Businesses are focusing on how to sustain themselves while positioning their enterprise for future growth. Okay, now go back and read that sentence again. To whom does this refer?
It’s a comment often made in the context of drivers for deciding to outsource. But many buyers forget that this focus applies as much to service providers as buyers.
I spoke a while back with a buyer that had outsourced two functions in its finance and accounting process. The selected service provider had five other customers before this particular deal was signed. The buyer listed the following items in its list of top provider-selection criteria:
- Value proposition
- Proven process expertise
- Cultural fit
- Excellent references from existing customers
- Proven transition methodology
- Financial stability
Can you spot an important criterion for achieving the desired return on investment (ROI) that is missing from the list? (If not, go back and re-read the first sentence of this blog.) It’s surprising to me how many buyers don’t examine the provider’s plans for sustainability, especially in a highly competitive arena. The buyer needs to uncover facts about the provider’s capability of addressing changing circumstances and its ability to continually deliver greater value. These capabilities and plans for sustaining them have a major impact on a relationship’s ability to move forward over the long term.
What if a provider’s financial stability deteriorates rapidly? What if its customers start leaving rapidly – especially if it has only a handful of customers? You could exit your contract too, right? This situation actually occurred – and hit the media this week – at a UK outsourcing firm providing call center services. In one month, Orange, Vodaphone, and TalkTalk pulled their contracts from C.J. Garland. This followed on the heels of the outsourcing provider having already let a lot of its staff go last year because of other clients pulling out.
The loss of its three major clients was “the final deathblow.” Garland has gone belly-up; it was put into receivership.
So, you may be thinking: I’d have left too if the provider’s resource capacity had diminished and I found a better deal somewhere else (Garlands claims the customers left to take advantage of lower costs in Africa and Asia).
To stay or go – is that the question? I don’t think so. The question should be: why didn’t the buyers’ provider-selection criteria include understanding how Garlands planned to remain competitive — how it would continue to drive cost savings and yet maintain excellent service?
Focusing on that information should be part of the due diligence up front in any outsourcing initiative, enabling a buyer to minimize its exposure to risks. It should also remain part of ongoing discussions throughout the relationship. Outsourcing is an interdependent relationship, after all, and both parties need to collaborate and partner on how they address issues that arise – especially the ones that impact the financial aspects, the value proposition.
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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