Building a win-win deal

Opinion

Building a win-win deal

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Trust is key to successful outsourcing partnerships, says John Creber

 

 

 

Much is made of outsourcing partnerships and there is no doubt that attaining a "win-win" outsourcing arrangement can add real value to a user's business. However, this is often difficult to achieve unless the user's perception of the provider is managed, accurate and effectively reported.

There are three key drivers that can be harnessed to change a standard commodity-based outsourcing arrangement into a value-added relationship.

First, it is vital to demonstrate to your business that the provider delivers value for money. This is effectively a joint responsibility between the customer's contract management team and the provider's account team, and it is essential that both groups are aligned to demonstrate value through service reporting, commercial measures and relationship measures.

In the event that the supplier does not deliver value for money, it is essential that this is recognised and robust programmes for change are initiated.

This can often be a painful process, but it will yield benefits in realigning user and supplier. If at the same time the concept of partnership can be introduced and realised then this is a real opportunity for both sides.

The outputs from such a process must be communicated to senior business leaders in ways they can understand. Only at this level can an appreciation of the service provider create the potential for partnership.

Accurate view

Second, the provider must have an accurate view of the type and scale of growth that it can expect from the user. It is pointless talking about strategic, value-added and long-term partnerships if the contract you have negotiated is a commodity-based service agreement for a limited set of services.

This involves the customer sharing business plans at a top level but also project plans, pipelines of work and even budgets. In return, the provider shares cost models, talks honestly of margins and revenue expectations from the account.

The third and most important component that will deliver a true partnership is trust. At the beginning of the lifecycle of an outsourcing contract there is often an atmosphere that the customer wants to minimise expenditure on non-baseline activities, and conversely, this is the exact area where the supplier wants to maximise its income.

Unless the user has a policy of cross-charging for IT services (and even today, many do not) this will be the first time that the business has had any visibility of IT costs. The immediate perception of the business is that the provider is more expensive and not delivering value.

Although this can be mitigated by the actual outsourcing process, including original in-house costs models and external benchmarking, it is important that at the top level there is a trust established that the customer is not being overcharged.

This can take time to establish unless senior business managers are involved in the outsourcing process from the start and understand exactly what and why they are outsourcing.

Rare commodity

Trust is a rare commodity as it requires the customer to have the perception that the supplier will deliver, sometimes in areas that are not easily managed or measured.

For example, providing strategic advice and input for business plans is expensive for suppliers to deliver as it involves fairly top-line consultants.

Furthermore, it is work that is less tangible than straightforward services or project delivery with a less definite return for the supplier. Perversely, this is one of the areas that can add most to a customer's business plan or technology strategy and can generate significant revenue for the supplier if it results in a wholesale re-engineering of a company's technology and process.

To function well in an environment of trust the supplier must be prepared to invest more heavily at a higher risk level than for a standard commodity contract, but the eventual rewards can be higher than simply selling projects or services.

To generate a real win-win requires a perception that the two parties can generate a fair profit margin and deliver real value for each other. This can only be achieved by speculating up-front with vision and trust.

John Creber is contract manager (managed services) at tobacco manufacturer Gallaher

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This was first published in February 2005

 

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