Key considerations for organizations looking to attain successful outsourcing relationships.
I am excited about this blog and the opportunity to share with you some ideas and thoughts you may find useful to your organization’s needs. The first post is something I believe to be relevant to you – as attaining success through outsourcing can be challenging.
Organizations may adopt outsourcing as an alternative to reduce costs and minimize risks for activities not deemed core to the organizations’ business. However, an organization is usually unable to realize the desirable outsourcing value if one of the following game changers are missing:
Game changer No. 1 – alignment with the organizations strategy: if the need to outsource does not align with the organizations strategic planning and culture, it will likely not be perceived / considered by the organization as a valuable solution. Instead, it may be seen as a problem to manage at the expenditure of multiple departments, (e.g. IT and HR).
Game changer No. 2 – discipline from strategy through execution: a sound outsourcing strategy can only be completed through discipline during all stages of an organizations’ sourcing lifecycle: (1) strategy definition, (2) determining the organization’s base case and business case to outsource, (3) determining the organization’s outsourcing requirements, (4) go-to market strategy, (5) service provider selection, (6) transition and (7) monitoring of outsourced services. The level of effort, support and dedication required by different groups vary during each stage – a structured approach throughout will help foster clarity and objectivity – which will likely increase the probability of attaining and sustaining success.
Game changer No. 3 – clarity on organizations’ requirements: a good understanding of the proposed services to be outsourced will help the client and service providers to better define their roles and responsibilities. In an ideal scenario, a client will define that as a separate schedule so service providers will be able to better understand their resource needs, skills required and client expectations.
Game changer No. 4 – research possibilities: there is a lot of value on conducting research on whether service providers are capable to meet the organizations’ requirements, their reputation in the marketplace, their financial health as well as their ability to innovate and adapt. An organization may find difficult to select one, as there are a lot of good service providers in the marketplace. During this step, it is important not to lose sight of the organization’s mantra and whether or not the provider of choice will be a good fit.
Game changer No. 5 – evaluate the internal degree of change: at the same time you are completing your external research, reflect on the organization’s capabilities as relates to the changes ahead – and whether or not a phased approach will benefit the process. On top of that, to actually manage the change by having support from its change management team, ensure the team is being properly informed and enabling success through training and assigning resources to roles where they can grow. If the internal team is not mature / ready for this type of change within the desirable timeline, consider reevaluating the organization’s strategy timing.
Game changer No. 6 – financial due diligence of client’s outsourcing base case and business case: Review of the proposed financials, assumptions and the client’s desired financial goals shall be completed and, to the extent possible, clarified with potential service providers during the selection process.
Game changer No.7 – well-defined and orchestrated selection process: organizations that invest time of their people during the selection process tend to generate results that will likely be aligned with the organizations’ goals. The evaluation team should be well informed about prior steps, the selection criteria and the organizations’ mindset. From the service provider’s perspective, this is when the organization can create a good first impression and promote its principles, e.g., transparency – so service providers get to understand a bit about the organizations’ expectations.
Game changer No. 8 – market review of outsourcing scenario: pricing is an important component to the success of any outsourcing relationship. Consider reviewing proposed service provider(s) pricing with the market so the organizations’ can determine how to best utilize this information during the negotiation process. Attaining a balance between the clients’ expectations, quality of services and price is an art.
Game changer No. 9 – negotiation strategy: negotiation is an important element now that the organization knows the selected service provider(s). Consideration for negotiation scenarios where distinction is made for elements deemed essential versus nice to have is important. In addition, the definition of a negotiation team with representation from the organization’s procurement, legal and client areas is critical – including their roles during the process.
Game changer No. 10 – definition of key terms and financial responsibility matrix: assess whether service provider(s) will agree with the proposed minimum terms already disclosed during the selection process to proceed. That way you can focus on the service providers whom are in alignment and minimize time with others that, although can be a good fit, unfortunately don’t align with your organization’s terms and conditions. In addition, invest the time to define a detailed financial responsibility matrix covering all the required areas for this type of relationship, e.g., Asset ownership, Human resources, Facilities, In-scope services.
Game changer No. 11 – definition of governance beyond the traditional charts: invest the time to set good context at the roles and responsibility levels for all in-scope services. By doing so, the organization’s expectations can be better managed, as service provider(s) will know from the start their role and responsibilities.
Game changer No. 12 – transition beyond tactical elements: the first real opportunity to work together happens during the transition – often overlooked but nevertheless critical. The criticality of the transition comes from the fact that the organization and service provider(s) team are now mutually accountable to deliver services to its clients. A good approach during this step is to treat it like a project, with key milestones and goals defined.
Game changer No. 13 – ongoing monitoring: in the past, many organizations completed a detailed evaluation prior to contract signature, however their ability to monitor service provider(s) afterwards was considered reactive. Given the nature of outsourcing relationships and how critical those are to the organization’s services being delivered to clients, many organizations have changed to a proactive and ongoing monitoring approach. The benefits associated with the latter are material – as you can now be more informed about the service provider(s) current state of affairs and at the same time be in compliance with regulatory requirements.
To conclude: remember that a successful outsourcing relationship requires tremendous effort. The 13 game changers listed are a great starting point for you going forward – as accountability will always resides with you, not the service provider(s).