Research shows 8 key components that every successful commissioning and outsourcing relationship have in common

By Allan Watton on

key components successful outsourcing relationship

It has never been more important to ensure that your complex service delivery (outsourcing) relationships succeed. But how can this be achieved in an environment where it seems so commonplace that external service providers fail to achieve expected business outcomes. Is there a way to assure maximum value from each of your major service delivery relationships?

According to the Project Management Institute’s 2016 Pulse of the Profession report, 38% of major service delivery relationships fail to meet their original goals or business intent with fewer being completed on time or within budget than four years ago, and greater numbers being deemed an outright failure. According to that report, $122m in every billion dollars (that’s around one dollar in every eight) is wasted due to “poor project performance” and that figure is 12% up on last year.

An earlier CHAOS report from The Standish Group, compiled after 20 years of research found that over 60% of projects failed to meet their core objectives. Of them, 43% were ‘challenged’, i.e. they were late, over budget and/or did not meet the original goals, and a further 18% were failures which were either “cancelled prior to completion or delivered and never used”.

Essentially, the statistics indicate that all too many outsourcing relationships fail for what may well be wholly unavoidable reasons. As veterans of hundreds of major complex service relationships across the public and private sectors, it was decided that we should put together an analysis of what truly can influence a project’s chances of success.

Taking into consideration over 500 complex service delivery relationships, our research found that there were indeed some foundational commonalities which we have now consolidated into eight key components. It was concluded that these components must exist in unison for a complex relationship to have the greatest opportunity to succeed and drive maximum value.

The articles to follow in this series will delve deeper into each one of these eight key components to project partnership success:

8 Key Components of Successful Outsourcing Relationships

1. Well-articulated business requirements

Success with external service providers often hinges on the clarity you afford everyone in the process – both internally within your organisation and externally within your supplier’s organisation.

Have all internal stakeholders been involved in the development of outcomes, KPIs, and the business case for the services to be delivered? Are you all aligned and agreed on what it is you are trying to achieve? Are you clear on what will change in the organisation and what objectives you will accomplish once the outsourced service has been implemented and you are achieving the benefits you expect? Do you have clarity over who is expected to do what and when? What monitoring and governance strategies will you have in place to understand whether you are getting closer to, or further from, the benefits you want to realise?

Only when a well-defined vision has been established, agreed, and quantified by your internal team, will it be time to communicate this to your suppliers.

Common among the reasons why the delivery of complex services by external providers fail to achieve their goals is a lack of dedication to communication clarity – this is true both internally to your own team and externally to the supplier. It is not good enough simply to create a masterpiece of corporate documentation; you must ensure that your provider undertakes appropriate due diligence and a ‘critical friend’ challenge of you to ensure that it fully understands your business requirements. Even the most detailed of service strategies can be misinterpreted, resulting in significant deviations (and potentially increased costs) from your expectations.

2. Client-side ‘intelligence’

The idea that once a service has been ‘thrown over the fence’ to an external service provider, then the responsibility for achieving objectives should rest solely with that supplier, has been, or should have been, lost to the long distant dark ages of a very antiquated method of unintelligent outsourcing.

While the external provider is (or should be) fully accountable for the objectives you set it, if your own team simply monitors progress on an ad hoc or basic contract management level, this is not service delegation – it is management abdication. Your internal team should be using the KPIs that have been set primarily as a ‘learning tool’ to understand what is working, what is not and where collaborative improvements and innovations should and can be made to drive much better value.

The concept of the ‘intelligent client’ is embodied in a grouping of in-house specialists formed into an Intelligent Client Function team, or ICF as it’s more commonly known. This is an adequately resourced client-side team, which should exist from inception to completion, tasked with ensuring that both client and supplier do all they can to deliver maximum value on the ‘what good looks like’ services you agree upon.

As part of its remit, the ICF team will manage its own internal and executive stakeholders to discipline them into regular strategic performance reviews of the service. They will also keep the pressure on to ensure innovation throughout the development of the service, manage supplier relationships, monitor performance, and to be the eyes and ears of the relationship, reporting on potential issues and ensuring these are dealt with before they grow into problems.

Naturally, being an ‘Intelligent Client’ attracts ‘Intelligent Suppliers’. Giving your ICF team adequate funds, skilled personnel and authority is a very large step in the right direction for driving exceptional value in your relationship with your suppliers.

3.  Supplier-side ‘intelligence’

Can your supplier evidence that they are a collaborative worker, a team player? Can they show that they have led – not just followed – that their expertise and knowledge have been put to use benefiting their clients, that they can add value and innovate to drive excellent value in your service delivery?

An ‘intelligent supplier’ recognises the need to not only work with, but to ‘manage’ their clients through the innovation process. They find mutual long-term benefits they can share, rather than following a more insular commercial agenda.

If you find a true partner for your complex service delivery relationships, not just a supplier, then it will help drive both of you to seek ongoing better value and performance.

4. Service requirements clarity

While just one part of the communication process that will ensure clarity and understanding, articulated service requirements which are both objective and outcome-led are an important starting point and reference for all.

This document will need to contain not only what you are looking to achieve, but why, and the reason you have chosen to look outside your organisation for help or support. Business objectives, and the ramifications should the project not succeed, need to be presented so your supplier will understand the reliance you have upon them for their ‘expert’ advice. It also helps to articulate what you expect from them. These are just a few of the elements this document must contain in an attempt to achieve crystal clarity, and a deeper outline will follow in a future article in this series.

5. A focus on supplier ‘expert’ responsibilities

The emphasis here is on your supplier’s ‘duty to warn’. Recent court rulings have helped to articulate how a suppliers ‘expert’ status requires them to not only be honest in all of their representations to you about what they can do and what they will achieve, but also where their (and your) weaknesses lie and the impact those weaknesses are likely to have on achieving the business objectives and outcomes you had anticipated.

Understanding the circumstances in which these ‘expert responsibilities’ come into effect, and how using them in the right way can really drive collaborative and innovative behaviours between both you and your supplier, is vitally important, as is the way you manage your own and your supplier’s awareness of this.

6.  Dedication to supplier due diligence

Many external service delivery relationships are complex in nature and, therefore, as full an understanding as possible by your supplier of what’s involved in achieving the service objectives you have outlined is all the more important. This will involve a clear and complete appreciation by both sides of their respective responsibilities and expectations. One way of achieving this clarity, and gaining best advice is for a client to request that a supplier carries out its own due diligence, following a specific method, on the proposed project.

The aim here is to tap into your supplier’s expertise so they can provide appropriate evidence they understand what business objectives you are seeking for them to achieve. You need to understand what they will be able to deliver, what they will have difficulty in achieving and what the consequences of those difficulties in delivering to your business objectives will be.

7. The need for holistic buying governance

Management and process are vitally important in any complex service delivery process by an external provider. Therefore the ‘buying governance’ – the end-to-end strategy for ensuring a controlled and guided route to achieving the outcomes you’re aiming for – should be a part of every major service delivery relationship you are responsible for.

Buying governance encompasses everything from establishing in-house clarity of vision for the project and early market engagement, through to the selection of the most appropriate vendor partner and the development of the clearest, most appropriate contract to drive strong collaborative behaviour between client and supplier alike.

Undertaken correctly, this procedure should encourage greater collaboration and commercial trust, helping both sides to be clear about the level of value provision the service will drive.

8. A fit for purpose contract

A ‘fit-for-purpose’ contract is (or should be) structured to drive the ‘right’ behaviours between client and supplier to achieve maximum value in the service delivery process. It should ‘enable’ good behaviour – not just focus on penalising poor behaviour.

This is where the great majority of written contracts fail. They are written on the premise they ‘protect’ a client. In reality, they are designed to limit the downside, so if a service fails outright, you can hopefully get out of the contract early and maybe even get some of your money back. It’s rare to end up in a position that practically remedies your position of increased costs, loss of reputation and the pain of staff and client issues as a result of problematic service delivery.

So how is that ‘protecting’ you? The ‘protection’ of a written contract should be in the form of driving really strong collaborative behaviours between the parties so that you DO achieve your business outcomes; not just penalise the supplier when you do not. Ensuring you will achieve your business outcomes is the REAL protection a good, well-written fit-for-purpose contract can offer.

How to do this? You need to have articulated and quantified your expectations from the service delivery, your collaboration during the market engagement and agreement over what you will achieve, what you will not, the impact on your business outcomes, clear roles and responsibilities and then the process of operating governance.

From those elements, you reverse engineer the written contract to encapsulate all of these aspects to assure your success by driving the right behaviours between all parties. You should run a mile from any lawyer who offers you a ‘template contract’ before you have in place all of the other components detailed above.

A lack of alignment to the business objectives you are trying to drive in the written contract will lead to confusion and mistakes. This in turn will affect both relationship and outcomes. A fit for purpose contract is your roadmap and implementation plan for success.

Why are these 8 components so important to outsourcing success?

These eight key components were found, time and again, to be present in successful outsourcing relationships. Where such relationships have become strained, we found that realigning everyone’s focus to better develop these components was often the solution that stimulated parties to repair their relationship, rebuild trust, and align their expectations of one another.

The alternative, where one or more of these components were found to be materially lacking, has been highlighted in numerous media reports, examples include; the Home Office’s e-Borders project where better supplier due diligence might have highlighted the illegality of the system that was to be created; Surrey Police’s SIREN project, which could have benefited from an ICF team’s input; the Universal Credit project, RPS and Fire Control. All of these projects were significant in size, big in aspirations and confident at the outset. Ultimately, however, they did not achieve their stated goals, resulting in costing the public purse many millions of pounds due to, it appears, one or more of the key components listed above not being implemented.

To discover more about each of these eight key components to project success, how to establish them, recognise whether you already have them in place or not, and the reasons why each is so vitally important for your projects, keep an eye out for the next eight articles in this series which cover each component in more detail. The next article will be 8 Key components to project success, #1. Business requirements articulation – the art and importance of quantifying and communicating your expectations’.