As with so many things, you can blame the government. “Outsourcing is prolific in the UK – it’s the UK’s second biggest employer after retail and there’s not a single member of the FTSE 100 that doesn’t outsource. And yet it doesn’t have the best of reputations,” concedes Kerry Hallard, head of the National Association of Outsourcing (NAO), the industry’s professional body.
“Look at the headlines over the G4S security issue at the Olympics, various NHS projects or people’s experiences with call centres. The industry has success stories, but unfortunately companies rarely want to talk about them.”
Problems in outsourcing arrangements there certainly are. A failure for buyer and supplier to be strategically aligned, or too much focus on the contract and its indicators of fulfilment and not enough on achieving the real objectives are among those cited as typical by Ms Hallard.
But what then might be the recipe for a truly successful buyer-vendor outsourcing arrangement? After all, as Why Partnering Strategies Matter, a new IBM study suggests, outsourcing is no longer viewed simply as a means of saving money or of bringing in expert competencies outside a business’s core activities.
For example, some 53 per cent of chief executives now outsource as a means of tapping into innovation, with 92 per cent of the chief marketing officers seeing it as a way of better analysing what their customers want.
Ms Hallard sums it up neatly: “Successful outsourcing is about understanding that it is not merely about making a purchase – it is about building a partnership.”
Indeed, according to Tony Morgan, chief innovation officer of strategic outsourcing for IBM in the UK, from the very outset best practice involves client and supplier sitting down together and first working out if there is a business and cultural fit between the two sides.
In other words, he says: “You need to get the governance of the relationship right from the outset and on an ongoing basis. And any subsequent contact needs to have a high degree of flexibility to it. The fact is that business moves very fast now and both a client’s requirements and our capabilities change. The incentive to do this is there on both sides.”
Some 53 per cent of chief executives outsource as a means of tapping into innovation, with 92 per cent of the chief marketing officers seeing it as a way of better analysing what their customers want
The “easily underestimated power of positive communications”, as Mr Morgan calls it, is unfortunately just that. Matt Wyatt, vice president and head of business transformation at CGI, one of the UK’s biggest IT employers, works with the likes of Daimler Chrysler, Welsh Water and Equity Assurance, with which outsource provider Olive Communications has recently renewed contracts.
“What has made that arrangement work has been an understanding that changing needs over time
require frequent attention, face to face and at the highest level – that’s essential because outsourcing can be such a major strategic move and can see a good percentage of a business going into third-party hands,” he says.
More particularly, this means ensuring that, crucially, a buyer has “the right skills to manage a third-party organisation, the right guys in place capable of working within the new relationship – and that can be quite a steep learning curve”, says Mr Morgan. “Certainly there was a little bit of pain at the start with Equity, but that is quite common [in a new relationship].”
That cuts both ways. John Wybrant, a key account director for Arvato’s public service business, notes how its ongoing, ten-year contract with Chesterfield Borough Council – the relationship having scooped the NAO’s Public Sector Outsourcing Project of the Year award in 2011 – got off to a good start because “Chesterfield were very precise about what they were looking for and did a lot of internal planning before they even went to the market”.
“And it helped them that from the start they were dealing with the people who would deliver the services, not salespeople who would then pass them on to people they’d eventually work with,” Mr Wybrant adds.
Robert Wentink, client account executive for the IT company Unisys, agrees. Yes, it successfully increased the operating margins and reduced the costs of household products manufacturer Henkel by some 20 per cent. “But that only worked because we were not handled by them as a provider, but had a fully integrated arrangement,” he says. “In outsourcing, success is all about keeping it human – and the leadership on both sides to bring that out.”
This might also assist in another lesson of successful outsourcing – the need not just for communication, but clarity.
Denis Creighton, chief executive of managed business solutions and outsourcing for FEXCO, Ireland’s biggest privately-owned financial services organisation, argues that beyond the standard tender document, a pilot programme of maybe six months allows a supplier to prove it can bring added value, and to provide the reassurance “that it actually understands the buyer’s business and actually can listen to what it’s saying”.
Certainly the idea of added value is essential in understanding targets. “The incentive may simply be to do something cheaper than the buyer can do it themselves,” says Mr Creighton. “But increasingly there are more ways than financial of measuring the success of a partnership that both sides need to be agreed on. It may be positive movement in what a customer thinks of your company, for example, or an improvement in retention.
“It was a problem for the industry a decade ago when outsourcing was essentially much more price driven. And what happened? Customers walked.”
Clarity on goals works as much for the supplier as it does the buyer – again pointing to the notion that success stories are ones of building partnerships. “As a supplier you have to focus on what the buyer’s priorities as a business are – and this doesn’t happen a lot,” says Spencer Bradshaw, the head of technology at Olive Communications, a specialist in the provision of mobile phone benefits to organisations including Travelex and NASDAQ.
“The fact is that a successful buyer-supplier outsourcing relationship starts with suppliers differentiating themselves beyond the box or the service they provide because it’s hard to find a product from a vendor that’s markedly different from that of competitors. And they differentiate themselves by not just paying lip service to understanding the company they are supplying.”
Indeed, as in any relationship, a lack of understanding can usher on its end or signal that it wasn’t right in the first place.
So perhaps one final lesson is key. And that is, as Ms Hallard notes: “Outsourcing isn’t right for everyone – it’s down to the culture of the respective organisations and the people there to manage them. Done well, outsourcing works for many. But it’s not a panacea.”
• Be transparent with staff to ensure a smooth transition – be collaborative
• Share the risk – provide incentives for both sides of the arrangement
• Ensure cultural alignment – buyers and vendors need to know they think alike
• Don’t be tied to restrictive contract arrangements
• Engagement should be face to face and at top-management level
• Performance indicators aren’t necessarily indicators of the great relationship you need
• Deal with problems honestly and head-on
• Be flexible – both sides of the arrangement need to be ready to adapt to change