We have outsourced IT to three or four best-of-breed providers and have spent a lot of time defining who is responsible for what. How can I further entice these companies to work together?
Have one main provider who subcontracts the others
David Hughes, Deloitte & Touche
If you have taken a decision to outsource on a piecemeal basis to your providers, you have a choice of approaches to ensure their co-operation:
- Engage one of the providers as the prime contractor and have them subcontract the other providers. The prime contractor is then responsible for ensuring that service level agreements are met. This takes away the need to worry about co-operation and places the burden on the prime contractor.
- Put in place an incentive mechanism based partly on the performance of the individual providers, and partly on the performance of all the providers against the overall basket of SLAs. This encourages all the providers to be focused and co-operative.
If you have already outsourced your operations, implementing either of the above measures may prove to be difficult unless you still have an opportunity to vary the contracts.
I suggest you set up a steering group meeting once a month to meet with all the providers to discuss performance against SLAs and future requirements. This will ensure that all the providers can air their excuses in front of each other and may help to prevent any individuals blaming others for poor performance. It will also give the providers an opportunity to meet regularly and start to build relationships with each other.
Relationship managers can alleviate interface problems
Joe Peppard, Cranfield School of Management
I am not convinced that defining incentives on top of what you have already done in respect of contracts, defining responsibilities and interface mechanisms will alleviate any potential problems.
Getting competitors to work together to provide a seamless service is fraught with difficulty, even when there is a solid contract with each provider and the areas of responsibility are clearly defined
For example, in the 1990s, BP Exploration experimented with getting its three best-of-breed providers to manage themselves, in an attempt to mitigate risk by making the providers co-dependent and forced into co-operative behaviours.
All the parties agreed to non-legal partnering principles (a legal contract was hindered by EU regulations), which was seen as reducing the direct relationship management involvement of BP staff.
However, the consequence of this alliance was that BP spent considerable time refereeing and managing what they thought had been outsourced. One reason was that the regions continued "local" behaviours when "global" co-operative behaviours were required. This tended to reinforce the latent competitiveness of the providers, particularly between sites.
Only when BP introduced dedicated relationship managers could the company control and alleviate many of the interface problems, service lapses and relationship difficulties. This, I believe, is where this company should focus its attention rather than on incentives.
Appoint an independent board of project managers
Klaus Elix, chief technology officer, American Management Systems, Europe
Outsourcing to multiple parties typically creates specific issues that are difficult to manage and frequently leaves the outsourcer managing and often executing a lot of work at the interfaces.
As in good system design, it is important to keep the interfaces as simple and lean as possible, and best practice will minimise their number between multiple outsourcing partners. I can suggest two approaches that have worked in practice:
Primary and subsidiary model
The primary supplier acts as the client-facing body and manages the other outsourcing suppliers, including all aspects of service quality, commercial risk and reward.
Project management office
For projects where multiple suppliers have been separately contracted, the client should set up a project management office owned by the client but staffed by an independent body comprising high-level, experienced project managers who report directly to the client's board.
The office will manage both the relationship and quality of work of all the suppliers contracted to the project. The end result is the definition of a common goal and the synchronisation of costs.
Devise an incentive scheme between the suppliers
Roger Rawlinson, NCC Group
Many organisations have opted for one supplier for their outsourced services to provide a single source of service levels, responsibilities and relationships. In many cases this can provide the required level of functionality/service along with a simpler commercial relationship.
However, the above scenario can suffer from a compromise on functionality or performance in a business function where the supplier is weak. This is where the best-of-breed scenario can be considered advantageous.
You need to ensure responsibilities are clearly defined and that software upgrades are well-managed between the suppliers. It is not uncommon that co-operating suppliers are not as co-operative when problems arise.
The question you pose is how to get the benefits of a single-supplier relationship from a best-of-breed set up. One answer would be to appoint a prime contractor, who then manages the other suppliers.
You could also consider setting up an incentive scheme based on cost savings, performance improvement, etc. The incentives would redistribute a proportion of the savings between the suppliers and there would be a balance between the performance of the individual suppliers and the collective. However, these schemes need to be very carefully defined and managed.
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I accept that my suppliers' costs and fees will go up over time. Therefore, I am trying to agree a roadmap for the price rises to tie them to a tangible increase in service and value. Can the panel advise me on any suitable strategies?