Feature
Article #61
Married
to outsourcing for success
At its best, “marriage” or “partnering” with an outsourcing vendor is a powerful tool that can drive successful project and program outcomes. Done right, partnering can deliver significant value for the money to both parties over the length of the relationship.
“Partnering” is not a new sales term for the traditional cost-focused customer and supplier management process. Partnering involves working collaboratively with vendors. Its aim is to distribute the business and technology risks to the partner who can most successfully manage those risks. Success involves both the customer and the vendor realizing benefits when shared business objectives are met. Success is expressed in terms of business outcomes rather than specific deliverables or traditional service level agreements (SLA). In a successful partnership, the relationship itself becomes recognized as an asset with its own commercial value.
To realize success, both parties have to embrace a greater degree of openness, communication, and trust. Partnering involves the customer and the vendor working cooperatively to identify optimum solutions as well as anticipate and resolve issues earlier. It can succeed where there is a mature approach to relationship management and where effort and commitment, from both parties, are invested to make the relationship work. Partnering should never be regarded as an easy option.
Like most changes in an enterprise, successful partnering starts with the senior customer management team placing the full weight of their positions behind the desired relationship and setting clear objectives. This commitment includes assigning the best people to create and maintain the relationship over a multi-year engagement.
The vendor's senior management must also commit significant resources to the partnering arrangement. This commitment includes staff and investment capital that may not pay off for several years. In a partnering relationship, the vendor must be willing to expose profit areas and constraints in open dialogs with the customer.
While partnering is a powerful tool, it is not suitable for every situation. It is most appropriate for activities where there is a need for:
- continuous innovation to address changing business needs over an uncertain future
- staff flexibility with specialized skills and knowledge
- outsourcing business processes or technology services in order to free internal staff to focus on core areas
- a new service delivery
Conversely, partnering is much less successful when there is a requirement for:
- short-term, stop-gap fixes
- little flexibility in the approach
- tight control by the customer
- activities with limited ability to improve processes or provide innovation
- the vendor to take on an unmanageable risk
In the practical sense, managing a partnering agreement comes down to the customer-vendor relationship. Both parties need to consider how they will build trust, share risk, agree on accountability, and share success. There has to be continual conversations focused on reasonableness. How will success be demonstrated and compromise achieved without the burden of an overly taxing bureaucracy?
Establishing a partnering approach requires both parties to openly discuss what they want and need from the contract. In the early stages, dialogs between the customer and vendor about goals are unlikely to align well. Throughout the process, each party will face compromise and need to stress their willingness to remain at the table in a collaborative fashion.
Without setting a negative tone, an exit strategy must be developed from the outset. Both parties need to understand what is at stake and how the contract will end successfully as well as prematurely.
Establishing a meaningful relationship requires cultural and behavioral changes. Trust is earned through positive demonstrations over time. There is a steep learning curve for the staff of both parties. Climbing this curve translates into having the right people in place. These people need to be able to make difficult decisions and have the authority to remove staff and obstacles which are hindering the relationship. Where customer and vendor staff are working together, peer relationships need to be established. Throughout the chain of command the partnering relationship must be reinforced. Remember, if the people will not change, change the people.
One consideration to be addressed throughout the chain of command is: how open should each side be with the other?
- Shared incentives – are increased savings or revenue for the customer translated in to a profit sharing opportunity for the vendor?
- Joint project control board – will there be active involvement from senior management from both parties in controlling scope, managing progress toward goals and resolving issues? Are both parties represented as equals?
- Shared problem, issue and risk logs – will there be a single set of shared records for activities tracked and addressed by both parties in order to avoid duplicate efforts and focus shared resources on a single set of activities?
- Staff reporting – how will roles and responsibilities for managing staff be defined, regardless of affiliation? Who will direct resources and assign tasks?
- Open project accounting books – are both parties allowed to review the projects accounting books? Will everyone see budgetary constraints and cost considerations of each business decision in the project life cycle? Is everyone able to see value for their money without focusing on the lowest cost?
- 360 staff & management feedback – will both parties contribute to the feedback loop? How will staff and managers discover what is missing and close the gaps?
The main advantage of this openness is the ability to raise issues much earlier and address them with a shared sense of ownership and responsibility. Resolving problems earlier, when they can be more easily solved, avoids unnecessary costs, time and blame.
While all partnering arrangements start with a contract there is usually a “partnering charter” as well. The charter states desired outcomes and goals that complement the terms and conditions of the contract. Creating a partnering charter usually identifies the principles, attitudes and ideals of the partnership. The charter will also set the level of openness and the code of behavior. It should be consistent with the procurement practices of both parties.
Once the contract and partnering charter are in place the relationship work begins. A series of team building activities need to take place with active involvement from everyone involved, including senior management. These exercises will express to everyone the incentives for both parties as well as the expected behaviors which will deliver these incentives.
If all this sounds simple, it can be. There are also common pitfalls. One of the most common mistakes is to have individuals in crucial roles that are not suited to partnering. Most often interpersonal skills are more critical than technical understanding. Organizational readiness is another area often needing to be strengthened. If either organization is missing the cultural readiness to make partnering work, the changes required by may be out of reach regardless of how clear and achievable the benefits. When objectives are unclear, no amount of effort will make the relationship successful. One of the more difficult components of partnering is the articulation of adequate performance measurements. Finding relevant benchmarking measures that make meaningful comparisons between current and desired outcomes can be hard to achieve.
How do you know if your enterprise is ready for a partnering relationship with a vendor? The first step is to take an honest look at your enterprise and ask:
- how has the enterprise worked with vendors to date? Are vendor relationships aimed at driving to the lowest price? Are vendors viewed as adding value? Is there a shared responsibility for success? How is the enterprise viewed in the vendor community?
- is the right leadership in place with the skills and capabilities to work with the vendors collaboratively? Is the management style of the enterprise matrixed with shared responsibilities or siloed and highly controlling?
- has the enterprise clearly defined desired successful outcomes? Are measurements used in current projects to course correct? Are project targets and milestones currently published to all levels of the enterprise?
- is change easily instilled in the enterprise? Is there a successful track record of change within the enterprise?
- are mistakes viewed as opportunities to learn? Are defects found in testing viewed positively or considered a problem? Is quality about capturing metrics or improving outcomes? Is constructive criticism used to improve the process?
Assuming the relationship can be created successfully, will users and stakeholders ‘sign up’ to it and add momentum to its development? What kind of vendor could manage the risks envisioned to be allocated to them? Realistically, would a vendor be willing to take on the risks? If so, can the enterprise give the vendor sufficient control so that they can manage those risks?
Selecting a vendor who will become a partner means establishing goals that are compatible and achievable to mutual benefit of both parties. The selection of the right partner is not at the expense of an open competitive selection. The final choice of a partner is based on mutual benefit, cultural match, risk management and value over the life of the agreement.
Partnering is not right for every customer, vendor or engagement. At the very least, considering a partnering relationship allows customers and vendors to seriously evaluate their respective strengths and weaknesses as well as the risks and rewards at stake. Under the appropriate circumstances, partnering can deliver significant value over the length of the relationship for both parties.
