The outsourcing industry has traditionally focused resources on bidding and negotiating strong contracts. But once a deal is complete, buyers often put less emphasis and minimal resources on managing the resulting commercial relationship.
For more than a century the marketplace developed methods for purchasing goods, and later, services. Since the 1970s, we gained expertise and developed industry standards for buying outsourced IT services. We know how to define services, service levels, pricing, change control, disaster recovery and dozens of other subjects specific to outsourcing complex services. This was a natural evolution from existing practices for buying things to buying services.
However, if viewed with fresh eyes, the mismatch of attention between the contracting phase and the ongoing delivery management is obvious. Managing complex outsourcing relationships continues for years in an environment of constant change to the business and technical environments. Even a well-constructed contract has little chance of meeting objectives if it is not actively managed year in and year out. This observation is not new. Many in our industry are vocal about the problems caused by heavy focus on creating the contract and lack of attention on ensuring its success.
Evidence of this misalignment is visible everywhere. Bid teams have both resources and high level sponsorship. Governance teams are usually under-staffed, without integrated tools, and report at a lower level. Industry standards are generally used in contracts, but to a much lesser degree by in-house governance teams. Most companies report significant disappointments with their outsourcing relationships.
Does this mean the solution is to increase resources and employ more industry standard processes to managing outsourced services? At Integris Applied, we think these are necessary steps, but not THE solution.
Some companies want to manage service providers to the letter of the contract – the Contract is King model. Most service providers would prefer to develop a strong relationship and keep the contract in a drawer. In many cases, the environment is somewhere between these extremes and the relationship is adversarial. It is less common to find buyer-service provider relationships focused on ensuring the success of the outsourcing – i.e., meeting the current objectives – for the good of both the company and its providers.
The optimal solution requires a focus change – away from simply defining a contract and managing to deliverables. Instead, the focus should be on managing the outsourced environment to meet the company’s objectives, with flexibility to adapt to constant changes. For this to work, buyers will have to make sure their service providers are successful too. This sounds too lovely to be practical. However, at Integris Applied we believe the marketplace already has the necessary tools to manage this way – like defined governance processes, multi-sourcing service integration, operating level agreements and shared service levels – if we choose to use them. Companies need to add additional planning and meeting time with providers to align the agreements and governing processes to support its objectives and protect our providers.
So where does this leave us?
First, we need to rebalance the resources applied to the contracting phase with those needed to manage outsourced services. In addition, we need to change the focus of our contracting phase from defining services and obligations to clarifying and meeting our objectives. Lastly, we need to manage the outsourced services to meet evolving objectives rather than on delivering contract obligations. This means we will have to take care that our providers are also successful in order to create the flexibility from them that we will need. This is not a secret answer; we just need to do it.
– Lynn McNeal
27-Apr-2014 – [bio]
