OK, that wasn’t QUITE the bottom line in a recent Sourcing Interest Group/ Vantage Partners’ Webinar “Dealing with the Problem Deal.” But experts did say that the knee-jerk reaction — firing the outsourcer – often doesn’t work. Neither does more of what got you into trouble in the first place: More meetings, more reports, more metrics and more reporting.
What does work, customers report, are good governance and common-sense steps such as knowing your existing costs, setting up a formal framework for clarifying expectations, and determining the root cause of the problem.
Of course, sometimes swapping people out does make sense, such as in the case of a serious personality conflict or a staff member whose skills are clearly not right for the job. But if customer and provider never agreed on what is “good enough” in terms of service delivery, or have no standing committees to handle the inevitable problems, replacing staff just lets problems fester and requires extra time to bring new people up to speed, says Principal Sara Enlow at Vantage Partners.
Sometimes, distrust builds as the result of different corporate cultures or styles of communications – for example, a provider who values consensus failing to bring bad news to a customer quickly enough. Different companies have different expectations for how long it takes to get things done, how important it is to reach consensus, and what constitutes “good enough” quality. In such cases like that, joint skills training that helps both sides work together may be more effective than a quickie divorce. So are specific service level metrics and key performance indicators to get expectations for both sides.
Customers can help avoid problems by setting guidelines and certification beforehand for any staff that will provide services to them, says Allison Jacobs, Director of Strategic Sourcing at Morgan Stanley. While the outsourcer does the actual testing and certification, it’s up to the customer to develop the standards.
She also recommended that steering committees representing the customer and supplier meet at least quarterly. That way they can find and address issues early, and have an ongoing relationship in place to ease what could otherwise be tough discussions.
Customers often employ good governance practices early on, and “things seem to be going well,” said Jacobs. “But then a few years later, or a few months later, some process with the outsourcer goes awry, but the folks at different levels who need to know about it don’t.” Thus, she said, a difficult situation can quickly get out of hand.
“Outsourcing engagements are kind of living, breathing” entities, said Jacobs. “What might have defined success at the outset might have changed drastically over a three year engagement.” That makes it all the more important to have a forum for discussion, and to redefine success as needed. That’s particularly important if the customer’s requirements have expanded, but the vendor can’t afford to add people due to the fixed-cost nature of the project.
Jacobs cautioned that governance is more important the larger and more strategic the project, and should cost between 4-12 percent of the contract value (with a lower percentage for larger projects where the management overhead is spread across a higher level of spending).
And if you do need to replace people, says Enlow, resist the temptation longest on the most complex, transformational projects. Those are the ones that require the most background and context, and which will take the longest to bring new staffers up to speed.
This article first appeared on Global Delivery Report