Three steps to a successful outsourcing relationship launch
Finally reaching agreement on an outsourcing deal after surmounting many negotiation hurdles doesn’t necessarily mean the hardest part is behind you. Many outsourcing relationships run into trouble soon after the contract is signed – in a 2010 Vantage Partners survey, 71 per cent of outsourcing customers and service providers said they began to face challenges within a year of contract signing. Half also reported that the issues they encountered in their arrangement still needed to be addressed, and unfortunately, ineffective resolution of those issues resulted, on average, in a 29 per cent loss of annual contract value.
An effective way to avoid many of the problems that arise in that first year of transition is to make sure the relationship gets off on the right foot with a joint relationship launch, which consists of three core components.
1. Full team briefing and joint relationship planning
When negotiators simply pass off long and complex contracts to the teams responsible for implementation, buyers and providers often enter agreements with different assumptions and understandings about each side’s priorities and goals. Therefore, it is critical to:
- Review the contract with the extended team. Don’t just hand off the contract or allow only a few “contract managers” to truly understand the contract. A formal meeting with negotiators and implementers should be conducted to review and discuss key terms and their underlying intentions, and discuss any outstanding issues and critical scope boundaries.
- Plan the relationship jointly. The type of relationship the parties have influences the challenges they may face – with the appropriate governance model and processes in place, these challenges can be mitigated. The parties should therefore focus during the launch on identifying the key challenges they anticipate and how governance should be modelled to address them. They should also agree on what a healthy relationship looks like (e.g., success factors that parties can regularly measure themselves against) and how and when the relationship should be assessed.
Joint risk management and applied governance
Buyer and provider often sense potential pitfalls down the road, arising from different cultures, business goals, and/or priorities, but they usually wait until problems crop up before managing them. Instead of waiting, both parties should do the following:
- Identify, prevent, and mitigate potential pitfalls. Review potential pitfalls during the launch, and develop a risk management plan for how to prevent problems and mitigate disasters if they do occur. Draft a set of joint operating principles to guide day-to-day interactions and outline how to handle exceptional issues.
- Develop decision-making protocols. Clarifying decision-making roles and responsibilities during the launch will streamline decision-making and address the underlying cause of those all-too-familiar symptoms: decisions taking too long to make, decisions upsetting or alienating a certain group, and decisions not being implemented.
- Manage conflict. To manage conflict well, buyer and provider need to be able to identify, understand, resolve, and learn from conflict. A conflict management process can help the parties generate creative joint solutions, make clear commitments, and strengthen the working relationship. During launch, both parties should learn about interest-based dispute resolution and plan for using a joint problem-solving approach to resolve issues. They should also consider the types of conflict likely to arise and agree on specific escalation paths and conflict management protocols.
- Treat scope and demand management as joint challenges. Management of both scope and demand need not be adversarial. There is often the expectation that providers should police scope boundaries, while buyers should continually test them. Demand management, on the other hand, is supposed to be the buyer’s problem – the provider should be seeking out and encouraging additional demand. Instead, scope and demand management should be tackled together using a mechanism that allows buyer and provider to identify scope boundaries, make appropriate trade-offs as necessary, and align around formal changes should both parties recognise that their scope boundaries need to move.
3. Communication and change management
Even if the dealmakers are satisfied with their agreement, there are still the executives, business units, end-users, and other impacted individuals who could resist the change — on top of the transition pains that result from the organisational impact of outsourcing. Functional executives at the buyer can waste time trying to persuade resisters to comply with new processes; the provider’s business case can be affected if end-users are unaware of or prefer not to adopt the new tools or processes, the use of which is fundamental to their cost case; and employee morale can drop significantly if affected (and unaffected) employees do not receive messages that address their concerns about the impact of upcoming changes.
- Encourage effective, continuous dialogue. Leads from both the buyer governance team and provider delivery team should enable continued conversations about planning for managing and embedding change and undergo joint training on effective communication techniques.
- Focus on driving desired behaviour. Different constituent groups will be impacted differently and will therefore need to be approached differently to gain their buy-in. Governance and delivery team leads should jointly identify these constituent groups and their needs to develop a targeted plan for addressing the concerns of each group and thereby elicit the desired behaviour from each group during transition and at key points after implementation.
- Send key messages using effective communication paths. Communication procedures and protocols should be designed to ensure that key communications are sent and received effectively. Early communications should convey the reasoning behind new processes that require a behavioural change in end-users, and later communications should focus on two-way communication between both parties’ governance teams and key stakeholders to determine what is working well, what needs improvement, and where change can be anticipated.
While the joint relationship launch requires a considerable investment of effort on the front end, it provides benefits that increase the likelihood of success of outsourcing arrangements:
- smoother transition and implementation;
- a greater ability among participants to address issues as they arise, without disrupting the progress of the relationship;
- increased efficiency and focus on getting the work done;
- reduced conflict, less duplication of effort, and minimal loss of time; and
- a strong foundation for a better long-term working relationship with your outsourcing partner.