Six Ways to Produce Better Outsourcing Outcomes

No one likes to talk about outsourced projects that failed. Failure is rarely even admitted. But of course projects fail, and clients are disappointed. “Expectations are met less now than ever before,” say the authors analyzing the data from the latest Harvey Nash CIO Survey. “Projects falling below expectations have almost doubled from 21 percent in 2007 to 38 percent today.”

That’s not good, and providers should be losing some sleep over this trend. But it’s not just providers who are responsible for this decline in satisfaction. People on the buy side need to do their part and be involved. As Jamie McClellan, CIO at JWT, put it, you can’t just throw work over the fence and expect something good to be thrown back.

Nearshore Americas asked services-industry veteran Lee Coulter, who has been in the biz for more than two decades, to share some advice that would help improve the chances of a happy outsourced outcome. At GE, one of Coulter’s roles was head of IT outsourcing, and at Kraft, he led the outsourcing of IT as well as a massive implementation of shared services. The refreshingly opinionated Coulter is currently a research fellow and analyst with Horses for Sources Research, where you can read a more impressive bio.

The real trick is matching the right work with the right provider, Coulter says. That might sound simplistic but it’s an involved process that requires certain steps,  honesty, and a certain mindset.

1. “First, look for process excellence,” Coulter says. Does the provider have proven process expertise? “Not everybody is good at everything in all regions, and anyone who tells you they are is stretching,” he says.

Coulter: “Remember that with any services provider you will find spectacular successes and spectacular failures. The spectacular failures were almost all deals that were constructed poorly, and not governed properly.”

Look for someone who has delivered that process across a multitude of industries. “If you paid bills for an insurance company or a pharma company, I’m relatively sure you know how to pay bills.” Make sure the provider has a strong  project management organization, “because this is all about implementing change, and implementing change is tough.” Ask for customer references that describe the experience of going through change.

Look for an operating model, a delivery model, and some statistical quality process (such as Six Sigma). You want evidence that within the organization there is “constant pressure for continuous improvement,” Coulter says. “I want to see a team that challenges the status quo, especially when it’s working well.” A provider’s internal pressure to generate better financial results benefits the buyer as well.

2. Think of it as a long-term relationship. Coulter compares sourcing of services to being similar to marriage. The problem is, “most companies are more familiar with the one-night stand.” To get the most out of an 8- to 10-year services partnership, focus on success rather than being right. “When has proving that you were right led to the most successful outcome? The pursuit of being right is always the opposite of achieving success,” Coulter says. “Referring to what was written into a deal a few years ago doesn’t work. Things change. You have different leaders, a different business situation, new people involved. Think in terms of partners rather than vendors or customers.”

“Own each other’s objectives together,” Coulter says. Have joint objective meetings.

And just like in a warm-body relationship, honesty helps, and sometimes you’ve got to ask the tough questions. “I’ve asked potential partners what their revenue expectations were from my account,” he says. “If you tell me what your growth goal is, maybe we can talk about how you can get there.” If a provider plans to slash services in order to improve revenue but hasn’t mentioned that, well, that won’t work. “You have to get into a conversation about this stuff, and you have to bring it up early in the discussion stage.”

3. “Spend the time to make the cultural match.” During the pursuit phase and those first face-to-face meetings with a provider, “look for a culture and people that get it,” that share the values and approach you’re looking for. If you get a bad gut feeling about someone, you have to make a change to their team. Coulter’s advice in this sticky situation: “Talk to the executive sponsor on the other side, who will make it politically palatable. Tell him or her that their team is not helping to win the deal. Just offer it as a helpful suggestion, that to win this deal means having to make some changes. Generally they’re appreciative and not offended.”

“You’re matching up people and cultures, which is not always easy to do,” Coulter says. “But you have to have the courage to do it.”

4. Make sure the other team is made up of the right kinds of people. Half of the pursuit team should be service delivery personnel, and they should be committed for at least two years past the go-live date, Coulter says. “No less than half the people on the deal should be people who have to look me in the eye,” he says. “Too often, the pursuit team is paid to close the deal, then the delivery team has to come in and make it work. They have no idea of all the things the pursuit team has promised. But they’re the ones on the hook, not the pursuit team.”

Coulter says providers often resist this demand. In those cases, he says he would remind the provider: “I have business on the table, and if you’re serious about it…”

5. Organize for innovation. Despite the expectation that outsourcing projects deliver innovation, the subject often goes undiscussed or gets relegated to the realm of things expected to happen magically. In-house, you budget for innovation, you give people projects to develop innovative things, you structure for it, you pay for it, Coulter says. “In the outsourcing world, you need to do the same things but you also have to contract for innovation. You need to govern for it.”

One problem is that when everyone gets to the negotiation table, “it all become about cost, cost, cost,” Coulter says, “and they strip off anything that’s not nailed to the deck, and cuts are almost always made to innovation.” So Coulter advises his clients to contract for innovation separately. “Even if all you agree is to fund it with a number of dollars or hours,” he says.

6. Measure and govern. “As basic as this sounds, you have to ask yourself: What are my objectives?” Coulter says. “And what are my measures of success? If you don’t have a measure of success, you’re crippling both you and your provider.” Make sure these measures are included in discussions during pursuit and negotiation. “Don’t let it become just a conversation about cost.”

Parting thought? “Remember that with any services provider you will find spectacular successes and spectacular failures,” Coulter says. “The spectacular failures were almost all deals that were constructed poorly, and not governed properly.”