By Robert Childs, Program Director, Crescendo Consulting Solutions
As the outsourcing model evolves into an embedded business practice within Financial Services, client buyers are becoming increasingly sensitive to the capability, viability and stability of service providers. Vendor solvency, conversion delays, scope creep, hidden fees, lack of service level agreements and key performance metrics, and misaligned client-supplier governance are examples of the challenges facing these relationships today. Whether considering outsourcing for the first time or renewing an existing relationship, it is clear that contingency planning and strong risk management are essential to any future transactions. Both client buyers and suppliers can take steps to avoid the potential pitfalls of outsourcing.
• Set clear expectations; document the business case. Develop a detailed document that includes vision, in-scope functions, service expectations, key stakeholders, implementation requirements, anticipated governance, and high level process and technology requirements. Define a high level financial model including anticipated return on investment (ROI). This is a required step for new deals but is strongly encouraged for renewals. Synthesizing lessons learned, existing relationship issues and anticipated future requirements into a refreshed business case will help clarify buyer-supplier expectations and will lead to a stronger, more productive relationship.
Relationship Management / Governance
• Establish a trusted, transparent relationship. Suppliers need to share current capability as well as future growth plans avoiding the strong sell. Suppliers “can’t do it all.” Be specific about your capability and transparent about evolving functionality. Buyers appreciate the candor and may be willing to grow with you. Buyers need to be open with the issues that led them to consider outsourcing in the first place. Sharing information – however painful – will quickly establish mutual trust. This will benefit the longer-term relationship and help build capability and performance.
• Establish a cross-company Steering Committee. Engage executive sponsorship and key stakeholders in defining and executing the program. Enable them to measure performance. Select a program manager. These roles are critical for building and maintaining a successful relationship. Develop strong accountability for those who hold these roles. Incent performance and make it part of the employee’s performance plan.
• Define skills and resources necessary to initiate, execute and measure the relationship. Engage the appropriate resources to help scope, price and plan implementation and provide quality ongoing service delivery. Remember, the relationship will never recover if the work is incorrectly scoped and the deal mispriced. At times, having an agnostic third party to help facilitate and negotiate terms and conditions helps fast-track execution.
• Create a robust Service Level Agreement with corresponding Key Performance Indicators that will govern the relationship. Tie incentives and corrective actions to explicit data and performance measures. Ensure escalation procedures are defined and incident lessons learned are shared. Utilize the Steering Committee to review performance and manage services and issue mitigation.
• Create an oversight / audit committee that avoids duplicating supplier work yet effectively controls the process.