I just read an article published this week, titled “Spreading the word on outsourcing.” What’s interesting about it is that, although it starts out advising companies about the benefits of outsourcing their non-core processes, it switches to a discussion about outsourcing failures. The writer cites a recent study that found nearly 70 percent of 300 survey respondents (apparently in Ireland) said their outsourcing deals “suffered from poor vendor selection and lack of service levels.”
What grabbed my attention even more was a letter from a New Albany, Indiana, resident commenting on the poor quality of services, the subsequent deterioration in the city’s appearance, and the growing frustration of its citizens, which occurred in New Albany after it outsourced its sanitation collection system. The letter-writer stated, “Outsourcing a service will always lead to contractual problems when changes are needed.”
And just four days ago, Forbes published an article titled “The Perils of Outsourcing,” relating the story of an entrepreneur’s frustrating experiences with outsourcing.
Is it just me, or does it seem that after decades of outsourcing we should have reached a turning point by now where these kinds of stories would be few and far between?
Judging by these and other stories, organizations are still struggling with the basics. Conducting an effective provider selection process. Developing SLAs that measure the business outcomes, incentivize the provider, and monitor whether the buyer gets what it’s paying for. Building flexibility and relationship management into the deal at the outset to avoid contractual problems when changes occur. These tasks and activities are fundamental and critical to successful outsourcing.
These fundamentals aren’t hidden, only to be discovered by trial and error today. Plenty of companies already learned them while in the trenches and have since shared their lessons learned and best practices in dozens of books and conference presentations plus hundreds of articles, case studies, and white papers. Thus, today, right out of the box, outsourcing comes with guidelines as to how to assemble it so it will result in the anticipated return on investment.
I confess that I’m dismayed when I read articles like the three I mentioned in this blog.
Are companies assembling their outsourcing arrangements without reading the directions, so to speak?
Why do you think a good number of outsourcing relationships still aren’t structured on the proven fundamentals for success?
Since 1998, freelance writer Kathleen Goolsby has studied outsourcing relationships’ successes, failures, trends, and best practices. She has interviewed more than 860 executives at buyer and service provider companies and is the author of “Critical Requirements for Building and Sustaining a Successful Outsourcing Relationship,” a chapter in Global Outsourcing Strategies: An International Reference on Effective Outsourcing Relationships (December 2006, Gower Publishing). As a freelancer, she also currently serves as the Senior Writer for Outsourcing Center (whose parent company is sourcing advisory firm, Alsbridge) and has authored dozens of articles as well as white papers. In a past role, she was editor of Outsourcing Venture (a former print publication). You can contact Kathleen at ksgoolsby@gmail.com.
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I absolutely agree with the views here. However it is also important that we see the complete picture.
It is absolutely important that outsourcing relationship is looked at as Partnership and not a vendor – client relationship alone. Buyer do need to look at service providers as extension of their organization, providing them visibility on path ahead, customer views, challenges faced. Above all, ensuring a right political environment inside Buyer organization so that service provider gets right kind of support is also absolutely critical.
Outsourcing is not a typical Vendor Client relationship. It is a strategic partnership and one need to view it that way. While we should tie down service provider with stringent SLA’s following are the questions we should answer before we ask Service Provider to agree to the desired SLA’s:
1. Does service provider has conducive environment to deliver on these SLA’s
2. Did buyer organization met some of these SLA’s or is it only a wish list
3. If SLA did not exist earlier in buyer organization, how collaboratively and iteratively we can develop in a win-win model without impacting end customer.
4. Can we look at alternate model of measuring success for e.g. number of customer complaints in the relevant area?
5. Are we enabling service provider organization by providing relevant knowledge and experience?
If answer to any of the questions is no then one should think deeper before we call a outsourcing relationship success/failure.
Yes, some of the stories one reads are certainly alarming, though they are actually fewer and farther between than before. Nonetheless, when they do occur, is it because organizations are still struggling with the basics? San’s point #2 may be well taken – are the SLA’s actually achievable in the buyer organization or are they just wishful thinking? But even when SLA’s are realistic, why do some outsourcing relationships yet fail? The author feels it is because they aren’t structured on the proven fundamentals of success. I somewhat disagree. Most buyers are aware of the do’s and don’ts, and include them in the decision making process. But the weak link is the vendor selection. While the buyer may know what they should expect from a vendor, they often cannot obtain reliable information on which providers meet those criteria in reality. That kind of information can only come from independent third party research, or to a limited extent from other buyers, but not from the providers themselves.
I think the real challenge in outsourcing today is that the procurement people leading the charge have turned the buying process into a commodity exercise. In order to get the lowest price they have lost sight of the reasons for outsourcing and do not understand how to build outcome based contracts that are good for both parties.
They need to be re-educated that outsourcing is a way to source a service that is better than what can be delivered in house today, not just about price.