Tuesday, March 18, 2008

Two Keys to Sustaining Successful Outsourcing

The typical outsourcing relationship scenario runs something like this. Provider courts Client, Provider and Client enter into a relationship, followed immediately by a period of blissful harmony. Over time, however, Client and Provider become used to each other and the monotony of routine sets in. Then, one or the other wakes up one day to the realization that it just isn’t what it used to be. Dissatisfaction sets in and before you know it, Client is in the market again.

All those wonderful CRM strategies aside, I submit there are two strategies on the Client side of the relationship that are fundamental to a long lasting success experience for both sides.

Develop tight KPI’s and use them religiously. Defining and designing your metrics system is absolutely key. These metrics should support top level KPI’s that measure the things that matter most. Okay, we know that and, presumably, most of us do that. Where I see people begin to fail is in sustaining their attention on these indices. If you are looking at your KPI’s quarterly then you are not managing your business in a proactive fashion. Service providers have invested heavily in information systems and protocols that report out reams of data. As the Client, your job is to look at it frequently, understand it, and react to it in short order. Staying focused on the numbers keeps you alert to emerging problems, and keeps your provider alert as well. Also, make sure you are getting what you really need in these reports. Some providers will balk at customizing their canned data feeds to meet your particular requirements. If it’s really important, then don’t compromise for the sake of the relationship. If they are not willing to make sure you are getting what you really need, then the relationship isn’t balanced.

Major in non-exclusive agreements. The service provider community is growing smaller with continuing M&A activity, a trend that shows no signs of slowing anytime soon. Some suggest that we may end up with three or four mega providers. Maybe so, but we’re not there yet. While a “one provider” strategy does give you leveraged buying power and a simpler supply chain to manage, it can also lead to a sense of entitlement. One tactic to use is holding back portions of the work for competing separately where you can. Another common tactic is to keep the initial contract term short in order to keep the provider focused on the value proposition in anticipation of an early re-compete. This is easier to do in contracts where capital investments being amortized through the contract are relatively small, but work-out strategies can be crafted regardless of the size of risk being accommodated.

One final comment: The suppliers will major in CRM. The Client should be just as focused on Supplier Relationship Management (SRM). Frequent contact, candid talk, and staying focused on the business and interpersonal dynamics will bring balance to the relationship. And balance is ALWAYS a good thing.

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