Nearshore Americas

Knowing When to Break Up with Your Outsourcing Vendor

Changing one of your strategic IT outsourcing vendors seems like a large, complicated task. All that time spent building the relationship — learning about them, teaching them about you, building up resources — would all go to waste.
Fighting to stay together and keep them in your program may feel like the right thing to do. And that can be the case. It may make sense to explore what the issues are, where the dissatisfaction lies, and what it will take to get back to rediscover the mutually beneficial relationship that existed when you first engaged with the vendor.
But it takes two to tango. You need people on both sides willing to look critically at the fundamental client/vendor relationship and not just the contract or metrics. If you can work together to make adjustments, implement controls, and reset expectations, then saving the relationship may be the appropriate option.
On the other hand, changing out the vendor by making a clean break might be the best thing for the program. If you are even casually thinking about cutting ties with one of your vendors, it likely means you are not completely satisfied with them as a partner. And they might not be completely satisfied with you as a client either. Don’t underestimate the latter. Unhappy vendors are harder to work with. Prices trend higher, resource quality regresses, and responsiveness grows inadequate. Their investment in you as a client will begin to, shall we say, lack excitement.
While finding yourself in a stale, unhealthy relationship is never ideal, there is the good news: Parting ways with a vendor may not be as drastic as you may think.
Successful vendors thrive in this industry because they specialize in entering into your business as painlessly and seamlessly as possible. They strive to achieve a world-class transition — otherwise they simply would not survive in the market. So instead of looking at a breakup as a failure, see it as an opportunity. Be optimistic about gaining a fresh perspective from a more aggressive and responsive supplier with money to invest to win and sustain your business. Your next vendor just may be the one that has invented the next light bulb.
The impact of removing a supplier will also resonate with the remaining suppliers in your program. When other vendors know that you, their client, have the capacity to remove a strategic supplier from your program, they will become more attentive and more patient. They will immediately begin working to ensure they are not the next one out the door. This, you can take to the bank.
This benefit can come to fruition even if you don’t actually change out a vendor. Just putting the possibility of such a choice on the table may influence whatever issues exist in your current relationship. Vendors have to invest to align with a perspective client, and losing that investment is never something they want to do. That, along with the commercial impact that losing client would have on the vendor’s sales and operations people, should keep their attention. No vendor wants to find its name in a headline about losing a client. The key is making sure the vendor knows you will pull the trigger if the conditions are right.
I have worked within large programs in a couple of Fortune 50 companies that made supplier changes. In one case, the supplier was actually thrilled about the change since the engagement just wasn’t working for them either. We were both happier after our breakup, and the move instantly yielded other benefits.
Another strategic vendor in our program immediately pulled an inflation-ridden contract proposal. We had already negotiated terms, but it came back to the negotiating table and the results skewed significantly in our favor. Why? Because the supplier knew it could be next. It knew we had the capacity and the fortitude to make a major change.
There was more. The void left by the exiting vendor offered a wonderful opportunity for new vendors to enter. This environment was incredibly competitive and filled with investment proposals from eager vendors. Each tried harder than the next to show us why they should be chosen. The savings were spectacular and the program flourished.
This is when top suppliers shine. They love this sort of entry, as they are not competing against incumbents but rather vying for work that allows them to demonstrate the sophistication of their models, approaches, pricing, and interest. We got to see many different proposals for the same work. We were able to compare these against the status-quo solutions of year’s past to see what sort of delivery improvements had emerged in the market. We had visibility to see new tools, methodologies, and approaches that we hadn’t considered before.
Could the existing vendor have produced any of this? Probably. But its focus had diminished. Perhaps that was due to complacency, or maybe it was because of the issues on both sides of the relationship, but the practical effect was that we had ceased getting the type of delivery that that the new entrants were offering.
Another vender breakup I went through was not due to poor performance. It was about price. Price pressures always exist depending on what global models you choose to engage in. When a vendor is aligned with you for a long time, it is able to build efficiencies and productivity. This is usually a good thing. But when complacency enters the equation and client expectations continue to build, it puts undo pressure on the program. Without some relief, from both sides, the relationship will suffer.
Merely threatening to remove a vendor will often fix the problem. But if it doesn’t, there are always other vendors willing to step in and do the work for a better price and, more than likely, with a better attitude. This is where the power of true Vendor Management lies.
Trying to decide whether to make up or break up? Don’t be afraid of either. Consider all aspects of the relationships you have with your vendors. Consider their performance, their metrics, their attitude, and their willingness to improve. Consider how they make you better, how they invest, how they challenge the status quo, and how they influence you to do things differently. Consider your program and your constituents and how they interact with and perceive the vendor.
If you feel your existing vendor can align with all of your objectives and anything else that is important to you, then it may be worth the fight to stay together. But ending the relationship to find a supplier that is a better fit should not be feared.
There are more fish in the sea in the form of other vendors that can do the work better, faster, and cheaper. Don’t be afraid of change.

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Tim Norton

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