What makes some outsourcing arrangements successful, while others fail at the first hurdle? In order to identify...
the reasons behind outsourcing success and, conversely, failure, sourcing consultancy Quantum Plus and law firm Bird & Bird surveyed people involved in managing outsourcing relationships.
It will be no surprise to anyone who has been involved in creating or managing an outsourcing relationship that the user and the service provider do not always have a shared understanding of what the contract promises in terms of costs, service quality, innovation or other benefits.
The outsourcing survey identifies that a mismatch in expectations between the user and the service provider is one of the most common causes of dissatisfaction in outsourcing relationships.
To a certain extent, it is inevitable that there will be a mismatch of expectations between outsourcing service providers and their users. Outsourcing users typically want to receive a service that is as responsive as the in-house alternative would be, but also want to reap the economic and service benefits of obtaining the services from an external provider.
The service provider, meanwhile, needs stability and certainty in order to be able to plan and manage effectively, and needs to make a profit.
The survey identified a number of users who felt that they had contracted for a high-quality, specialised service, but the service provider had offered a relatively standard offering.
This problem tends to be intensified when there is no accurate measurement of relevant service levels before outsourcing, making it difficult for the user to know what level of service to expect, and difficult for the service provider to know what is expected of them.
With longer-term arrangements, it is often difficult to predict at the time of the procurement what the user's long-term service requirements will be. Frequently, this means that only a sketchy understanding is included in the contract, which then causes frustrations downstream when the user's and supplier's expectations do not coincide.
Competitive procurement processes do not appear to be particularly effective at achieving a common level of understanding between the user and potential service providers. These processes can create additional problems by forcing service providers to oversell and underbid.
Some competitive processes seek to reduce proposals to a mandated common level so as to ease the selection of a provider, but this serves both to inhibit innovation by the providers and to deny the user visibility into what might be a more attractive proposal from a particular supplier.
The survey shows that outsourcing arrangements developed with divisional objectives in mind, or not covering all user locations, tend to experience additional pressures from corporate management, as corporate requirements are not aligned with the objectives of the local outsourcing arrangement. Internal expectations, therefore, also need to be managed, adding another layer of complexity to an already complex situation.
Outsourcing relationships that work well tend to have a small joint project team that works together to unite the inevitably diverse expectations of user and service provider.
These joint project teams bridge the tensions that occur between the service provider's and the user's organisations, often by working in relatively informal modes.
Relationships that cannot cope with mismatches of expectations tend to have low levels of formal and informal communication between the two organisations.
Although it is possible to create the mechanisms that enable mismatches of expectations between service provider and user to be avoided, much depends on the intrinsically unpredictable chemistry of the individuals involved.
If trust cannot be achieved at an individual level, then experience shows it will be difficult for the organisations involved in an outsourcing relationship to operate together at a business level.
Trust is usually only achieved if there is a good alignment between each organisation's perspective. If the pressures that face each organisation and the individuals working within them are understood, then mismatches of expectation can often be recognised and overcome.
● Eleanor Winn is managing director of sourcing specialist Quantum Plus and Roger Bickerstaff is joint head of the IT sector group at commercial law firm Bird & Bird