how to reap the benefits of new technology after cost savings.
Sourcingmag.com recently interviewed Linda Cohen, VP and chief of research for IT services and outsourcing for Gartner. Here are eight tips she gave to ensure that you receive the quality and focus of service you want and desire from your service providers.
Tip #1. Set up realistic expectations for the outcome between both parties.
Historically, outsourcing has been taken to be synonymous with cutting costs. However, that is not an enduring goal for outsourcing year over year over year. “Sooner or later you’re gonna make some investment gain,” Cohen notes.
Because of that, both the buyer and service provider need to disclose their true expectations of benefits every year because things change. For example, let’s say a buyer thinks it’ll reap a 10% costs savings and the seller will reap revenue. At the end of that year, Cohen says, both parties need to look and see if they got what they expected. If not, they need to determine why not. And then looking forward, they need to decide what their next set of expectations is.
Tip #2. Realign expectations at least annually.
Taking the previous example a step further, let’s say the buyer needs new technology and the seller needs to make a better profit. The outsourcing deal needs to “realign their expectations of what they want to get out of it in a given year,” Cohen says. “Realigning expectations at least annuallyÉand setting a reasonable outcome is really critical.”
“Once we outsource, we have to measure the performance — the outcome we expect from the service provider, but not how they make the magic,” Cohen explains. The client team has to focus on the outcome.
To ensure that this happens as it should, it’s imperative to put the right people in place to do the measuring — not the people who manage that internally. In data management, for instance, it’s important to plug in people who understand data in the right way so they can adequately evaluate where cost savings are possible.
The operations managers don’t help by continually saying, “We wouldn’t do it that way,” or “We didn’t do it that way.” You have to profile the right types of people with the right types of skills to manage this effectively, Cohen says.
Tip #4. Get a consensus of opinion from the senior executives about what they’re after.
Different executives may have different goals in mind, such as cost reduction, new technology, access to a whole new revenue string, etc. “Executives have to get on the same page about what they expect from this outsourcing deal,” Cohen says. “Goals have to be clearly articulated in terms of outcomes.” And there has to be a consensus in order for the outsourcing deal to be successful.
Getting at the “why” of outsourcing is a challenge for most organizations. But without a definitive answer on that, launching into action is a mistake. Without knowing desired outcomes, you can’t measure success. Without consensus on why the business is changing its delivery model, senior executives won’t be able to communicate clearly what the goals are for outsourcing. In one Gartner report, Cohen and co-author Allie Young write, “This lack of executive consensus is one of the main reasons why outsourcing deals fail.”
Tip #5. Getting ready for outsourcing is critical to being successful.
By this, Cohen is referring to understanding the total cost of operation. “It is not enough to say the IT budget for desktop services is $2 million a year so that’s what we should expect to outsource,” she says. There are all kinds of hidden costs that are not reflected in budget terms.
Getting ready for outsourcing also includes setting the right service levels and expectations with users before solidifying the outsourcing deal — on both a user and business level. This, in turn, sets the bars in the right place for service metrics.
Yet another aspect of getting ready for outsourcing is making sure that everyone involved understands where service is going to be increased or decreased as a result of outsourcing, so they don’t later blame problems on the vendor. “If you’re not willing to spend money to increase the level of service, that needs to be known before outsourcing,” Cohen points out. “Too often,” she says, “we outsource the state of the market,” meaning where things are today. “What we need to do is outsource to what’s needed — not above the service levels we need but not below either. Set the bars in the right places before we outsource.”
Tip #6. Don’t view outsourcing as a resolution to a problem.
Outsourcing is not the answer to the problems of high service costs or difficult-to-deliver applications or even a lack of skill sets. “Take outsourcing more strategically, less tactically,” Cohen advises. It needs to have a long-term, enduring business value to be successful.
“You can outsource year over year cost improvement or year over year operational improvement or year over year performance improvement, but you’ve got to set the goals. Stop the cycle of outsourcing to solve today’s problem,” she notes.
When considering outsourcing, a company should be asking how outsourcing will help over the long haul. “Organizations that outsource tactically to solve problems and have outsourced for a few years have realized that’s not the way to go,” Cohen says. “We need to clean up our act and create the most efficient IT possible and then consider what outsourcing can do for us.”
Unfortunately, many organizations don’t have the luxuries of time or money to get their houses in order before being coerced into some form of outsourcing. To avoid that or putting energy into what you know will become a non-working outsourcing relationship in two to three years, “create a sourcing strategy that enables the business strategy,” Cohen says. “Whatever our business goals are, we’re going to focus on making the right outsourcing decision to meet those goals.”
Tip #7. Outsourcing contracts need to be flexible.
Historically, outsourcing contracts have been inflexible, cookie-cutter deals that are typically wholly focused on cost cutting. But once that’s achieved, companies frequently start looking for more. Long-term agreements must be structured to anticipate the change that’s inevitable in business and technology.
If the real goal of an outsourcing deal is operational improvement, for example, then service level agreements, metrics, measurement schemes, terms and conditions all have to be written to that outcome.
Along the same lines, “The way that a service receiver or buyer of service treats the relationship needs to change,” Cohen notes. “You have to respect that services provided in these outsourcing deals really are strategic to the business,” she says. As a result, these organizations become dependent on their service providers.
If a contract has been written from the efficiency perspective, it probably doesn’t take into account potential enhancements or transformative initiatives that a company might want to implement. This organization will be stuck until it succeeds in renegotiating the terms of its agreement.
Tip #8. Relationship management is critical to the success of outsourcing deals on both sides.
Respect on both parts is vital. “A mutual benefit between both parties is critical,” Cohen says, “and has to be sustained throughout the life of the relationship.”
The service provider isn’t the “enemy,” out to gouge unsuspecting clients. Most actually relish the notion that buyers will get into these deals knowing exactly what they want.
Unfortunately, the opposite has been a problem for service providers for quite some time. Clients tend to sign up for certain things at the beginning of an agreement and then shortly into it, they want to change things. The service provider, however, is staffed according to the original agreement and can’t suddenly change its delivery model simply because the client wants something different. The provider needs more clues in a timely manner.
Multisourcing: Moving Beyond Outsourcing to Achieve Growth And Agility by Linda Cohen and Allie Young