How to drive savings through better Outsourcing Relationship Management

By Allan Watton on

outsourcing relationship management Have your outsourcing relationships always followed a textbook flow from selection to outsourcing relationship management and finally to successful conclusion?

Perhaps not; life just isn’t that simple.

Critical strategic 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 outsourcing relationship and contract management best practices are followed fastidiously. The primary objective is to achieve best value outcomes, but more often than not, there is a secondary objective which is to simply avoid your outsourcing relationship veering off into left field.

Issues may arise in your outsourcing relationship for any number of reasons, from something as seemingly trivial as a personality clash to those resulting from miscommunication or some lingering constraints from the original procurement process. Poor due diligence undertaken by the supplier on your expectations and outcomes (requirements) is often the primary cause for poor delivery as the relationship starts to operate, often supported by a misaligned contract and poorly considered KPIs that do not drive behaviours between everyone to achieve best value.

In our experience of dealing with hundreds of these situations, we have found that, while these issues might often have you believing that your relationship has fallen into the abyss, there is usually a road to recovery available, should all parties be willing to put in the effort.

What outsourcing relationship management style works best?

Do you use a predominantly active or passive management style and which is likely to work best to drive savings and best results?

In the active outsourcing relationship management camp, clients take an overarching governance role. ‘Control’ is maximised with clear and fixed reporting structures, all major decisions are passed through you, issues are quickly identified and poor behaviours recognised and dealt with. However, this management style is more time and cost heavy and risks stifling the innovation, creativity and expertise you’re instructing your outsourced partner to invest into your relationship.

Passive management is all about emboldening your strategic partner to best exploit their expertise, leveraging every ounce of experience they possess to achieve the best for your project. However, abdicating responsibility for oversight means risking having too little in-house expertise to fully understand the project and its progress, leaving you totally reliant on the strategic supplier, and ‘lesser governance’ can sometimes mean more room for unscrupulous behaviour to flourish and go unchecked.

The reality is that a neither of these in their extreme forms are likely to work well in the long term and a outsourcing relationship management style that combines the best of both, weighted appropriately for your project, often works best. For the majority of projects, it is your flexibility to adapt that is more important than management style perfection locked in at the outset. Flexibility to adapt your working relationship with your strategic partner, your contractual agreements and your governance to suit the needs of your relationship, end users, stakeholders and environment.

Effective outsourcing relationship management – 11 tips

The Expert Witness work we undertake for the High Courts in reviewing key problems in operating outsourcing agreements gives us a unique perspective. The evidence we have reviewed across hundreds of these strategic relationships identifies good practice and service delivery that has worked really well, poor practice that has driven misaligned and untrustworthy behaviours, and contract terms drafted by client and supplier legal teams that have been interpreted very differently by the High Courts than the legal teams had intended.

The above evidence dictates that you should ensure that you prioritise your outsourcing relationship and contract management policy – refine it, revise it, test it and use it. Evidenced good practice from a practical perspective of keeping everyone on track to work well together and achieve consistent and reliable service delivery, means that the first step is to ensure you have clearly articulated and internally agreed business outcomes.

Then you must establish clarity on how the proposed supplier relationship will help you achieve those outcomes. Your procurement and contracting strategy, along with your solution/service requirements, expectations and the resulting contract terms and KPIs must remain aligned to those business outcomes to ensure you procure a fit-for-purpose solution/supplier and establish enabling behaviours between you and your supplier to assure a successful ongoing relationship. That’s the summary – here are those points that drive ongoing value in complex outsourced relationships in a little more detail.

    1. Ensure that changing business and relationship goals are clearly and regularly communicated

A clearly articulated business vision of the specific objectives you hope to achieve once the service/solution has been implemented is important, as is a strategy for ensuring that your outsourced parties are kept abreast of any changes to goals and objectives your organisation is facing.

Communicate what your organisation is doing to align itself to 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 outsourcing relationship should reflect any changes and 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.

    1. Create and share your plan of action

Write it all down in a draft plan, collaborate with your internal stakeholders and those of your partner/supplier. Once it is agreed, let everyone have a copy. It’s important that the very first step in any outsourced project – whether at its outset or during an update – is to conduct 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 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, and many more that have not looked at them since they were signed. 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.

    1. Minimise 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 are overcomplicating matters), so clarity and brevity when discussing KPIs, SLAs and suchlike, must go hand in hand here.

One well-trodden road to creating a fit-for-purpose contract is to reverse engineer the agreement from your business objectives.

    1. Respect realistic capacity

It is important to clearly understand the abilities and capacities of your outsourced partner. From the point where you ask them to commit to KPIs and schedules to their potential for delivering on outcomes, it is imperative that you develop a clear understanding of their respective capabilities so rewards can be developed for driving great outcomes and levels of restitution can be set for failing to meet targets.

Doing so effectively will encourage best performance/behaviours or the development of the right environment for them to be fostered. How hard you push and the way you encourage your strategic partner to achieve your understanding of what’s expected of them should be influenced by your appreciation for their ability to meet those targets.

5. Ensure performance data is robust

To determine how well your strategic partner is doing against expected targets, it’s important to be clear about which performance data, cost information and return on investment data you should use to make that assessment.

As a starting point, it will need to stand up to robust independent scrutiny and you should be able to determine which data is more subjective so that senior executives on both client and supplier side can rely on that data for improving performance on an ongoing basis.

Within the context of the available data, you need to assess its relevance, accuracy, timeliness, accessibility, clarity, comparability, coherence and completeness in order to ensure you can adequately monitor the progress of the relationship and the performance of your supplier, and to what degree your outcomes are being achieved.

    1. Regular as clockwork communication

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, 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.

Such a plan and audit trail provides a framework within which everyone knows what’s expected of them and can be used to hold all parties accountable for their part in the delivery, or otherwise, of those targets.

    1. Six-monthly reshaping process

The only thing we can be assured of in life is ‘change’, so it’s important to build this reality into your contractual relationships with a periodical – preferably at least once every six months – review and reshaping process built into your contractual agreement.

As the environment around the relationship changes – financially, economically, commercially and through the needs and preferences of end users – the efforts of all parties, and the agreement that governs and guides them, must also change to ensure that planned outcomes can be achieved.

    1. Be tough but fair

If your partner/supplier is the cause of project/relationship issues – poor performance, environment, behaviours, decisions, attitude, and so forth – and informal stakeholder management isn’t improving the relationship, then it’s important that 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 as anything else could (a) undermine your contractual position and (b) impact on the commercial trust you are looking to foster. After all, it is difficult to dispute a recourse that’s following a framework that all parties agreed to at the outset.

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 pass. But if you are in a relationship that is experiencing manipulative behaviours, do not worry about taking a tough but fair (evidenced-based) stance when one is warranted, because being a pushover and not pursuing legitimate escalation remedies will simply weaken your contractual position.

Worse still, if matters do descend into a formal dispute, you will find that not having followed the formal escalation process in the contract means it will be very difficult to hold the offending party to account.

When looking at issues perceived to be the fault of the supplier, it’s important to recognise that it’s rarely completely the fault of one side alone. The reality is that sometimes the actions or lack of action of your own team can contribute to a lesser or greater extent – getting too involved in the day-to-day work, encroaching on your outsourced team’s area of expertise, and so on.

    1. Be consistent

You will ideally want to be able to come through any formal escalation process 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).

If the terms themselves don’t drive appropriate behaviours between you both, then it’s important 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.

    1. Focused operational governance

The most successful supplier relationships have in place an operational governance process that supports a clear decision-making framework. In this way, an organisation will have a structured approach to conducting both its BAU activities and its business change objectives. Effective operational governance tends to follow these core principles:

    • A single point of client accountability for the success of the supplier’s efforts in achieving the objectives it was contracted for
    • Separation of stakeholder management and project decision-making activities
    • Separation of service delivery governance and organisational governance structures
    • A board which has overall responsibility for governance of service delivery management
    • Roles, responsibilities and performance criteria for the governance of service delivery management should be clearly defined
    • Disciplined governance arrangements supported by appropriate methods and controls are applied throughout the relationship life cycle
    • A coherent and supportive relationship is demonstrated between the overall business strategy and the service portfolio
    1. Encourage value-boosting behaviours

Built into any good outsourced relationship’s contract should be mechanisms for encouraging best performance. First among these is the establishment of an effective ICF (Intelligent Client Function) team to start to encourage the right behaviours from your supplier side and identify issues and deviations early in their evolution.

Next is often the form of rewards or remedies and whether they are related to targets or outcomes. Whichever way 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.

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 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 procurement and contract negotiation have been concluded and work gets started. That’s just the first step. Partner/supplier outsourcing 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.

Best Practice Group’s OPTIMISE methodology for how to effectively manage strategic supplier relationships simplifies the management of highly complex contracts, relationships and detailed technical services delivery, accelerating collaborative innovation and reducing ongoing BAU costs. If you would like to discuss how OPTIMISE might be able to contribute to the success of your project management, contact us on 0845 345 0130 or email