Outsourcing, Relationships

Making outsourcing relationships work

Why do some outsourcing relationships shine and others fail miserably? Like the ineffable search for the formula for the perfect marriage, that seems to be outsourcing's million dollar question.

A new study by Capgemini and CFO Research Services produces a blueprint for successful outsourcing efforts. It dissected the relationships that fell apart and spotlighted those that produced stellar results. And then it listed nine action points if you want your outsourcing relationship to hit a home run.

Here's the Cliff Notes version of the secret sauce: The May 2006 study, the duo's fourth annual survey, found that outsourcing relationships failed when buyers did not follow best practice policies in either selecting or managing their suppliers. On the other hand, when buyers took "appropriate care" in these two areas, "real benefits followed." Sixty-nine percent say their management of their suppliers determines the success of the relationship.

The Anatomy of a Failed Outsourcing Relationship

The study, entitled "Outsourcing the Back Office: The Path Toward Sustainable Benefits," paints Technicolor pictures of failed relationships in the section entitled "A Painful Past: Why Outsourcing Sometimes Doesn't Work." How many are unhappy? The study discovered roughly 25 percent of the respondents were disappointed with both near-term and long-term cost savings and the speed with which suppliers handled their back-office processes.

Buyers who terminated their outsourcing relationships gave the following reasons for doing so:

• Lack of cost savings
• Dissatisfaction with the supplier's processes
• An unwillingness to meet the buyer's changing needs
• Lack of sustained innovation

Of course, the buyers pointed out when suppliers clearly were derelict in their duties. But these financial executives were also honest about their roles; many placed the blame on their own shoulders.

Here's what they did wrong: Only one-third of the respondents said their companies use a structured selection process. Less than 20 percent bothered to "define, document, capture, and report operational and financial performance metrics." The same number did not have a formal governance process to oversee their outsourcing relationships. Less than 10 percent always audited their suppliers. And 90 percent did not build incentives or penalties into their contracts.

By Beth Ellyn Rosenthal, Editor, Outsourcing Journal
Go to the Everest Outsourcing Center site to see the full article.