[HROA Essentials] Outsourcing deals: Failing to succeed
There comes an inflection point in most outsourcing deals when failure is a real possibility. Whether it occurs during transition or after delivery is stable, misalignment and the sense of disappointment may overwhelm both parties. What can buyers and providers do to turn failure into a stronger relationship?
Can this marriage be saved? As in a marriage, all parties start off with the supposition that, other than the occasional spat, most outsourcing relationships will be successful. However, when the bumps on the road appear, the parties are ill equipped emotionally to deal rapidly and effectively to resolve disparate points of view and misunderstandings. As a result, there are often no mechanisms in place to get the relationship back on track.
Current industry wisdom lays the responsibility for effective relationships on the concept of good governance. Yet governance consists of a series of routines, reporting mechanisms and controls, not an approach to managing the very human responses to situations that result in a destructive pattern of misunderstandings and disagreements.
Most outsourcing relationships assume success is an automatic outcome, with failure seen as a remote possibility. Reversing this assumption â€" that failure of any outsourcing relationship is inevitable, and all mechanisms must be put in place to avoid breakdown â€" puts the relationship on a very different footing. And when failure is taken as a given, the necessity to put in place avoidance and resolution mechanisms becomes top priority.
Most parties forget that the success of a relationship is based upon a simple rule: if the relationship is not working for one party, it is not working for the other. Taking this statement to heart is key to avoiding failure. Clients and providers intuitively understand this concept, but spend no time during courtship and contract to define failure's warning signals, responses, and how the parties will effectively change the way they work together.
Early warning signals are generally easy to identify. Many outsourcing arrangements have a fundamental lack of understanding of the cause and effect of relationship breakdown, even though lip service is paid to relationship management during the course of the sourcing event and subsequent contractual phase. Without early attention, seemingly little problems can spiral into a series of perceptions and resultant behaviors that require a major recalibration to get the relationship back on track.
How do the stakeholders identify those signals that indicate that the potential for relationship failure lies ahead? The signs are generally identifiable, ranging from changes in attitude to alterations in routines. When previously amiable provider staff members start to dig in, saying no to any and every request, trouble may loom. When governance routines slip or perpetually change (the governance du jour syndrome), it is symptomatic of the inability to table issues in a constructive way.
If issues or conflicts are automatically escalated upward, it is a signal that the teams may not be able to work effectively together, or that they are fatalistic about their inability to act. And tsunamis of change requests that languish unresolved week after week suggest an inability to tackle problems together.
Diagnosing the points of dispute â€" whether real or perceived â€" is the first step. Simply put, the first step is to tally a comprehensive, bilateral list of gripes, defining where all expectations and measurements â€" whether formal or informal â€" are not being met. Each gripe should have a describable and quantifiable cause that can be linked to an identifiable effect. These gripes may be contractually documentable such as missing SLAs ‘x' percent of the time on call resolution, or describe ways of working that are not effective, such as the inability to provide a timely response to requests for information. Every gripe must be treated as real and actionable.
Understanding and aligning approaches to failure is imperative. The biggest challenge in avoiding failure in outsourcing relationships is responding in the same way or aligning each side's response to failure. Failure unfortunately results from the inability to perform and the perception that performance has not been attained.
At least four ways of reacting to outsourcing relationship failure can be discerned. Ensuring that each party understands how the other is approaching failure is prerequisite to putting the relationship back on the right track.
- It's inevitable … and waiting it out is the best fix. In this scenario, at least one of the parties believes that failure is a natural outcome of the relationship, and no intervention or change in approach will improve the situation. The fatalism of this response means there is no imperative to understand the relationship's challenges and issues, so the parties see no benefit in coming to the table to break up the cycle of disappointment and distress.
- What problem? Not my fault … it's the other party's. Self absolution is the operative approach, levying full responsibility and blame for failure on the other party. As a result, daily skirmishes are the norm, rather than the exception, and the teams spend most of their time pointing fingers in lieu of getting to the root causes of the problems.
- I'll be out of here soon. Although one (or both) of the parties acknowledges the relationship failure, those in charge take no responsibility for renewal and repair, deliberately leaving it to the next generation of managers. The breakdown in this scenario is the inability of the parties to take responsibility for failure.
- It's not bad enough yet. This response is the metaphoric equivalent to waiting until the proverbial pot boils over. As a result, minor breakdowns in relationships are permitted to build up into all out war. In some cases, this response stems from the fear of bringing issues to the attention of executive stakeholders. As a result, the relationship can spiral out of control when an earlier intervention by more senior stakeholders might have gotten the relationship back on track.
Alignment is the first step to relationship repair. Buyer and provider must start by aligning their responses to failure, understanding the underlying causes of the symptoms and seeing the imperative for change, timing, and severity of problems in the same way to avoid full relationship breakdown.
What else should the committed client and provider do to get the relationship back on track?
Prioritize the time to recalibrate and institute a platform for rapprochement. Business as usual is no longer an acceptable way of working. Both sides must commit to invest in the effort to restructure any and all aspects of the relationship â€" from personnel to meeting times to service levels â€" in ways acceptable to both.
Introducing new players and routines may be helpful. Often bringing in a third party to listen and react independently, or setting up new management routines with participation from more senior stakeholders will help the principals resolve issues in a constructive way.
Agree what success looks like, and when it can be achieved. Miracles do not occur in outsourcing relationships. Changing ways of working mean a commitment from all parties. Working toward success with a plan that stages and tracks milestones is the right approach.
Develop and enforce standard, repeatable responses. Agreeing on the behaviors that each side will exhibit when presented with an issue is critical. Making sure that any request or comment is backed by evidence will take the emotion and optionality out of the response. Clarifying the conditions of satisfaction at the point of the transaction ("If I am able to do x, will I satisfy your needs?") is another behavior that will help repair the relationship.
Do not hesitate to make major changes in governance, routine, management tools, organization and personnel. Relationships are forged by people and governed by contracts; not the reverse. At times, failing outsourcing relationships spiral out of control because the personalities involved cannot adopt new, more constructive behaviours … or the routines are not supportive … or the tools do not support transparency of performance … or the organizations are misaligned.
Succeeding through failure. Despite reported dissatisfaction with the majority of outsourcing relationships, truth be told, there is no plague of failure. The parties have too much at stake to discontinue relationships because of the inability to work effectively together. Most disengagement occurs as a result of when there is a change in business condition, such as merger/acquisition, altered business case assumptions, or, in rare instances, discontinuation of vendor business or change in ownership.
Yet, over time, relationship malaise can morph into failure. Seeing failure in the same way, and developing constructive responses is the basis of a successful sourcing relationship.
Deborah Kops is Head of Program Planning and Development of SharedXpertise, formerly SBPOA (Shared Services Business Process Outsourcing Association). Formerly a partner in two major professional services firms, Managing Director in two global banks and one of the founding executives in an early business process outsourcing provider, Kops has a unique perspective on an industry that she believes will flourish, often in spite of itself.
This article first appeared in Global Media Services.