The Golden Rules for Getting the Outsourcing Relationship You Deserve

I doubt many people would argue with me if I said that there are more critics of outsourcing than fans.  As 30% of outsourced relationships are expected to fail every year it is unsurprising that there is a degree of scepticism.  But does that always have to be the case?

In a previous article we explained that, whether you are a sceptic or not, there are three great reasons to outsource:

  1. Flexibility
  2. Speed of deployment
  3. Minimum of capital investment required

So, even if your only objective is to outsource to achieve these benefits, how can you do it and get the successful relationship that your business deserves?  Let’s have a look.

DESIGNING THE STRATEGY

Let me make a bold statement here.  I would argue that the cause for failed outsourcing relationships generally starts with the client.  That is not a flippant comment to court controversy but borne from my experience of many years in outsourcing across contact centres, supply chain and logistics.  And, in my opinion, the key reason for that is lack of clarity at the strategic planning stage.  The client needs to decide and be clear from the start on the following questions

  • Why do we want to outsource?  Is it one of the three reasons above or to save money?
  • If it is to save money – how much quality are we prepared to sacrifice?  Similarly, how much are we prepared to pay to get the quality that we demand?
  • Do we want an ongoing outsourced relationship or would we prefer a build, operate, transfer transaction within a defined timescale?

As they used to say back when I did my finance training “there is no such thing as a free lunch”.  So, why at this stage are so many strategies designed, and destined to fail, as an alchemic cocktail of unrealistic demands - low costs and high quality?

Whether your strategy is crystal clear or as opaque as a muddy puddle you will get the outsourced relationship that you deserve.

THE TENDER

Your strategic intent MUST come through without dubiety in the tender documents.  The outsourcers will build their business model and pricing on the foundation of the quality of information in the tender.  

If you want to stipulate the number of days training – state it.  If the qualifications of each person working in the relationship is important to you – state it.  If the organisational structure is important – state it.  If you want the outsourcer to be flexible by half-hour in a two week window – state it.  If you want the rate per hour to be as cheap as chips – state it.  If you want the outsourcer to set up and then transfer the operation to you in 18 months – state it.  If you want all buildings used in the contract to be painted orange - state it!

William Safire said “never assume the obvious is true”; I say never assume that the obvious is obvious.  Leave nothing unsaid in your tender documents – as painful as it is to say you are sacrificing customers for cost – say it!  It may feel uncomfortable from a commercial viewpoint to say the cost is less important to you than the quality – but suck it up now and say it because mopping up a failed relationship later will feel like a commercial apocalypse.

Either way, the quality of your tender document will get you the outsourced relationship that you deserve.

EVALUATING RESPONSES

Evaluate the responses to your tender carefully and always refer back to your strategic intent.  The first responses to be ditched are those that just haven’t got it or put the effort into the response.

You need to meet those potential partners that have responded well to your tender.  It is important to hear them play back to you what your strategic intent is and to explain how they have responded and built their business model.  Again, never assume that they have understood what you want until they can express it in their own words and you can objectively conclude that you are in agreement.

Once the transactional criteria have been aligned and ticked off the most critical outcome of meeting the potential partners is an assessment of cultural alignment.  Effectively, in the most engaged relationships you are asking the employees of another organisation to be recruited, led, motivated and empowered in exactly the same way as your own people.  This can only be achieved in culturally aligned organisations.

When still at the selection stage the short listed vendors should be asked for their best and final offer.  This should be a clear line of sight of the margins that the vendor is prepared to work at for the requirements.  Differentials in price shouldn’t be assumed to be one vendor padding their margin – the lowest bid may have misinterpreted the requirements or be prepared to run the contract at a loss for marketing or further business reasons.  Your evaluation should consciously and critically assess pricing differentials before moving to a single supplier negotiation.

The time and effort that you put into evaluation of the tender responses and assessing cultural alignment will get you the outsourced relationship that you deserve.

NEGOTIATING THE CONTRACT

The whole process of negotiating the contract has the potential to turn the relationship toxic if the scope of requirements creep away from the tender documents.  The contract should only be required for the day that things go wrong.

The negotiation of the contract is the time to agree the conditions for termination, the remedies for breaches of contract, and the legal nitty-gritty.  It is definitely not the time to re-open the requirements in the tender document or to screw a bit more money out of the outsourcer.  By the time both potential partners have got to negotiating the contract the commercial and operational principles should be set in stone. 

Commercial input at this stage is required to keep the lawyers focussed and pragmatic.  The degree of alignment between the original strategic intent and the contract will get you the outsourced relationship that you deserve.

WHEN THE CHAMPAGNE AND CUP CAKES ARE FINISHED

Once the contract is signed, the buildings are branded, the people are recruited and the champagne corks have popped the hard work to make the relationship work really begins.

There are three golden rules for me once the relationship is live and operational – firstly, invest in the relationship.  Integrate the partner into your team rather than manage them at arm's length and cement the cultural alignment with close partnership working - never fall into the trap of brandishing the contract and micro-managing by KPI.  Secondly, put the contract away – a bit like Zappos have their culture book, co-create a simple, usable document that is clear on the vision, the culture and the important way of doing things.  And finally, be very circumspect about the financial rewards and penalties that are associated with the contract – don’t distract focus from the original strategy and the quality of the relationship with a clumsy “punishment” regime.

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THE GOLDEN RULES

  • Be honest and clear about what you are hoping to achieve from outsourcing
  • Never assume that you and the potential partners are in agreement on the desired outcomes
  • Ensure that the two organisations are culturally aligned
  • Don’t re-open negotiations on rate or requirements when you get to preferred supplier negotiations
  • Put away the contract after it is signed – create a culture book instead that is clear on “the way we do things around here”.
  • Invest in the relationship.  It has to be about more than contract negotiation and managing service level agreements.
  • Share the upsides – and be fair with the downsides

When the contracts start to get dusted down, when lawyers starts to ponder the termination clauses and when interactions at the senior level start to get frosty the relationship is doomed.  Both partners will have lost money, time and are facing a daunting task of disentangling the business without impacting customers.  If you approach outsourcing with clarity, transparency and honesty you will get the relationship and the results you deserve.  Why leave it to chance?