Q: Are companies getting the value they expected from their outsourcing partnerships?
BT: Most companies agree they are getting a return on their outsourcing arrangements. However, the ability to sustain high value realization over the complete life cycle of the agreement is the challenge. During the initial stages, the focus is on contractual terms, conditions and pricing. But somewhere in the second or third year of the agreement both customers and providers must shift their focus to factors impacting operational effectiveness and relationship management if they expect to realize the full benefits of outsourcing.
Q: What are the factors impacting value realization?
BT: Value leakage can take many forms. Sometimes contractual terms become unworkable over time requiring change control that nickels and dimes the relationship to death. In other cases, operational challenges cause clients to fail to fully leverage the talent of the provider and providers transfer key resources to new opportunities leaving gaps that go unfilled. Also, relationship challenges appear where unresolved cultural differences get in the way of effective communications and operational misalignment of roles results in conflicts and competing provider and customer strategic objectives. These factors can result in value leakage in the range of 40 to 70 percent of the original business case. Over the term of the agreement the value leakage can be significant.
Q: What can companies do to optimize their value potential?
BT: First, there are no silver bullets. What is required is consistent application of assessment processes and tools that tell the provider and the client where they are in the lifecycle of the agreement and where gaps are appearing that contribute to value leakage. It demands discipline on both sides and willingness to benchmark contractual, operational and relational factors over the life of the agreement.
It is amazing how perceptions become reality without fact-based processes for evaluating and optimizing value realization over time. I suggest companies and their providers consider four key strategies to optimize value realization for both sides:
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Agree on a multi-dimensional approach and tools to consistently assess the value exchange and relationship from its inception and at key milestones along the way.
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Establish a fact-based repeatable reporting mechanism that goes well beyond traditional SLA dashboard reporting to underlying issues (i.e. contractual metrics).
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Be consistent, open and conscientious in focusing on critical contractual, operational, and relational factors that are draining away potential value.
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Apply tools and share results cross functionally to drive out silo thinking at multiple levels of the organization and to eliminate points where pain is being created.
I mentioned pain in my last recommendation because pain in the relationship can be quite subtle. While it is sometimes difficult to discern the origin of pain, it is certain that over time it will fester and it will be felt broadly and poignantly by stakeholders on both sides. It is best to diagnose the source early and deal with it before it becomes serious and painful.
Q: Doesn't this kind of assessment require a lot of effort and cost?
TL: It does not have to be intensive or costly. If issues surface early and regularly, and have an underlying fact-based diagnosis, then the provider and customer are able to address issues, remedy the situation and avoid costly and laborious interventions. In the long-run, the value sustained over the term of the contract far outweighs any costs associated with these kinds of assessments.
Stopping value leakage carries with it a huge return, not just in terms of dollars, but in terms of future partnerships, significant cost reductions, untapped innovation and avoidance of penalties and risk. There is no doubt it is worth the effort and the limited cost.
I would say that if you are not engaged is this type of assessment, then value is leaking from your outsourcing relationship. The question is how much and what impact is it having on the future of your relationship. These are questions that demand answers and the tools exist today to provide those answers. It's just good business.
Check out our new assessment tools available through the Alsbridge Market Reality Assessment service by clicking here. |
