Outsource Magazine

This article originally appeared in Outsource Magazine Issue #24 Summer 2011

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When it comes to dealing with troubled outsourcing relationships, we all seem to be just a little bit mad. Twenty-plus years into a reasonably mature business model, buyers and providers are still doing the same things over and over again and expecting different results – as handy a definition of insanity as I’ve seen. Maybe that’s why one survey after another tells us that outsourcing relationships get into trouble – some sooner, others later, most eventually.

When trouble arises in an outsourcing relationship, research and experience tells us that buyers usually start by demanding the provider do better.  They schedule more meetings, demand more and more frequent reports, make threats (sometimes in the form of 30-page letters drafted by their lawyers), and apply contractual penalties. Providers, on the other hand, put forward some combination of apologies, defensive explanations of what really went wrong (aka the “root cause report”), counter-attacks (also lengthy and penned by counsel), and the ritual slaying of key account personnel. (You may find a copy of our 2010 study at http://bit.ly/iO4IQb). Considering how much value is at stake in the difference between an outsourcing relationship that is performing well and one that is troubled – research from thoughtful academics, industry associations, and the advisor community suggests the difference is as much as 30% of total contract value – it would certainly be more than a bit maddening to think our repertoire of responses is so limited. Surely some other steps are worth a try?

For those interested in a slightly more sane approach to dealing with troubled relationships, here are my top ten tips for buyers and providers, in a more or less chronological sequence.

 

1. Start by asking why
   Typical causes of conflict include: wrong metrics driving the wrong behaviour; solutions not well-suited to the buyer’s business (have circumstances changed?) or the provider’s capabilities (did they oversell? did we negotiate them into commitments they shouldn’t have made?); and neglected “people issues” on one or both sides of the relationship.
   
   
2. Take a hard look inside 
   Easy (and fun) as it is to focus on why they are to blame, it is far more empowering to recognise our own contribution to the current situation. It can be easier to change some of what we are doing than to convince them they are wrong and that they should do something about it.
   
   
3. Make a list of what YOU can do to make things better
   When the mindset is one of scarcity, the parties focus on who will bear the cost of fixing whatever is deemed to be wrong. If instead you can create a bit of a surplus, you can come to the table with fresh resources to apply to the problem. For example, as a customer, can you make yourself less expensive to serve? As a provider can you help your customer avoid extra charges? If you do so, not only do you create a little value the two of you can share, but you also help set the tone for more collaborative problem solving.
   
   
4. Make another list – of what you need their help to fix
   This is not a list of what they are doing wrong. There is certainly plenty of time to sort through that together as part of developing a “get well plan”. Framing the question to yourself as what you need their help to do, makes a difference in how you think about the problem and in how you talk about it with them. By asking for their help (and offering yours in actually making the changes stick) you shift the discussion to solutions that might really work.
   
   
5. Create an opportunity for problem solving
   Whether you use a third party – for their expertise and for their objectivity – or proceed on your own, create conditions for focusing on fixing the problem rather than affixing blame. Invite those who can share the necessary information without getting defensive. Make use of flip charts to help participants see their comments have been heard and to direct their attention to the issues.
   
   
6. Separate relationship issues and substantive issues
   In stressful situations many conflate substance (technology, skills, legal terms and conditions, etc.) and relationship (trust, communication, respect, etc.). We trade one against the other – making concessions on substance, for example – so they’ll see us as a good partner. But that just doesn’t work; our counterparts quickly learn they can get concessions by threatening the relationship. Both relationship and substance are important, but mixing them up gets us in trouble; each needs its own kind of solution. We cannot cure real technology problems, for example, by showing more respect or having better interpersonal communication, any more than we can solve a trust problem with a discount. 
   
   
7. Fix underlying causes, not just symptoms
   Once you focus your attention on the substantive problems, ask what it will take to keep it from recurring, not just to fix it; you will hear different answers. Ensure fixes take care of the underlying drivers of behaviour that lead to problems. Are the metrics helping or hindering? Is it clear who should make which decisions, and with whose input? Does the provider’s solution still work given changes in the buyer’s business conditions?
   
   
8. Treat the "get well" plan seriously
   It is not enough to agree to changes, you need actually to follow through. Set clear objectives and timelines for your remediation plan; agree on accountabilities on both sides of the relationship, and for heaven’s sake, this time, don’t ignore change management.
   
   
9. Validate it is actually making a difference
   Remediation plans often need adjusting. Make sure to pause and ask whether the plan is actually working, rather than just keeping at it because “it was hard to agree on these changes”. 
   
   
10. Get out of the firefighting business
    It is harder to repair a damaged relationship than it is to take effective preventive measures along the way. Our research suggests only 50 percent of those who have tried to fix a damaged outsourcing deal consider the effort a success. Consider periodic health checks to identify gaps and weaknesses before they blossom into full-blown conflicts. 

It is not insane to work hard on making relationships perform. But when relationships do get into trouble, we need a repertoire of solutions that goes beyond “Blame, Threaten, Repeat”. There is just too much at stake.

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