The Secret to Dealing with Outsourcing Providers? It’s about You [Part 1]

Introduction

Outsourcing Providers (OP) – As a business and organizational leader, you are required to continuously and strategically position your company for growth. Increasingly, this requires for you and your organization to collaborate with outside parties – to outsource services, or production to an external party – using an OP. Investment into outsourcing a project, or activity is required so you can buy specialized resources, skills, or a technique you either don’t have, or don’t have (yet) enough of within the organization. It also reduces capital expenditure, by being able to manage the OP as external cost, reducing the internal resource dependency and increasing the flexibility to meet ever dynamic market conditions.

By now it has become clear, there is no universal route to business success, but one which needs to be uniquely tailored to both the Sponsoring and the OP organization. In this 2-part article, we want to highlight the importance of “leadership” and  “partnering” with Outsourcing Providers and what successful leaders have observed – In other words, how success can be positively influenced by you, the leader.

In fact, the contrary is often true: Outsourcing exacerbates existing internal leadership, management, policy, process and procedural issues. Foremost, it requires additional and a different type of leadership – not less.

Working with Outsourcing Providers implies the creation of a (new) collaboration and partnership – This will bring about changes in the ‘modus operandi’ of any organization and requires the creation of a truly “new” organization within the overall organizational framework.

Once you have taken the decision to use an OP, it is pivotal to take the changes in the ‘modus operandi’ of the organization first and foremost into account, and to carefully define expectations, plan, communicate and lead in close collaboration with the OP’s leadership – Commencing managing the OP relationship right from the start.

In our advisory work we have seen many leaders requiring the creation of excessive policies, procedures and structures to manage the OP interface. This ‘securitization’ of success by leadership frequently has resulted in a lopsided focus, one which often has been ‘exclusively’ centered around processes and the search for ‘imperfections’ and inabilities in the OP’s organization. Operationally, perhaps surprising, it is not so much about the OP and its organization, but mostly about the internal ‘setup’ of the Sponsoring organization and about seeking a mutually compatible and beneficial partner.

Often times, the initial lopsided focus by the Sponsor, results in time delays, cost overruns and other undesirable business consequences down the road. When working with an OP, when not overly careful, these will be your charges and your costs. It is up to you to continuously communicate with the OP and to ensure business interests remain aligned and mutually beneficial.

There is currently a high failure rate (~70%) in altering the way an organization is operating [1], [2] and a similar failure rate, specifically in outsourcing deals (~69%), in whole or part [3]. Thus, there is a strong need for a different approach in forming partnerships and collaborative ventures in the industry by means of approaching and managing Outsourcing Providers in a strategic and well executed manner.

Are you experiencing “Outsourcing Provider” Alerts?

1. Are you experiencing program development timeline deviation, while working with your Outsourcing Providers?

2. Have you ever thought, even though you have seen advantages of working with Outsourcing Providers, there are plenty of times, you would like to do all the work internally with your own team?

3. Are you experiencing cost overruns, while executing your product and development programs through Outsourcing Providers?

4. Are you experiencing delays – Your projects not to start, or end on-time?

5. Are you experiencing multiple internally directed project changes resulting in various change orders as a result?

6. Are you considering to outsource your Outsourcing Provider’s (interface) management?

7. Are you receiving negative cost-benefit ratio updates on the use of a specific OP, or no clear cost-benefit ratio data at all?

If you are like most business leaders you have answered “yes” to one, or more of the above questions.

The following main questions may then occupy your mind in this respect:

A. What impact does leadership specifically have on success in the interaction and output of working with an Outsourcing Provider?

B. Can leadership prevent outcome uncertainty, administrative mishaps, miscommunication, higher than expected cost, lower than expected output and other undesired collaboration- and partnership-results with Outsourcing Providers from occurring?

Effective Leaders:

• Know legal, financial and technical due diligence of a prospective partner often eclipse operational, organizational and culture reviews. When these latter issues ‘fall through the cracks’, it can lead to big problems in the collaborative partnership further down the road.

• Know successful management of an OP relationship, requires mutual knowledge and understanding of each other’s organization, each other’s culture and its collaborative nature, all fundamental to a successful outcome. Success is mutually driven by the assigned People, the Team, the Operations, the Organization and finally the Culture. When leaders outsource, they factually in-source, they buy a team of resources to supplement their own.

• Model their personal collaborative leadership behavior to the collaborative partnership the seek to create. Hence this will be visible in the team’s operational approach and project management.
• Seek collective gain by creating a research, clinical-, product-, or commercial- development collaboration and partnership,  a partnership of equals – a “Win-Win”, irrespective from the organizational size of the ‘other party’ – Hence, the OP may represent a much bigger, or much smaller size organization than their own.

• Know a successful project with an OP is clearly defined by leadership right from the start – their personal leadership – A well known OP name doesn’t define success – collaborative leadership does.

• Respect each other’s business – they look beyond the OP agreement “price” and see “value” by leaving a respectable margin in the price to pay, allowing for potential long term collaboration and mutual business development.

• Target success and know “management by fear” is not successful – they negotiate positive OP milestone delivery incentives in the agreement – always stimulating delivery, not fear.

• Are accountable for the organization – they do not allow for uncontrolled and unprofessional ‘internal’ work, to be ‘fixed’ (at a price) by the OP.  This is particularly relevant when “strategic partnerships” are initiated, often leading to huge organizational cost (frustration and project delays) as a result of the initial “hands-off” mentality by the Sponsor’s staff. The latter is a result of leadership’s inability to ‘sell’ the decision to outsource complete departments and/or functions and to collaborate internally on a partnership with the OP.

When leaders outsource, they factually in-source, they buy a team of resources to supplement their own.

• Define “neutral”, high quality, knowledgeable professionals to interface with Outsourcing Providers – avoiding the multi-layered department oversight scenario (administrative-, contract-, project-management), leading to an inability of clear accountability, producing inefficiency and potential project waste as a result.

• They assign talent which is defined as ‘fit for purpose’, not just based upon résumé review, but through a sensible review of an individual’s inner desire to perform and contribute to the specific requirements of the OP interface job.

• Distinguish interface management from “process management”. They actively work on the daily reality of how well their organization integrates its own activities with the external OP organization and determine what repercussions the outsourcing has on a departmental level within their organization.

• Develop a clear project vision and a realistic and implementable strategy, planning and execution – leading to timely information provision, reducing mid-course project strategy changes to a minimum. They are well aware that otherwise, planning and quality will suffer and human and fiscal resources will have to be expended, all as a result of OP generated, but Sponsor ’caused’ “change orders”.

• Avoid the ‘dynamic’ product development environment excuse used by departments or the organization as a whole, causing projects to drift and continuously change course, without a clear strategic reasoning. They know this is more related to their personal and their leadership team’s inability to clearly define what needs to be done, than to product-, regulatory-, or commercial-data driven changes.

Will you know what is going on and are you getting your money’s worth i.e., will the defined goals and objectives be met by the Outsourcing Provider’s promised date – At the agreed price?

• Know that so called reputable (company) names, do not lead to undisputed, repeated and uncomplicated successful project results. It all depends upon the team assigned and the defined interface and management thereof. It is up to the assigned Sponsor leader to ensure team verification and qualification for the job to be done – this includes the assigned Sponsor and Outsourcing Providers Project Manager.

• Know smaller sized Outsourcing Providers often times have ‘niche’ product-, therapeutic- and, or specific geographical-area expertise. These Outsourcing Providers deliver agility, flexibility and responsiveness, often complemented by short communication lines with knowledgeable Senior Leadership – features most  ‘larger’ Outsourcing Providers cannot, or cannot consistently provide and guarantee.

• Define success and give clear measurements. Implement mutual key performance measurements in place to prove that the outsourcing is ‘working’ and contributing to the Sponsor and the OP’s business success.

• Are interested in the creation of an increasing flexible organization, one with lower “fixed cost” and increasing successful response to market demand, allowing for rapid increase, or decrease of resources, yet not without realizing there is an internal “cost” to this.
• Know that in a strict regulatory context, using an OP does not reduce an organization’s accountability for the actual project work being done by the OP. Effective leaders are known to be ultra selective about who is going to work on their projects, in what capacity and for how long. These leaders know they will finally be held Regulatory and Financially accountable for all OP activities on their project(s).

Are there Success Secrets to working with Outsourcing Providers? Find out in part 2 of this article.

References

[1] Beer, M., Nohria, N., (2000). Cracking the Code of Change. Harvard Business Review, HBR’s 10 Must Reads on Change, 88-95.

[2] Beer, M., Eisenstat, R. A., & Spector, B. (1990a). Why change programs don’t produce change. Harvard Business Review, 68(6), 158-166.

[3] Kotter, J. P. (1995). Leading change: why transformation efforts fail? Harvard Business Review, 73(2), 59-67.

[4] PriceWaterhouseCoopers (2007). The partnership bridge: Building successful IT outsourcing relationships – 2007 Global Outsourcing Survey

This article was originally published in Leadership Matters on 11 January, 2012.