We all know by now that the relationship between the parties of an outsourcing contract is paramount to the success of the deal. While there is a fair bit of advice out there, it is mainly process-orientated (e.g., communicate frequently, plan together, have improvement workshops). But what if you genuinely do not like your counterpart on the other side?
Imagine building a house without drawings or specifications, instead relying on various trades- people to use their experience to build what we have in mind. They’ve all done this before, so there is no need for a plan, really. Of course, this will sound extremely silly to anyone who has ever built a house, as well as to most of you who haven’t. The place would simply be unlivable. Nevertheless, this is exactly how outsourcing contracts are usually constructed.
Many client organizations nearing the end of an outsourcing contract start to consider whether they should retender the deal. Yet for most, these deliberations are mostly about whether to do so or not; very few go beyond the simple yes/no proposition to consider the “how.” This is important because the odds are stacked against new entrants (bidders other than the incumbent provider) unless your organization does something about it, and your organization risks expending time and resources on what ends up being a pointless exercise.
This Executive Update looks at debriefing the bidders after a competitive bidding process has closed. This is often treated as an optional process — and is usually one to be avoided. However, if done well, with the right intent, it is a valuable exercise for all bidders (unsuccessful and successful) and can also create support for your future bidding opportunities.
Outsourcing receives a great amount of attention, spawned in part by the highly publicized announcements of organizations that decide to transfer substantial parts of their IT to external parties. Invariably, the deals are described as successes and the litany of advantages are espoused before the supplier even begins operationalizing the contract. However, as we all know, what is expected and what is delivered over a five- or 10-year contract can be two very different things.
There are several approaches to setting key performance indicator (KPI) incentives in outsourcing arrangements. The term “incentive” is used in this Executive Update to reflect the financial risks and rewards that are allocated to the service provider by the client regarding KPIs. Incentives over the provider can be negative (risk)and/or positive (rewards). Such incentives encourage providers to meet expectations and, where desired, to deliver outstanding service.
Think of disputes that occur in outsourcing deals as mushrooms. To grow and spawn, they need an environment that is dark and full of fertilizer. Your goal is to create an environment that is well lit, with little fertilizer for the mushrooms to feed on. Disputes are not often caused by one particular issue but are usually triggered by an accumulation of many adverse events that eventually lead the parties to start “throwing mud at each other.”
Conducting audits of outsourcing deals is not something every organization focuses on. There are usu- ally so many operational fires to be put out that review and compliance processes can easily be overlooked. Imagine, however, if you never reviewed your staff: they may become disinterested and unmotivated, and (worst of all) you may not know what they are actually doing! Outsourcing arrangements are no different.
Many problems with outsourcing deals stem from the supplier taking over activities that were not well understood by the client organization prior to engaging the supplier.
In this Executive Update we address the profiling exercises that can help organizations understand the services they target. As one CIO put it, profiling makes you “understand what you are doing in some depth — and continue to know it.”
Many people have the view that an organization can let go of commodity functions but must not let suppliers get their hands on strategic areas. Others call that nonsense and use third parties wherever they think they should. The arguments over this point generally result from inappropriate generalizations made on either side. To help you understand some of the complexity, the AMC (Advantage, Maturity, and Competence) Model provides a useful, high-level “helicopter” view of a framework your organization can use to consider its competence relative to its peers, the maturity of the market providing the services, and the degree to which activities are core/noncore in order to deter- mine which outsourcing form is the best to use .