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Frank Casale, CEO, The Outsourcing Institute

Smart management of the relationship between company and service provider can result in maximum benefits for both parties. The following seven rules offer a quick guide to effective relationship management.

1. Understand your company’s goals.
   Outsourcing means more than reducing costs. It is about improving company focus, access to world-class capabilities, freeing up of resources and much more. Establish your company’s goals and objectives in the assessment phase and select a service provider that is aligned with your goals. When your company’s management team and the service providers are in sync, the deal will be more successful for both parties throughout its lifecycle.
    
2. Understand your service provider’s goals.
   Similarly, for the service providers it is not just about profit. They have goals, like establishing a centre of excellence, growing internal staff or entering a new market. It is important that you understand the service provider’s goals to help maximise the value of the relationship.
    
3. Understand the nature of the deal.
   While as the relationship manager you will not be working on an operational level, you do need to understand what the service level goals are, what the assets consist of, and how the pricing model operates, in order to better understand the leverage points with the service provider.
    
4. Establish an Effective Relationship Management Process.
   If you only meet with the service provider when there is a problem, then the entire deal will be perceived as a problem. A clearly-defined meeting structure that includes setup procedures and processes to interface with the service provider on a regular basis is the key to understanding the wants, needs, and actions of both sides of the relationship. Establishing a daily, weekly, quarterly and annual schedule of meetings that bring in different levels of company/service provider involvement will encourage greater flexibility, tighter business alignment and enhance the outsourcing value proposition on a continuing basis.
    
5. Clearly articulate the roles and responsibilities of both parties.
   Establish a responsibility matrix early in the RFP stage of the outsourcing process, make sure the service providers understand those responsibilities, include them as a schedule in the service agreement and use them as a guide throughout the deal. This ensures that both parties understand each other’s expectations and obligations.
    
6. Establish an effective service level management programme.
   Develop service levels that reflect real business requirements, not technical achievements, and do not use them as a basis to micromanage the outsourced services. For example, it is important to have payroll processed on a timely basis, not that access to the payroll system is available. Developing a few critical, business-based service levels is much more effective than having hundreds which are soon ignored.
    
7. Develop a communications programme between your company, your service provider and your user base.
   One of your most important roles is as a conduit of communication between the service provider and your company. This is not just about reporting when things go wrong. It is about continuing to find ways to improve your business through the outsourcing provider’s expertise. It is important to make your organisation aware of opportunities where the service provider can offer additional benefits to the company, and to communicate the nature and structure of those solutions.
   
   Remember, a typical outsourcing deal may take nine to twelve months to establish, but it lives for five, seven or ten years. A good relationship with the service provider will maintain the viability of the deal and flexibility in continuing to meet your company’s changing business requirements. Would you rather hear; “It is not in the contract” or “How can we help?”

Assessing the Performance of an Outsourcing Engagement

One of the responsibilities of the governance team is to review the outsourcing deal on a continuing basis and ensure that it is still providing value to the company.

Outsourcing deals often require readjustment after the first year. They should be reviewed annually to verify their alignment with the business goals that were initially established, and to make sure they continue to meet the company’s evolving business needs.

Frequently, about 60 to 70 per cent into the deal’s duration, it may be more valuable to the company to change the arrangement than let it run to its end. With a five-year deal, that means sometime in the third year you may find that it may be prudent to renegotiate some of the major points - service levels, pricing, or delivery.

The need to alter the deal will start showing up in various ways:

• A backlog of change orders,
• An interest on the part of the user community to start a new deal with a different provider,
• Major areas of service not being required,
• Customer satisfaction on other performance measures start to fail.

Towards this end, many deals have recently been written to include a benchmarking provision. This is often included to ensure that the price of services received is in line with the market. Services should also be benchmarked against current industry best practices. Service levels need to evolve over the life of the deal. Continuous improvement, changing industry standards, evolving business needs all provide pressure on the initial service level agreement.

One way to understand how the services being provided match the initial requirements is to conduct a gap analysis against the responsibility matrixes. The responsibility matrixes should still reflect the work that is being done. Service delivery issues, service level reports, customer satisfaction surveys and other critical issues should also be reviewed. Rather than looking at a single point in time, the performance assessment should consider the outsourcing deal from an historic perspective and analyze trends over time.

One critical aspect of the performance assessment is to develop an outsourcing performance scorecard to summarise the review factors that are important to the company. These factors include the outsourcing goals that were established in the initial assessment phase of the outsourcing process. Then consider whether today’s goals are the same. Other scorecard elements include price, user satisfaction, flexibility, and key assets. These scorecard criteria must be measurable, meaningful, and manageable. Remember, this is not a witch hunt; it is an essential step in the ongoing outsourcing governance process.

There are many benefits to this kind of due diligence. First, there is the opportunity to realign services to meet evolving business goals. Second, costs and service levels are adjusted to reflect market conditions. Third, it provides a company with greater flexibility, so that at the end of the deal, the renewal is not significantly different than the deal that is terminating.

Having a third party facilitate the performance assessment can reduce the tension that can otherwise arise between the company and the service party. An independent facilitator can provide both the company and the service party with a neutral third party to referee the process. There are also companies that can provide benchmarking data to support the performance assessment.

Often, both the company and the service provider share in the cost for these services in the interest of maintaining a good relationship and an effective outsourcing deal.

Biography

Frank J. Casale, Founder and Chief Executive Officer, is the architect of The Outsourcing Institute network of resources and programmes that help buyers, sellers and marketplace observers access current information, share their experience, and conduct business. As creator of the first, largest and only neutral professional association in outsourcing, Mr Casale continually sets the standard for outsourcing best practices. He is the Publisher and Executive Editor of The Outsourcing Institute’s Outsourcing Essentials magazine. He is noted for designing innovative tools such as The Outsourcing Index, the premier state-of the-industry report on US outsourcing, and reliably anticipating market developments, such as the emerging role of the Chief Resource Officer (CRO).

Regularly featured on CNN and CNBC, Mr Casale is a leading commentator on outsourcing issues by major business and news organisations including The Financial Times, The Wall Street Journal, Business Week, and FORTUNE magazine. Mr Casale also chairs and presents at management conferences throughout North America and Europe.

For more information please visit: www.outsourcing.com

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