11 keys to a successful outsourcing relationship

When it comes ensuring a successful IT outsourcing outcome, the customer has more impact than you might think. In fact, recent research conducted by outsourcing consultancy ISG found that outsourcer and client are equally responsible for outsourcing results — regardless of whether the relationship succeeded or faltered.

“Clients have a huge impact on the effectiveness of the sourcing relationship at all levels,” says Clay Calhoun, partner and leader of ISG’s sourcing advisory service.

And the customer’s role is even more significant as companies embark on transformation-enabling deals.

Still, many outsourcing customers fail to set up their outsourcing partners for success, particularly as the engagement wears on. “In our experience, there is good intent at the beginning of the program, but, clearly, as people get back to their day jobs, focus goes back to metrics, KPIs, and quarterly business reviews,” says Jimit Arora, partner in the IT services group at outsourcing consultancy and research firm Everest Group. Arora estimates that 70 percent of outsourcing clients focused on transformation efforts fail to design their outsourcing relationships for long-term satisfaction.

Following are actions an outsourcing buyer can take — from the outset of an outsourcing engagement and throughout — that will increase the likelihood of getting the best from their IT service providers.

Focus on the provider’s core competencies

“The way you manage, measure and maximize value is not by segmenting providers based on volumes or scale, but by their role in your portfolio,” Arora says. Some are best suited to staffing augmentation. Others are legacy aggregators. Some are ecosystem orchestrators. Others are capable transformation providers. Don’t force a square peg into a round hole. “Slotting the right partner for the right role is key to success,” Arora says. Cultural fit is also critical. “Technology is the ‘easy’ part,” says Arora. Aligning culture and values can supercharge an outsourcing relationship.

Create a service delivery framework

“Unfortunately we have seen many outsourcing partnerships not work because there is not an adequate understanding of the role the retained organization needs to play,” says Rahul Singh, managing director with business optimization and outsourcing advisory firm Pace Harmon. “Establishing a service delivery framework up front and using that framework to identify the services that are going to be outsourced versus retained helps align both sides on the capabilities, processes and functions needed to deliver end-to-end services.”

Take care in setting up the contract — and the relationship

“Whether it is in preparing business stakeholders for the new way that services will be delivered, or in the careful construction of meaningful contracting components — clients often rush to an outcome and have to face the challenges of the unresolved services and relationship aspects after go-live,” says Calhoun. “Focus on getting the contract right, ensuring business stakeholders understand it, and the IT team is focused on making the relationship work.”

Spell out all expectations

“Ensure that any technology transformations you are expecting (for example, cloud enablement) are explicitly included in the contract and not assumed as a part of the natural progression and evolution of the service delivery,” says Singh of Pace Harmon. “If transformation services are not clearly articulated in the contract, then they will not be part of the delivery.”

Agree early on about key staff, governance, metrics and engagement

“Most enterprises get less than what they could from their sourcing relationships,” says Calhoun. “Thinking differently about the services at the start, and the relationship over the long term, is critical. Customers should make sure the right front-line staff is in place at both client and provider, define processes to guide problem solving, create meaningful service levels, and ensure enterprise stakeholder engagement.”

“As services become more digital, and more focused on DevOps and agile, the provider must become a trusted partner with a significantly deeper integration into the business and services platforms,” Calhoun adds. “This drives the need for a deeper commitment to organizational change management and governance — and emotional intelligence during the relationship.”

Go beyond vendor management

Don’t handle outsourcers like just any other vendor. A transactional approach will yield tactical results, says Arora.  

“Nobody likes to be treated like a service provider,” says ISG’s Calhoun. “In complex services, a vendor management approach may be useful for some details. But a significantly deeper relationship that encourages trust, openness to ideas, incremental improvements, and innovation will make all the difference.”

Outsourcing customers can start by focusing on working toward a single improvement or innovation with their outsourcing partner. “Get a small victory in one area, then move on to grow your expectations of your IT team and provider,” Calhoun says. “If you create an environment for innovation, you will realize significant benefits — both your team and the provider’s team.”

Let them in

If you want a strategic partner, you have to treat the provider as such, integrating them into the business value chain and sharing business strategy, direction, priorities and pain points. “If your supplier doesn’t understand your strategy, how can you expect them to align with that strategy,” says Rajeev Tyagi, COO of Softtek U.S. and Canada.

It’s also important for clients to be honest about the state of their environment so that the provider can adequately accommodate those issues and mitigate associated risks. “Often, customers aren’t candid because they’re afraid [of] disclosing details about how bad their systems are or how difficult the incumbent will be to work with during the transition,” say Tyagi. “But all this does is delay the difficult conversation.”

Mind the what, not the how

Don’t micromanage your provider, advises Singh. The most successful outsourcing customers focus not on how the provider delivers the service, but on whether they are delivering outcomes and adhering to agreed-upon processes. “Be open to adapt to the providers’ model and best practices and recognize the value that they can bring to the table,” Tyagi advises. “By being overly prescriptive, you lose that value.”

Take care of your side of the street

In the context of transformation deals in particular “for a client to capture value, they need to not only put mechanisms in place to manage the service providers, but also reassess how they are structured and aligned to capture value,” says Arora of Everest Group. Culture and change management are critical in determining the success or failure of transformation initiative.

“That is 100 percent an enterprise’s own priority,” Arora says, “and making an outsourcing arrangement that focuses on transformation succeed needs to be the customer’s shared responsibility.”

In any deal, governance and day-to-day management are key success factors. “Take a look at your retained team and ensure they have the requisite skills to manage service providers to deliver to outcomes,” says Singh of Pace Harmon. “Too often we have seen that the retained team is the one that was formerly responsible for functions that were outsourced and lack the skillsets necessary to manage the outsourced provider.”

Don’t squeeze your provider on price

You will, most certainly, get what you pay for — and pay dearly for nickling and diming a so-called strategic partner. “The logic is simple: If a supplier isn’t making enough money, they will find ways to make money, and that will compromise the effectiveness and quality of the service in some shape or form,” says Tyagi of Softtek. Savvy customers consider reinvesting some outsourcing savings back into the relationship to incentivize the partner to engage in more value-added work, Tyagi says.

Refer to the contract only as a last resort

“A good relationship is not one that does not have any issues,” says Saurabh Gupta, chief strategy officer with outsourcing consultancy and analyst firm HfS Research. “It is one where issues get resolved quickly.” In the best cases, that will happen without having to haul in the lawyers. But, adds Gupta, always have an exit strategy in your back pocket — just in case.