Historically buyers of outsourcing services have grown to accept performance that meets the SLA and is acceptable, yet often not seen as stellar. Innovation is often a distant memory from the early days of the buying cycle. Our research indicates that buyers in 2008 will clearly be focused on innovation at the “correct” cost.
Q: What are some of the root causes of low satisfaction levels and lack of innovation from the providers?
A: Problems often start with the way the solution is scoped and cemented by the contract. Then to make matters worse, long-term agreements are often left unchecked and run on cruise control, allowing the provider to routinely deliver services that over time lose relevance to the business of today. Improved technology solutions, new capabilities and best practices are reserved for new agreements and not part of base contracts. Also, providers often have significant churn and movement of staff, resulting in diminished productivity (was that price really cheap?). Innovation is the last thing on the provider's mind when their scope is awkward and the margins razor thin. The typical account manager just wants to meet SLAs and go home and live month to month.
Q: How are buyers changing as a result of these provider characteristics?
A: Outsourcing buyers are becoming more sophisticated and are fairly competent in their views today. They are more satisfied the longer they engage in outsourcing. They continue to focus on continuous cost reductions and improving processes, but also want to have some form of risk/reward that actually is effective. We are seeing governance become more complex with dedicated executives taking on this responsibility in most new relationships. Ultimately, buyers understand that it is wise to plan and review existing contracts and relationships in advance of change. However, few have figured out how to build innovation into their relationships given the current accepted process.
Q: What is the gap in views pre and post contract on innovation?
A: Bad project requirements and poorly structured contracts lead to the awkward position of innovation in most outsourced relationships. While price is a key factor in negotiations, it is innovation that is often expected during ongoing operation. Consequently, it must be addressed early in the development of the deal and maintained as a high priority through contract negotiations.
If we look at what are the most important factors for success based on our buyer surveys, we find that intangibles such as innovation are appreciated by the buyers. We see quality, flexibility and innovation ranked higher than SLAs. They just don't translate well into the contractual agreements that come as a result of traditional procurement processes.
Q: What are the factors that affect a client's decision to expand the scope of an outsourcing relationship beyond SLAs?
A: Every buyer is different therefore we must understand the position of the client on eight key levels. Do they want full control or are they willing to allow the provider some leverage to be innovative? How fast do they want to make changes? Are they focused on price or value as an outcome? Are they risk averse or tolerant? Do they want to be involved or have a hands-off attitude? Do they want innovation or just a standard solution? And finally, do they want collaboration? Both the buyer and the provider must understand and appreciate these characteristics in order to understand the dynamics of the relationship.
Q: What should buyers do to build a relationship with their provider that fosters innovation?
A: First, ask yourself if you are a good customer and address the areas that you think might be combative. Focus on outcome and requirements and be less prescriptive. Force the provider to propose solution not just be an order taker. Think through your process of asking for provider response to your requirements. Be descriptive, not prescriptive by describing the outcomes you desire and spend less time outlining the steps. That's the role of the provider. Finally, manage and manage more than you though you ever needed to keep you and your provider aligned.
