Out-sourcing – how to be good at it!

In the present climate the pressure to seek value for money through out-sourcing is stronger than ever.

Yes, you can save money but getting the full value from your outsourced service and making sure that it supports your business in the way you intended is complicated.

The financial benefits alone are often not properly understood.  The results of research by Warwick Business School working with IT group Cognizant showed that less than half (43 per cent) of all CIOs and CFOs have attempted to calculate the financial impact of outsourcing to their bottom line let alone determined the real value to their organisations. They don’t know the real value and it is doubtful that they are getting the outcomes they expected!

Here are some steps you can take to ensure you achieve real value from your out-sourcing activity.

1. Know why you are doing it

Don’t out-source just because the competition does it!

What do you expect from the service and what resource will be available to support it?

Can you specify what you need and will you be able to measure and monitor it when it is delivered?

Have you got experience of managing outsourced services or can you afford to buy that expertise?

How essential is this service to your business operations?

Can you afford to take the risk?

2. Be systematic but keep it simple

Work out a strategy for out-sourcing that your organisation can cope with!

If you are new to out-sourcing don’t go for a complicated strategy that involves many suppliers.

If you go for a complex supply chain, you will need to know how to manage it

If you go for multiple suppliers, you will need to know how to coordinate them

Start with a single and relatively simple business function and a single supplier and build from there.

Gain experience as you develop the approach

3. Know how you are going to measure and monitor

Many companies rely on service level agreements (SLAs)

SLAs are crucial to outsourcing arrangements but you will need more than a traditional SLA if you are interested in business improvement!

Measuring against an SLA will tell you about delivering the status quo

Most SLAs will not tell you if the service is really delivering benefits and the right outcomes to your operation!

You need to focus on business improvement rather than just service improvement processes!

Determine what evidence of success and the right outcomes really looks like and use it!

Use industry benchmarks IF they are useful to your business

4. Invest in the relationship for long-term value

Demands and expectations change over time!

This can lead to disagreements with your supplier which can erode the relationship

Agree at the start how you will recognize and respond to changes together

Share information honestly between you

6. Be an intelligent client

Don’t hand all your talent across to the supplier with the service

Keep enough expertise available so you can talk intelligently to your supplier about performance

Keep enough expertise to cope with changing your contractor if necessary in response to supplier failure or market changes

Keep enough expertise available to cope with business innovation.

Be honest with your supplier about your expectations and your customer base

But be prepared to learn from your supplier

You can find this as a slide presentation on LinkedIn at the following link  http://slidesha.re/hc0HyK

MANAGING CHANGE – TALKING TO YOUR CONTRACTOR

If you are managing a change team you may work with a number of contractors – finance and HR service providers for example. It is surprising how few clients and contract managers bother to get to know their contractors and suppliers. Oh yes they engage during the procurement process. But quite often the teams that actually manage and deliver the contract will be quite different to those who negotiated it. The marriage has been arranged and now both parties need to settle into a new life together. And like a marriage the contractual relationship will develop better with good communication. The contract gives you a skeleton for the relationship – you both now need to put flesh on the bones! Every organization has its own unique culture and way of doing business. You can help your supplier deliver successfully if you help him to understand the culture of the organization you expect him to deliver in. If you understand the culture of your supplier’s organization you will understand better how to get the best from him. For example, if yours is a distributed organization, can you expect the same level of service from all of your supplier’s regional teams? Perhaps there are extra services available from your supplier in particular regions to meet your own regional team needs.

When things go well!

It is surprising how few contract managers actually tell their suppliers when they are pleased with the service being delivered. Many seem anxious that if they do so they be thought soft and will be taken advantage of as a result. If this happens, quite simply you have wrong supplier. You can, and should, be able to praise your supplier without appearing weak. Reinforce and reward good performance with praise and advertise that performance within your organization. Remember, good supplier performance reflects well on you as contract manager.

When things go wrong

The first message is to tell your supplier exactly what your problem is as plainly as possible. Don’t ramble – be as precise as you can in presenting your evidence – times, dates, statistics, complaints! Then give your supplier an opportunity and enough time to investigate and respond. Ask for action and if the matter is urgent, let them know and explain why. Be scrupulously fair in judging their response regardless of the internal pressures within your own organisation – this is part of your responsibility as contract manager, If the supplier’s explanation is reasonable and they can make restitution – let them do so. It is rarely advantageous to invoke the contract if the service can be restored and you can use your own communication skills to reassure your internal customers. However be clear about the failure resolution clauses in your own contract. The majority of suppliers will not want a contract to fail – never underestimate the value of talking. The issues may need to be raised at more senior level in your organization and in that of the supplier. CEO to CEO telephone calls are a better result than contract failure and expensive legal action. Remember your supplier’s failure is your failure and with good communication on most occasions this can be avoided.

MANAGING CHANGE – MAINTAINING A GOOD RELATIONSHIP WITH YOUR SUPPLIERS

When your organisation is going through change and specially in a time of financial stringency, a good relationship with your suppliers becomes much more important. Here is a Checklist from G&W Consulting which should help you to achieve the firm relationship you need!