During an amusing “debate” at a 2012 SIG conference on whether outsourcing
was dead, or here to stay, a panel member defined failure of outsourcing as
taking the service back inhouse. In an audience of more than 50 companies, the
moderator [me] stopped the discussion, and polled the audience for how many of
them had taken services back inhouse. Only a few people raised their hands. I
then said, “What if you define failure as services delivered barely to standard,
and unhappy people on both sides of the relationship with a nagging sense that
it will never get better.” There was laughter, and about three quarters of the
audience raised their hands.
The outsourcing industry needs to redefine success and failure away from
termination and toward relationship quality, and clients need to sign up for an
active 55% ownership of the success. Outsourcing relationships are usually
hampered with an inauspicious start for the client team. The sourcing is usually
unwelcome by the workers most affected, usually involves disruptive change, and
usually causes the loss of colleagues with all the attendant emotional and
relationship challenges. Often the outsourcing relationship introduces not only
new processes, but new cultural realities to situations where the retained team
was not seeking or ready for such changes.
In addition, and in spite of the overwhelming volume of published material
about the problem, most companies taking on new sourcing do not adequately
prepare for the organizational change or the governance needed for the services.
Invariably, the provider delivers the services (which they know how to do, to
the service levels in the contract). The retained client team members,
meanwhile, are endlessly frustrated because they want and expect more than the
contract calls for, and they don’t get it, and they do not understand the new
working environment, so they exist in a state of aggravation. This should
not happen to anyone, and yet we observe it all the time.
Remediation is not difficult, but it does involve change – the change that
generally should have happened at the start of the relationship. The change
takes three forms:
Engagement in Strategy
Most often, companies struggle because they lack the most basic processes to
manage their providers. Issue management, standing governance meetings, method
to analyze performance, invoice validation processes, forecasting – basic
business processes are most frequently what must be put in place. The service
providers generally do not engage with this kind of process creation, but if
they were to step in and provide leadership to drive the development of process
on the client side, a better relationship could potentially result.
On the people side, client companies have to be honest with themselves. Are
the right people, with the right skills, capabilities and attitude, in charge of
managing the service provider? If the answer is no, the relationship will not
improve. Outsourcing needs the right people who can operate in an ambiguous
environment, and those are often not the individuals who were managing the
services before the sourcing. Our observation is that, more than 60% of the
time, the client side is mostly responsible for problems in services
At the same time, by contract, the client can remove the service provider’s
lead people if they are unhappy with them – this is one of the great advantages
of a third party relationship. We have seen companies replace the executive
three times to get the one they could really work with – and in this example,
take a terribly-constructed contract into a strong-performing relationship for
their global IT operations. People with the will can make challenging situations
work for both sides – as long as they have the right attitude and approach.
When the provider knows that the client has the wrong people leading on their
side, the nature of the relationship makes it difficult to raise the issue with
the executives. The risk is that the provider seems self-serving or vindictive,
and that they will be simply dismissed. Because of this taboo area, and lack of
trust, relationships limp along for years in suboptimal circumstances. Without
deep trust at the senior executive level, this is difficult to overcome.
Building the trust takes time and commitment from client senior executives, who
often do not consider the sourcing to be “important” enough to warrant the
investment of time. Thus, the cycle continues.
Engagement in Strategy
Most client companies develop their strategy behind closed doors, and later
tell the provider what they need to do to conform to the strategy. This is not
dissimilar to how business operations managers are told in a non-outsourced
environment to comply with strategy. However, in a world where business
operations and technology enablement are so critical to overall success, this
approach needs to be reconsidered. Service providers are always working on
service innovation (to attract business and improve their margins). However, if
they don’t have a seat at the table of strategic planning, their knowledge and
ability to contribute is absent, and opportunities for innovation are missed.
We observe further that as large portions of operations are outsourced, the
deep knowledge of how they work also leaves the company. Companies become
dependent on the providers for “knowing the future” but at the same time are
unwilling to accept that the provider might know better. Deeper integration of
the provider into strategy development would help to overcome this challenge.
It seems simple – but if it were easy to do, then outsourcing would be a much
happier place than it seems to be. Creating and adhering to key processes, being
honest about the right people on both sides of the relationship, and engagement
with the provider in strategic planning can make a world of difference in the
working environment, but also in the value the client receives.
Cynthia Hollandsworth Batty, Director, ISG, Inc. Cynthia Batty is ISG’s
Methodology Architect and a lead in the Transformation and Governance practices.
She brings 20 years of practical experience to advise clients on their sourcing
governance and service management design, as well as organizational change
management and sourcing governance maturity development. She is a recognized
expert in sourcing governance, innovation in sourcing, and vendor and contract
management. Cynthia is interested in your thoughts! Please feel free to write at