Investing in Relationship Management up front can mean the difference between outsourcing success and failure.

By David Borowski
 
It is common for an organization entering into an FAO relationship to have completed a financial justification for the initiative, and to have a stellar business case to prove the value of outsourcing. However, actual results do not always meet expectations. As an example, according to a contract management benchmark report by the Aberdeen Group, surveyed CFOs believe that only 35 percent of negotiated savings are actually realized. While such failures have varied causes, poor Relationship Management practices are a common culprit.
 
FAO contracts often adequately describe governance practices and considerations, such as risk and issue management, vendor performance management, and change control, but the parties subsequently fail to implement such practices effectively. Instead, they end up reacting to the issue du jour, neglecting to follow the protocols conceived and captured among the contract schedules. A complementary approach to governance is prioritizing the relationship practices outside the strictures of the contract.
 
Best Practices
Often, focusing on the following relationship management best practices leads to a more beneficial partnership with an FAO vendor and makes realization of business case projections more likely:
 
1. Align on approach: Every client-vendor relationship is unique, not only in the traditional sense of size, scale, and geographical span, but also in terms of personalities, styles, cultures, and preferred interaction approach. It is important to establish each party’s interaction expectations early in the relationship—some clients are very hands-on and prefer to manage processes at a very detailed level, while others prefer to manage exceptions only and leave day-to-day operations to their outsourcer. While both approaches can be successful, if the approach is not discussed up front and there is resulting misalignment (e.g., client assumes hands-off and vendor assumes hands-on), significant effort is required to overcome the resulting issues and also to recalibrate the approach.
 
2. Prioritize the relationship: Process owners, subject matter experts, and relationship managers have busy schedules. It’s easy to miss an occasional operations meeting as other responsibilities become more important. It is also easy for this behavior to become the norm once a precedent is set, often resulting in risks not being identified and addressed before they become issues. It is important to make the relationship a priority—establish and maintain an interaction cadence, which demonstrates a mutual commitment to dialogue and improvement.
 
3. Solve problems together: It is common to hear the phrase “That’s not my problem,” uttered by client personnel involved in supporting outsourced business processes. Often, this stems from the notion of a “black box” solution, when client resources believe that the recipe for success involves “throwing an issue over the wall” and requiring the outsourcer to resolve the issue independently. Effective problem solving in an outsourced environment requires both parties to put blame on hold, work collaboratively to identify the true root-cause of an issue, and take responsibility for resolving the components that each is best positioned to address.
 
4. React to data, not innuendo: Trust is established over time and only with demonstrated success. Until an FAO provider has earned that trust, client personnel—especially those with previously bad outsourcing experiences—are often naturally resistant to the process. During the initial trust-building stage of the partnership, client relationship management advocates must vigilantly separate perception from reality. A proven way to combat unwarranted reluctance is through the use of data. Through proper utilization of data and facts to substantiate a recommendation or decision, objectivity supersedes subjectivity, and emotion is removed from the equation.
 
5. Be accountable for outsourcing success: Many clients take a hands-off approach to a vendor partnership, preferring to think of the vendor delivery of services as a spin-off. It is more meaningful and critical, especially during the beginning of the relationship, to treat it as a joint venture, or extension of the organization. While this type of approach has been a challenge for many clients to institutionalize, success begins with recognizing that the relationship depends equally on contributions from both the outsourcer and the client. By acknowledging accountability up front, a client embraces the role of facilitator and acknowledges that success is improbable without the appropriate level of relationship support.
 
Integrating these practices into an outsourcing client’s Relationship Management approach will help reduce the chance of retrospective qualifiers such as “we didn’t communicate well enough” or “expectations weren’t aligned.” Instead, they proudly serve as vendor references in support of their outsourcing partner’s latest business opportunity.
 
David Borowski is a senior associate with Pace Harmon and has extensive experience in business process and IT outsourcing, contract manufacturing, global operations and sourcing process improvement, and complex project execution. Pace Harmon is an outsourcing advisory services firm providing proven guidance to Fortune 500 and high-growth middle-market organizations on outsourcing and strategic sourcing transactions, process optimization, and vendor program governance.