By Robert L. Scheier
If economic times keep getting tighter, service providers will have to deliver ever-better service for ever-less money to stay competitive. But customers will only hurt themselves if they encourage outsourcers to underbid to get the business and then figure out later how to deliver.
As if you needed scientific proof, we recently covered academic research showing that customers were most satisfied with outsourcing engagements when the provider met their target margins. Thomas Young, a partner and Managing Director at outsourcing consultancy TPI, echoed that view in a recent interview when he said, “You want a win-win.” And that’s not just to be the good guy: “If the supplier is under water (the supplier’s staff) doesn’t want to be on the deal because they won’t get bonuses. If you’re a client you want your account to be one of the best accounts in the portfolio.”
That doesn’t mean overpaying, he stresses. Customers can draw an outsourcer’s best people to their account, he says, by holding their own staff (as well as the provider’s) accountable for deliverables, information, and the communication needed to keep a project running smoothly.
In a bit of advice as old as the Golden Rule, he recommends treating the vendor’s staff “like you would your own employees, and expect the same in return. Treat people with respect. When you do that, you create a lot of trust, and people have an affinity to you.” He’s seen service providers “who have more of an affinity to the client than (to) the firm paying their paycheck. They feel like they’re part of the team, they’re invited to staff meetings, they’re invited to holiday parties.”
And if you’re tempted to use the downturn as an excuse to quickly dump an underperforming or overcharging provider, Young recommends looking in the mirror before you do. In troubled deals, he says, “It’s never (entirely) the supplier’s fault…(but) often a joint failure” with a lack of attention and detail to the governance of the deal over time. Even if you’re both overpaying and facing communication or delivery problems, Young says, fixing half the problems by improving the relationship might be more effective than going through the trauma of finding a new provider. “You’re better off working on your relationship with whoever you have, and fixing that, before you go looking to switch,” he says.
Strong skills in technology, business processes and your vertical market are no-brainer requirements. But Young says it’s also important to find an outsourcer whose management is sophisticated in working around the inevitable conflicts where the customer’s and the provider’s interests split. In his work on outsourcing deals, “we try to get everyone’s economic interests as aligned as possible, but (it’s) never 100 percent,” he says. “Sometimes it’s not even close.” Making the deal work for both sides requires sophisticated managers “who understands those things and can work around and mitigate those conflicts.”