27 Nov Outsourced Provider Relationships
Five early warning signs of potential problems and what to do about them
Outsourcing is gaining popularity and momentum in all activities, functions, industries and sectors.
Outsourcing can add extraordinary value to an organisation and indications are that businesses will continue to outsource more and more going forward.
We want our outsource providers to deliver outstanding performance, create value for our organisation (and theirs) and to do this in a culturally acceptable way.
These expectations seem neither unreasonable nor onerous, yet nurturing these relationships to survive and thrive in difficult and critical.
Is there a way that we can anticipate, and then address, potential ‘challenges’ to our outsourced provider relationships before they become so major that they damage our outsource provider relationship potentially forever?
This article aims to:
- Identify the early warning signs that all is not well; and
- Suggest what action we should take to resolve these issues.
The early warning signs
We have identified five different outsourcer behaviours that should act as warning signs all is not well with the relationship. Being vigilant to these signs and acting early is the best way to re-focus your provider for outstanding results. They are:
- Provider verbally agrees on a course of action but does something different
- Provider is Reactive, not Proactive to your business situation
- Providers Profit Centre approach is not aligned with client Cost Centre and Profitable Growth agenda
- Provider takes more and more time and resources to manage
- Provider is Never Accountable
So what are the possible root causes of these behaviours and what can be done to address them and then re-focus the provider to ensure outstanding value is delivered?
- Provider verbally agrees but does something different
Watch out for the outsource provider who is very agreeable but as time goes by nothing changes. That is, their behaviours and actions do not align with the agreed path. Be cautious of the person or organisation that does not appear to be able to say ‘no’.
When there is a disconnect between what is agreed and what is done, ask yourself:
- Is it purposeful?
- Are they exercising power in the relationship
- Is there a general lack of clarity regarding your requirements
- Are they just not aligned
- Is it all about their organisation i.e. a disconnect between the person agreeing and the people doing (is it poor leadership or poor outsourcer internal processes), or
- Are they just unable to drive their own performance improvement to meet your needs (because your needs are not important enough or they need external help to change)?
Alarm bells should be ringing. This situation requires urgent and immediate attention to protect your business.
Check and address as far as possible each of the issues described – confirm alignment around objectives, set up and roles and responsibilities. If it’s all about their organisation, understand as best you can how a request from you is to be processed and actioned, and how they are actioning performance improvement around your agreed KPI’s and their obstacles to improvement.
Double check your output KPI’s and ensure you have measures for implementation and legislative compliance if this is something the provider is doing on your behalf.
Seek advice from your manager regarding the path forward. There will likely be a need to engage your counterpart (and other members of their team).An audit for compliance may be the minimum requirement going forward.
Provider is Reactive – not Proactive
Be alert for the provider who continually brings issues to the business but provides no suggestions (or takes no action) on a resolution. These providers never seem to get ahead of issues and are continually in firefighting mode.
At a minimum, you expect you are not resolving the same issues, or are you solving issues that your provider should have worked out with all their other clients before you.
All issues are not created equal. We need criteria to classify the different types of issues that the business can expect then an agreement on how the outsource provider is to deal with these issues. Then we need this reflected in roles and responsibilities and accountabilities within the provider and the business.
You expect that they are practised in root cause identification and resolution. You expect that issues critical to you and your business are raised, issues that relate to the grey areas between the provider business processes (physical, information, financial) and the client business processes are raised, proposed resolution identified and resolved vis a vis authorities, issues that can potentially damage the relationship are understood between both parties and raised if there is a chance of occurrence. (Near-misses might also be reported.)
You expect that clear policies, procedures and rigid disciplines are in place so that outsourcer and client are clear on boundaries and what’s acceptable in terms of issues resolution, i.e. resolve them themselves, resolve in consultation with business, and escalate proposed resolution.
- Providers’ Profit Centre approach is not aligned with Client Cost Centre and Profitable Growth Agenda
In today’s business environment it is important that your outsource provider works with you to lower the cost base, and helps you conserve funds for investment in growth, making both businesses more profitable.
Be cautious of the outsource provider whose performance never seems to improve, yet their costs continue to increase.
These providers may get the jobs get done but only the bare minimum. When we have an issue with an actual outcome or quality of work completed they easily increase the price. (Ask yourself: Is this request compliant with the contract? Does the contract state an acceptable quality of work completed? Is this being measured?)
Typically these providers have been trained to behave this way. It is very difficult to go from a relatively lackadaisical view of ‘she’ll be right’, and the endless bank account that goes with this, to more compliance in quality of output and rigidity and control in disciplines over time. Human nature doesn’t work like that. We need rules and procedures in place and compliance being measured. This protects both parties.
It is important that both organisations are aligned with joint objectives. Reflect on what it is that you are engaging the provider to do and how will you and the provider know and be able to measure when this has been achieved? The business and the outsourcer have competing agendas which need to be reconciled ideally from day 1. Ask yourself if you have the right agreed KPI’s, benchmarks and methodologies that allow both parties to easily determine progress re-fulfilling objectives. Do you need to add some more or indeed scrap others? Do you need to link performance (or lack thereof) to payment? Do you need to be more demanding of this provider to ensure they meet your standards first time every time?
- Provider takes more and more time and resources to manage
Be on the lookout for the approach where the politics between businesses overrides and distracts from the quality of their execution.
Has the client management team of the outsourcer grown significantly? Why are these costs in your organisation and not in the outsourcer? How does this reconcile with a view that we want outsourcers to be: self-managing, self-reporting and self-correcting/learning when they are apparently so difficult to manage and further we seem to be doing everything for them?
The outsource provider is playing politics. Instead of focussing on execution and performance they are focussing on shoring up their position and influence at every level of the organisation. They are consistently in front of your senior executives. Is this divide and conquer perhaps?
Be aligned with who is accountable and how they will be kept accountable, agreements on how we will work together and where the work on the relationship is going to occur, with and by whom.
Consider broadening the distribution of your regular outsource performance report to more senior management stakeholders from the outsourcer and your team to remind them of your evolving existing process. Create consistent messages, using the same words for all of your executives to deliver so the provider is reminded that you are one aligned team. Ensure you have a mechanism to collect and action feedback from your stakeholders.
- The provider is never accountable – There is no conflict, it’s always someone else’s fault!
The outsourcer is quick to lay blame and deflect from them. The healthy tension in organisations is important to get better answers, and improving our organisational ‘culture – how we get things done around here’.
In this instance, we need to be clear that ‘blaming ‘others is not acceptable. We will allocate responsibility based on clarity of accountability. There will be no abrogation of duty.
Is there a duplication of roles and responsibilities in provider and client organisation? If so, this needs to be addressed so that there can be no misallocation or lack of clarity re-accountability.
Your expectation is that the operating enablers for the relationship are well documented, understood and in place. There is a clear understanding of accountability, roles and responsibilities and these will be enforced.
Your expectation is that the outsourcer will continuously learn and improve in their adoption/reflection of our internal ‘culture – the way we do things around here’ because that’s the accepted operating system for our organisation.
Getting the relationship back on track
You’ve noticed some of the behaviours above in your organisation and you want to take (early) action. (Remember these are early warning signs!)
The final outcome of this will be the provision of information (fact-based) to a more formal discussion between the providers representative and your team ensuring that relevant stakeholders have been kept informed along the way.
Your approach is to ‘seek first to understand’ the obstacles that they see to undertaking the job properly as agreed and this includes addressing both client and provider misperceptions.
The structured agenda needs to provide an opportunity for the outsource provider to share their perspective on the issue, explain themselves so you can understand, tell you ‘what’ will change and ‘how’ this will occur. It also needs to allow you, the client to explain what you (and your team) will do differently.
Together, you create a jointly agreed path forward, that will be owned, tracked and reported.
You may need to agree what happens if performance improvement does not eventuate from this process. How long are you willing to wait before you see evidence that change is happening? What happens if there is no change?
The outcome of addressing these early warning signs is not necessarily a change in provider, nor is it a negative change affecting you or your role.
It is likely the creation of a ‘window of awareness’ for both you and the provider to do better, contribute more to your businesses and grow in your individual and joint capability and confidence to positively impact the future of both organisations.
The conversations should not stop with this one. This will simply open the door to a more productive continuously evolving achievement-oriented environment for both you and your outsource provider, but best of all it will get the focus of the outsourcer back on track to adding extraordinary value!