8 Secrets to Better Outsourcing Relationship Management to Drive Savings
Byon June 26, 2018
Have your outsourcing relationships always followed a textbook flow from selection to management and finally to successful conclusion? Perhaps not; life just isn’t that simple.
Critical supplier and partner relationships are difficult, complicated and ever-changing, and as the financial implications of expectations going astray can be ‘uncomfortable’, it is all the more important that you deliver the benefits of outsourcing relationship and contract management best practices – preferably to achieve best value outcomes, but more often than not, simply to avoid your outsourcing relationship veering off to left field.
Issues in your outsourcing relationship can arise from something as seemingly trivial as a personality clash to those resulting from miscommunication or lingering constraints of the original procurement process – contractual issues or poorly considered KPIs, to name but two. In our experience of dealing with hundreds of these situations, we have found that it is often the case that though you may believe a relationship has fallen into the abyss and is at its darkest point, it would be extremely unusual for it to be completely irrecoverable.
The above said, relationship management, contract management and strategies for building commercial trust should never be considered an afterthought. They should be built into the very foundations of your delivery programme, written contract, governance and budget. If you have the right ICF (Intelligent Client Function) team in place, they should be generating a four to eight times return on the investment you put into them.
There are some key steps you can undertake that we have found to be highly effective for driving ongoing value in complex outsourced relationships.
8 Secrets to Effective Outsourcing Relationship Management
Make sure that you prioritise your outsourcing relationship and contract management policy – refine it, revise it, test it and use it. Your relationships should benefit from the years of experience you have to offer and the learnings you have acquired along the way.
1. Keep communication lines open and ensure that business and relationship goals are clearly and regularly conveyed.
Help both your internal team and your outsourced parties to keep abreast of the changing goals and objectives your organisation is facing. It’s important to communicate that as the economy changes and moves on, your organisation will be trying to keep ahead of its game. Communicate what your organisation is doing to align itself to the new challenges –what its values are and what others now expect of it – and how all this translates to the goals of the delivery objectives you are working on together. This is just the start, because the contract that governs your relationship should go further to clearly state the objectives that are required of the outsourced partner and how ‘good behaviour’ should align to the business outcomes you both want to achieve. On the other side, when matters are not going to plan, it should also mandate how often progress meetings should take place, how to handle disputes and so forth – a roadmap to how the relationship can achieve best value for all parties.
2. Create and share your plan of action.
Write it all down in an initial draft, collaborate between your internal stakeholders and those at your partner/supplier. Once it is agreed, let everyone have a copy. It’s important that the very first step in any outsourced project update is a thorough review of what’s actually needed and why. It’s essential to ask all the right questions of all the right people, involving all appropriate stakeholders in the process and accurately transcribing this information in as clear and simple language as possible into a working document that all parties can refer to. In most cases, it goes without saying that the documentation that goes to make up the written record of expectations and responsibilities under best practices in relationship and contractual management should be safely stored in a secure and organised facility and regularly updated with current versions. However, even today, we still find organisations that are unable to find signed copies of contract terms, schedules and change variation notices. Don’t fall victim to this. If a dispute arises, you will be kicking yourself that you don’t have the ‘official’ version of what you ‘thought’ you had agreed and signed off.
3. Wheedle out and eradicate any ambiguity.
Lack of clarity in verbal, written or contractual communications can send parties off on completely the wrong track. In the worst case, it can leave the door ajar for abuse if the partner/supplier you are dealing with has manipulative behavioural tendencies. It will help you enormously to hunt down these ambiguous ‘grey areas’ and clarify what it is you are trying to express. Keep in mind that contractual documents do tend to be quite lengthy by their very nature, and excessive attention to detail could have a negative as well as a positive effect (giving the other party the impression that you do not trust in their ability, or overcomplicating matters), so clarity and brevity when discussing KPIs, SLAs and suchlike, must go hand in hand here.
4. Respect realistic capacity.
Understanding the abilities and restrictions of your outsourced partner is essential. From the point where you ask them to commit to KPIs and schedules to their ability to deliver on outcomes, it is imperative that you develop a clear understanding of their respective capacities so rewards can be developed for driving great outcomes. Likewise, levels of restitution can be set for failing to meet targets. Doing so effectively will encourage best performance/behaviours or development the right environment for them to be fostered.
5. Regular contact.
To build rapport, create commercial trust, become aware of issues early in their evolution and to maintain a view of progress against plans, you should create, and stick religiously to, a regular communication schedule. This can be face-to-face or by video chat, by phone or email, and the detail and regularity of these conversations could well impact on the success of your relationship together. From the outset it would always be useful to create and maintain a decision timeline, showing not only what needs to be done and when, but also what was done, by whom and why.
6. Tough but fair.
When looking at issues, it’s important to recognise that it’s not always the fault of your partner/supplier. Sometimes your own team can be holding things back – getting too involved in the day-to-day work, encroaching on your outsourced team’s area of expertise, and so on. Stop this from happening as it could not only be impeding progress and reducing outcome value, but it could also be weakening your contractual position should things go really wrong. However, if the partner is the cause of project/relationship issues – poor performance, environment, behaviours, decisions, attitude, and so forth – then it’s important that if informal stakeholder management isn’t improving the relationship, you should use the escalation mechanisms within your contract to pull them back into line in a timely fashion. It is critical to escalate poor-performance issues according to the process outlined in your written contract. There are usually mitigating circumstances to get around this, but if matters get into formal dispute, it will cost a lot of money to evidence and argue through what those mitigating circumstances actually are. It’s better to avoid the argument, and just make sure you escalate matters in line with the written contractual terms. If you have a strong relationship, matters shouldn’t need to be formally escalated, as your governance process will have headed these issues off at the early stages. But if you are in a relationship that is experiencing manipulative behaviour, do not worry about taking a tough stance where one is warranted, because being a pushover and not pursuing legitimate escalation remedies will simply weaken your contractual position. Worse still, if matters descend into a formal dispute you will find that not having followed the formal escalation process in the contract will mean it will be very difficult to hold the offending party to account.
7. Be consistent.
You will want to be able to come through any formal escalation process, ideally, with your outsourced relationship intact. So, to handle issues in a professional manner according to supplier management best practices, always do so along your pre-agreed governance (which should align with your contract terms). It’s important you keep to the behaviours outlined in your contract terms. If the terms themselves don’t drive good behaviours between you both, then agree between yourself and your partner/supplier to realign the contract terms until they do. Nothing will degrade a relationship faster than a feeling of bias or unfairness that could come from actual or perceived inconsistency.
8. Encourage value-boosting behaviours.
Built into any good outsourced relationship’s contract should be mechanisms for encouraging best performance. This could be in the form of rewards or remedies and can be related to targets or outcomes. However you decide to achieve the behaviours believed to be most conducive to value added results, it is important that you set them out and communicate them clearly so all appreciate both the benefits and impacts of good and bad behaviours on the project and themselves. The subtle use of behaviour management techniques, combined with sensible contractual clauses – such as those that avoid escalation to the point where monies or services are withheld until disputes are resolved, but rather take a ‘fix first, argue later’ approach – can save a considerable amount of time and money.
Research from the Local Government Association concluded that 3-15% savings of a contract’s overall value can be achieved through better contract management practices alone, and for cost-conscious organisations in today’s world, that’s a significant sum.
Your responsibilities should not be downgraded or put on a back-burner once the work of procurement and contract negotiation have been concluded and work gets started. That’s just the first step. Partner/supplier relationship management is just as important and just as time-consuming a task, and, as the government’s own research has concluded, just as financially rewarding.