Everything I Learned About Outsourcing I Learned in Kindergarten…but Forgot

The rules we grow up intuitively understanding eventually fade away into distant memories. The same principle applies to managing outsourcing deals

Outsourcing successfully should be relatively straightforward if one follows a few simple rules. Wading through the marketing hype and the thrill of the deal, the pressures to demonstrate cost reduction and quality enhancement, one finds that most of the predictors of success are actually quite basic…and obvious.

But as grown ups, we build a sense of self worth by faithfully ascribing to a “not invented here” philosophy. We think that complicating and obfuscating are markers of skill and maturity, enhancing our reputations and making us incredibly valuable to our corporations. Yet, when we all played in the sandbox, we faithfully and instinctively followed orthodox rules, knowing whom to play with, how to fight fair and when to get out of the rain.

The analogy of kindergarten rules can be crafted into indicators of outsourcing performance, starting with the initial sourcing phase. While faithful adherence is no guarantee of success, avoiding the pitfalls identified by the many that have trodden the path before we can change the odds significantly.

Here are the 10 guideposts we know intuitively but generally forget:

The provider’s outsourcing team is full employment for consultants. Run the other way if the account leadership and solution teams are primarily made up of people who have always charged by the hour, and only communicate through PowerPoint slides. Outsourcing is a delivery business, and no amount of consultancy hype will mask that fact. To make a client business case and a profit at the same time, the provider has to stick to basics, resolving issues at first call, paying bills on time. No amount of vision or theoretical best practice processes will substitute for the base blocking and tackling that are a precondition to business transformation — down the line.

We can retire happily if we receive a dollar for every time the provider says “transformation.” And since the T-word is on the table, the home truth is clients transform themselves, providers do not transform. The act of outsourcing merely serves as a discipline or an event — a call to arms for change. Steer clear of a proposition that stresses transformation and does not deal with the nuts and bolts of operational excellence.

“We deliver for you” (thanks, United States Postal Service) is not stamped on the provider team’s T-shirts. USPS should license the slogan to the outsourcing industry. Reasons one, two and three for entering into a business-process outsourcing agreement are improved delivery, leveraging different strategies for managing people, improving or streamlining processes, and in some cases, improving or upgrading technology. Aspiring to best-practice implementation is a great goal, but being able to deliver, at the very minimum, the same level of service at a reduced cost with a commercial structure is a mandatory first step.

Transitioning is planned to take more than 12-18 months. One of the greatest benefits of entering into an outsourcing arrangement is the commercial discipline of a contractual arrangement. Most corporations are a frugal bunch; we strive (or at least try) to use what we buy. Yes, we could get to the stream of benefits ourselves, but the key word is eventually. You, Mr. Provider, bring the methodology and teams to take us to the new world more quickly than we can ever manage to do on our own.

While certainly some programs are global, and require careful timing and logistics, it is important to acknowledge that transition fatigue tends to set in after a year. Momentum is lost and non-believers (“it’s just another corporate initiative…”) start to become more vocal. And the transition and business-as-usual teams start to trip over each other, confusing the client and often making counteracting decisions. The business case for entry becomes a very distant memory.

The advisor demonstrates VERY strong biases. The best of the advisor breed listen, fit, arbitrate and team with the client for success, bringing to bear the considerations and critical success factors of the provider. However, given the infancy of the advisory market, some personnel, newly escaped from corporations or providers, have not honed the listening and independence skills that are hallmarks of a good advisor. If the advisor is pushing a particular provider’s value proposition to the exclusion of others at an early stage, or carrying a torch for a systems solution that does not appear justified by a business case, challenge the advisor…or take him off the roster.

The pursuit team disappears as soon as the contract is signed. Get a pledge signed at the outset that those that brought you to the dance will stick around for the party. The proverbial “bait and switch” is the kiss of death for many sourcing arrangements, allowing operations management and the implementation team to dig in their heels that the solution is not feasible. This means an endless cycle of scope and governance discussions, angst and disappointment.

Systems with a capital “S” are the core of the offering. Beware of the systems implementation wolf clothed as the outsourcing sheep. Outsourcing is an increasingly competitive, commoditizing business with less and less room for margin growth as clients become better buyers and the provider community expands. Systems implementation, on the other hand, has more room as an offering to make margin for the provider. If the provider is pushing a systems implementation to the detriment of operations, ask questions about the value…and the business the provider is really in.

There is only one viable provider apparent in the market. Caveat emptor — if the majority of the Six Pack (the big technology cum business-outsourcing providers) don’t see a market opportunity en masse, red flags should abound. First, no extant market offering means that the provider most likely has not yet found a way to make the service economically viable. And economic woes mean pain and suffering for the provider, continually seeking ways to pull back on service levels, cut scope or delay rollout.

Second, few market players may indicate that the talent is not available at an affordable cost or the talent has an allergy to the provider (i.e., does not believe in commitment to the vertical or offering).

Last, taking a risk as a foundation client is a really painful way to go. The guinea pig role whereby the provider is shaping an offering on the back of the first client is not for the faint of heart. It requires the client to commit to additional staffing for program management and solutions. Fundamentally, the client responds to the provider’s initial marketplace point of view, which may or may not have eventual market appeal, exacerbating provider pain.

Leverage, leverage, leverage, is the core of the value proposition. No one has yet proven that leverage is the prime benefit of outsourcing. It sounds good in the pitch, but the plain truth of running operations does not permit a stream of benefits from the elusive L word. Why? First, data privacy and business intelligence strictures and concerns do not permit the joint use of assets — people, machines and software. Walk through any delivery center and the passwords and card security dispel that notion in a hurry. Second, although we’d like to believe the story that most business processes are pretty generic, there are enough variations even intra business to dispel the leverage myth. Leverage comes from the ability to administer and aggregate business processes at the top, not at the process edge. Economically, this leverage should accrue to the provider’s P&L, not the client’s.

Time is the enemy. Time does damage deals. Too fast is a risk — if the provider is pushing to meet a quarterly contract booking, it could indicate that the scope or service levels are hastily assembled and ramifications not understood by either party, a strong predictor of governance trouble down the line. And from the opposite spectrum, protracted scoping, proposition development and contractual negotiations kills deals as well. Sponsors morph into disbelievers on both sides of the table, problem solvers and program managers get fatigued, and affected staff angst rises to levels, which are difficult to deal with effectively.

So let’s go back to the core tenets of Robert Fulghum’s slim volume, All I Really Need to Know I Learned in Kindergarten — the Golden Rule, love and sanitation. Sage wisdom for the start of the outsourcing journey.