Roadmap to More Successful Strategic Outsourcing Relationships

By Allan Watton on

Benjamin Franklin is famously quoted as saying “… nothing is certain except death and taxes”. I would go so far as to add one more to that list: ‘change’. While resisted by many, feared by others, and exploited by some, change is inevitable. Technological advances, customer preferences, budgetary constraints, and, of course, the on-going ‘Brexit’, force organisations to adapt to the new reality of Britain in 2019. And though traditionally steadfast and shielded from such things, the public sector has, in recent years, felt the inevitable pull of change.

Strategic Outsourcing – Not Every Relationship Goes to Plan

With budgets downsized and austerity expecting the practically impossible from many public sector organisations, business transformations have become unavoidable, and, though welcomed in some quarters there is a significant amount of scepticism from others. Because the goal of those who outsource has always been to find a more cost-effective and value added way of performing tasks, achieving outcomes and servicing the public, such strategic relationships are unsurprisingly on the rise. Unfortunately, on any day you’re likely to find media reports revealing that not every outsourcing relationship is going as planned.

This is evidenced in our coverage of Interserve’s administration, NHS England’s contract with Capita for its primary care services and Carillion’s demise, three high-profile examples where early grand aspirations were not realised due to what is believed to be a combination of commercial unsustainability, a lack of governance and a shortage of the right skills and capabilities on the client side, vendor side, or both.

And it is in the light of the lengthy list of outsourcing projects that failed to achieve their intended outcomes that we felt it was time to recap on how to build the best possible outsourcing relationship – a roadmap to improving your odds of project success.

Roadmap to Strategic Outsourcing Success in 5 Steps

No strategic outsourcing partnership will ever be one hundred per cent perfect, but you can strive for good value, and that’s what the five-step process below is all about – creating the right environment for everyone to pull in the same direction, encouraging innovation and having clear goals to strive towards so that added value can be recognised and inspired.

Step 1: Clarify your expectations, for yourself and your partner

If you have not clearly articulated the end goal of a project – what you are looking to achieve, and why – you’ll find it challenging to effectively communicate your expectations to your outsourced partner. They need specific guidance from you in order to develop a strategy to achieve your desired outcomes – if you fail to give them that guidance, you open the door to unfettered provider freedom to interpret, or misinterpret, what you need from them. This is unlikely to achieve a good outcome for either of you.

Therefore, step one is of vital importance – to analyse where you stand today and assess where you want to be tomorrow as a result of a successful project, purchase or implementation. Visualise the specific benefits you hope to achieve, quantify how these benefits will impact on your organisation and others who will be affected by the changes you are looking to make.

This is, of course, only possible with the help of the right people. Drawing in assistance from all relevant stakeholders is imperative, getting buy-in from all others involved is important for their dedication to accuracy within the challenging analysis stage ahead.

Your business case for this project should rely on only the best data and provide a clear reason and benefit for the project to go ahead. And from this analysis will come the clarity of outcome expectations that will ensure partnership synergy – a well-communicated and fully understood outcome expectation that ensures your provider has the best opportunity to develop a focused strategy for achieving your goals.

Step 2: Sense check your expectations

Expectations are one thing, but the reality of whether they can be achieved within the framework of your budget, resources and schedule, are another thing entirely.

So now that you have clearly articulated what you are looking to achieve, it is time to ascertain the commercial sustainability of your aspirations. This stage is all about taking the time to conduct the commercial due diligence needed to give you the confidence that the partner(s) you are considering will have a good chance of rising to the challenge of achieving the outcomes you’ve identified and quantified.

During your early market engagement, followed by your procurement process while the project is ongoing, it is rarely advisable to attempt to influence ‘how’ a provider should go about achieving the outcomes you have set for them. That is their domain, and any efforts to turn a provider to your strategic thinking could cause far-reaching issues for the project and your legal position should things go astray. So, if you should not guide your provider in that way, it’s all the more important to ensure that they have the willingness, resources and capacity to achieve your expectations, and that they have a history of working well with clients and successfully concluding similar projects.

Commercial due diligence can be an arduous process – it can take time and resources of your own, and delay the start of a project, and it can be tough persuading stakeholders to remain engaged, which is why it is sometimes not given the attention it so rightly deserves. However, do not skirt around this subject, because gaining a clear understanding of how your potential outsourcing partner works, how they react when under pressure, and how they handle problems when they arise, could give you an insight into both your future potential working relationship and how they may approach your project.

Step 3: Develop and communicate clear milestones and measures

Every roadmap needs milestones, signposts that indicate you are on track in both direction and schedule. Outsourced projects are no different. While specific guidance on how your vendor should go about achieving outcomes is frowned upon, clarity of what those outcomes are and KPIs along the way to mark and measure performance are actively encouraged.

Well-thought-out and agreed upon KPIs are an excellent progress measure – they are often required for timing payments or assessing whether rewards/bonuses or penalties should be applied. KPIs can spur creativity and innovation, and they can provide you with opportunities to keep stakeholders involved and informed to keep them on side.

The regularity and positioning of these milestones throughout the project is a very relationship-specific thing, but to fail to calculate them accurately, to be unrealistic with your expectations, to be too heavy-handed or not direct enough with penalties, can all weaken your relationship and any mutual respect that supports it.

Driving the right behaviours and identifying what ‘good looks like’ is a vital part of any working relationship – without this sort of benchmarking no one can know how they or the project are doing. Take the time to research, review, check and double check to ensure that your KPI milestones are a good fit for the needs of your relationship.

Step 4: Create a contract that is both practical and adaptable to reality

Many strategic outsourcing relationships are put on the path to failure, thanks to the agreements that are struck at their very outset. Contractual obligations do not begin with the written document that all parties sign – they start with a provider’s expert advice and guidance, what they say, or do not say, in the procurement process that persuades a client to select them for their project and guides them towards a particular course of action.

However, it is the attitude of all parties to the written contracts that we should address here. All too often, contractual agreements are signed, filed and forgotten, only to resurface should a problem arise. In reality, contracts should be treated as central to both the relationship and the project, they should be kept handy, referred to regularly, progress should be checked against them, and – most importantly – they should adapt to the reality of the relationship.

A document drawn up in the fledgling days of your relationship may become out of step with your best needs as your understanding of both project and partner grow. Also, external influences can reshape ‘what good looks like’ and outcomes may need to change as preferences, technology and processes move forward in what is often a lengthy schedule to completion.

To take all this into account, some contracts are created with regular review, revise and reshape cycles, giving all parties a periodic opportunity to adapt the agreement to achieve best value results. From our experience, we find that most successful outsourcing arrangements have a minimum of a biannual review process built in from the outset.

Step 5: Build an environment that encourages proactivity, creativity and value adding efforts

What can you do to drive best behaviours, to know what will motivate your outsourced partners to innovate, to improve productivity and to be committed to the success of your project? It can be difficult to know what rewards and penalties to place within your written contract, to know how to foster the best kind of working relationship, when to show strength and when to be compassionate and understanding. There are, of course, certain generic guidelines that can be followed, but to have a much closer working relationship, you need to understand your partner well enough to know what buttons to push and when you need to do so.

That is just one of the roles of the Intelligent Client Function (ICF) team, a grouping of individuals formed from the very best in-house and externally sourced people with a variety of skills and knowledge, designed to be on the front line from inception to completion.

The close working relationships that your ICF team are tasked with forming with those on the provider’s side offer an early warning system for if and when things go awry, but they will also ensure that valuable insights are gathered on the mindset of those working for your provider. The relationships formed by this team can raise your understanding of how to create the right environment for success.

Achieving Successful Strategic Outsourcing

There is no ‘one-size-fits-all’ roadmap to project success, but there are guidelines to creating one tailored for your particular outsourced relationship needs. Some will relate to elements you will need to be built into your written agreements, some will rely upon building the right teams with the right experience and skills, and at times the roadmap will rely upon the way you act and react within your relationship.

Your roadmap to outsourcing success needs to encourage engagement, buy-in and momentum on a project, but to discover the detail behind how this can be achieved, you can read our eBook on the subject, 8 Steps to Improve Outsourcing Performance.

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