In an ideal world, the relationship you have with your outsourced strategic partners should be a collaborative one. Working together you will better be able to identify how to improve operating practice, reduce service fees and recognise where best to invest those savings within the organisation.
Often, if the relationship between you and your strategic partner is strong, these savings can be injected into innovations within other service areas to repeat the process and reduce costs or improve services in those areas too.
The innovation cycle is (or should be) continuous and collaborative.
At other times, when strategic relationships don’t achieve the outcomes both parties need, while the reasons behind this can be many and complex, in our experience, they usually involve situations such as:
- Clients not being clear about the business outcomes they expect once the relationship is in full swing
- Providers not challenging the client to validate whether its expectations are realistic for the budget provided
- Clients not participating at an executive level in the innovation cycle, thus evidencing to the provider that ‘innovation’ is not critical
- Providers ‘over-egging’ the costs of projects, only to significantly reduce costs when challenged by a business competent Intelligent Client Function (ICF) team.
When perceived outcomes, irrespective of the lack of quantification, are not being achieved, mistrust between the parties starts to set in.
The majority of our work is in getting relationships that are not achieving the required business outcomes for both parties, back on track so they achieve benefits that both expected. In most of these relationships, there is a large degree of misalignment over expectations. This has often degraded into unpalatable behaviours between the parties including:
- Internal manipulative politics
- Revised and unrealistic budgetary constraints
- Not having a close enough relationship between counterparts. This on its own can, and often does, result in a ‘them and us’ mentality that is simply not conducive to achieving best value outcomes.
So when your outsourced relationship falters, when it exposes a vulnerability, do you pounce on it for your own profit or should you work together to find a best way forward for the sake of the quality of service delivery and business outcomes you are both responsible for?
The answer we often receive is, “well it depends on the circumstances”. But with news of Serco’s recent ‘troubles’ and their commitment to recovery through a £555m rights issue , as reported in several broadsheets last week, this article provides some of the ‘war wounds’ from our own experiences of checking and maintaining the integrity, continuity and quality of service delivery when questions over a strategic partner are raised in the press.
Serco – what the papers say
The Daily Telegraph defines Serco as a “troubled outsourcer” claiming that the company’s shares “had more than half a billion pounds wiped off its market value in November” last year when they issued a profit warning. In fact, at the time, The Guardian reported that shares in Serco had “crashed by a third after the firm shocked the market with the fourth profit warning this year”. And claims that “Revenue fell 6.7pc” resulting in the company’s “first decline in 25 years” and a “£632m trading loss” raised a number of questions from their clients.
Also mentioned was that “the value of contracts Serco won over the years  declined, down £500m on 2013” , along with stating that their large contract pipeline was now £7bn smaller than the previous year. In fact, The Guardian also reported that Serco had “revealed that profits have been flat between 2009–2013”.
All of this must have been a challenge to Serco’s new Chief Executive, Rupert Soames, who took over the role in June last year. But having to embark on a strategic review of the entire business within months of his appointment was what he was brought in for. From our understanding, Mr Soames took a pragmatic approach, telling The Guardian: “Whilst it is a bitter pill, it is better for all concerned that we swallow it now and establish a really solid foundation on which to build Serco’s future.”
It has been implied that excessive exposure to risk and changing public sector contracts are to blame for the position Serco have found themselves in. However, it appears that the silver lining has come in the form of a few new contracts, such as the one with the Australian government to run their migrant detention centres.
The rights issue, which still has to gain shareholder approval, will reportedly wipe £450m off debts which “stood at £682m” at the end of 2014 according to The Telegraph’s research.
Mr Soames seems to be looking upon the challenge in a positive light, saying: “2014 has been an extremely difficult year for Serco, and the magnitude of the provisions, impairments and other charges reflects the scale of the challenges we have had to face. However, there is a real sense that, having confessed our sins and in taking the punishment, we are now ready to start on the path to recovery.”
So, a pragmatic view seems to have been taken by the new CEO and it looks as though it is resulting in a positive outlook for Serco. While the media have focused on the trials and tribulations of the outsourcer, the next question that seems to be being raised is ‘what of their clients?’
As specialists in large outsourcing and project relationships, we have plenty of war stories from our efforts to realign partnerships through a proven method that evidences ways of working through issues to achieve the best business outcomes for all parties. And, therefore, we fully understand the worries clients feel when their strategic partners announce troubled times.
While protecting yourself from the possibility of declining or severed services is vital, it’s also just as important to work with your provider to understand the extent of the issue at hand and whether there is anything you can be doing differently to secure the long-term future of your relationship.
The war wound experience; six steps to protect service quality through troubled times
Preparation is key – you don’t want to be caught unawares and have to plan for realigning service delivery unexpectedly. Every client should have a process and method to make sure they have an ongoing (six-monthly) and realigned contingency plan in place should their strategic partner report that challenges are on the horizon. There are six key checkpoints that it is helpful to have in your arsenal to keep you ahead of the game:
1. Ongoing clarity of purpose is key
One would hope that at entry into a new relationship, clarity of purpose and quantified business outcomes would be a prerequisite. In our experience, however, vision is often in plentiful supply, but quantification of outcomes is not. The challenge with the lack of quantification is that, as time passes, it can be easy to lose sight of clear expectations and objectives – to let minor deviations from your course slide by. But throughout an outsourced relationship it is paramount that a quantified clarity of purpose that should be established at the outset is maintained and realigned on an ongoing basis.
Clear, quantifiable objectives, milestones and smart KPIs that drive the right behaviours between both parties to measure progress and the ultimate success or failure of the relationship against, are crucial. After all, as a relationship matures, the information you will have access to should increase the accuracy of these measurable elements and allow you to change them for the better in the future.
The reality and challenges of the tasks, and the capabilities of the parties involved, are all factors that are given more clarity as time passes and can be applied to initial assumptions to formulate better working practices and expectations. This clarity of purpose will not only help you to identify whether your strategic partner is remaining on its game, but to be able to know your current expectations of them.
2. Strong lines of communication
Time and again you will find us repeating the primary importance of your Intelligent Client Function (ICF) team for they are your eyes and your ears, they are the relationship builders, the innovation drivers, and your closest connection with your strategic partner.
Through their role as critical friend challengers, negotiators and collaborators with their counterparts in your strategic partner’s business, your ICF team are best placed to be both instinctively and ‘evidence’ aware when issues are occurring, to understand how best to tackle them, and through the hard-won position of trust they hold with both your organisation and that of the strategic partner, they are also the best individuals to negotiate the ongoing changes to your relationship.
A talented and properly resourced ICF team is not only important to the success of your strategic partner relationships: it is essential. Anecdotal evidence has indicated that a strong ICF team will return a minimum of £8 for every £1 you invest in the team, so do not fall into the trap of underinvesting in a team you worry you’ll never gain any benefit from. Instead, learn from the old adage – ‘fail to prepare and you prepare to fail’. For when the reality of a strained relationship hits you will be glad that you did.
3. Maintain motivation – of the pair of you…
Once again it is usually your ICF team’s insights that provide you with the information you’ll need here. An often recognised trait of a troubled strategic partner is a falling away of productivity and quality standards, of the waning motivation of key staff and a reluctance to invest in innovation.
As well as these being significant signs of issues that must be addressed with your partner, these all signify a change in culture that, at minimum, needs fast monitoring and in any event, must be urgently remediated.
So how can you revitalise the motivations of a lacklustre relationship? There is no one answer to this question. However, listening to your ICF team, your service users, taking real notice of your strategic partner’s concerns and using the evidence to take an informed view, will help identify early warning signs to everyone’s state of motivation and will help you to determine the right solutions.
Never leave such things in the hope that they will resolve themselves. You must pounce on ensuring these issues are addressed at the earliest possible stage and ensure evidence is available that demonstrates the issues between you are being resolved. Demonstrating through your behaviours that you want a win-win relationship, rather than just talking about it, provides evidence to all parties that your intentions will be acted upon and this will continue to foster an environment of collaborative innovation. The rewards will speak for themselves.
4. Know when it’s time to get tough…
It’s important to collaborate with your strategic partner, to work with them to find the best way forward when challenges arise, as this is in both of your interests. There will be times, despite your best efforts and maintaining a path to build commercial trust between you, when you find that your service partner is not pulling in the same direction as you, or when they are abusing your trust in them. In these circumstances you will need to become much more assertive with them.
Knowing where accountability lies and having the evidence to demonstrate it, is critical to remove the subjectivity to performance. How to diplomatically, yet firmly, handle evidence-based performance issues, ensuring that correct behaviours are rewarded but those that damage the relationship are recognised, highlighted and in appropriate cases, held accountable, is an important skill to possess. A deep understanding of your contract and a clear appreciation for the quantifiable milestones of service delivery objectives alongside your partner’s historic ability to meet them, are essential if you are going to be tough but fair.
5. Renegotiation as a carrot and a stick
If your partner is having difficulty maintaining service standards then it may well be to both of your benefits to renegotiate the terms and/or service levels of their contract. There may be areas of responsibility that they would prefer to not continue with and you would benefit from reallocating these either back in-house or to another provider.
Such adaptation can have a significantly positive effect for both sides in the right circumstances and with the right terms. Renegotiation can also be of one-sided benefit to either protect your service quality or to maximise the value achievable from the relationship. Be careful though, a renegotiation benefitting one side only can place added strain on the relationship and often compounds the problem you are in fact trying to alleviate.
6. Know when it’s time to walk away
An early exit from a strategic relationship can be both distracting and punitively expensive if it is handled incorrectly.
It is for this reason that it is almost always best to attempt to rectify issues and evidence whether there is a way to get the relationship back on track to achieve outcomes that work for both parties.
If this is not possible, then a mutually agreed partial exit can be a way of achieving a ‘best of both worlds’ solution by maintaining the skills and knowledge of the legacy partner in areas they are best suited to handling. Then, reallocate the responsibilities of service delivery that could benefit from a different partner’s skillset – or undertake an internal review to determine whether you could provide a better service level by bringing the service back in-house – even if on a temporary basis whilst it is fixed, realigned and outcomes re-quantified before outsourcing to another partner.
There may well be times when even this is not going to be enough; it is only once you have exhausted all other practical options that you should consider an early termination of the relationship.
The ability to successfully minimise disruption to services and the usual time and financial cost implications that so often accompany such a move comprise too vast a subject to discuss in this blog. However, if you are interested in a little ‘light’ reading, we have written a detailed white paper on the subject that you may wish to peruse.
So, the conclusion is that as the economy ebbs and flows, different strategic partners will have their ups and their downs. As Serco are reported to have had big challenges over the last couple of years, Capita have recently reported very strong financial results and G4S has had a flurry in its share price with stock market analysts predicting the business has significant, but yet unrealised potential. Let us hope for the sake of their clients that these bigger players are able to maintain their leverage to generate good value and ongoing innovation for their clients that has a fair ‘risk and reward’ basis so that everyone benefits.
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