Estimated reading time: 2 mins
Is your outsourcing relationship healthy? Here are some questions to ask yourself to find out.
Is the ratio of value greater than 1:1?
This is mostly an economic measure, but it can also be strategic. Imagine if you hadn’t outsourced – what would the costs of providing these services internally then be? And how does this compare to your costs with your vendor?
These costs aren’t just the value of your invoice. Remember to include your internal costs of managing the relationship, e.g. vendor management, infrastructure, risk management, facilities, etc.
Are you in a virtuous spiral?
One of the key factors of outsourcing is the virtuous spiral. In other words, are you getting more from the relationship than the original success criteria expected? Outsourcing must be about gaining more from the relationship, year on year, without a linear effect on cost. Over time, your relationship must get better (in terms of value), not worse. The ratio of value must continuously escalate (favourably).
One observation of outsourcing relationships is that in the initial stages the vendor puts their A team on it, and slowly introduce their B team once the relationship stabilizes.
Do you still know why you outsourced?
Your organization outsourced for a reason. This may have been to reduce costs, access expertise or focus operations. Can you remember?
As an outsourcing relationship progresses over time, the reasons why outsourcing was used in the first place can be sometimes lost. Where outsource relationships work, the success criteria are constantly reviewed and the original reasons for using outsourcing remain front of mind.
Can you walk away from the relationship?
If you can’t up-sticks and walk away from the relationship easily then you’re heading for trouble. The vendor has got you by the short-and-curlies! Unless there is governance to stop this, then the natural optimization around a relationship can mean that specific practices and assets are developed which become legacy. If investment into these specific assets is considerable then it is a tough (and expensive) call to sever the ties with your vendor.
How you manage your relationship is the single greatest differentiator…
…between relationships that produce long-term value and those that result in disappointment for one or both sides. Organizations that assume that signing a contract is the magic-wand that materializes value will learn a hard lesson, very quickly. Implementing a successful relationship (realizing the objectives) requires detailed management of decisions, monitoring of performance, timely adjustments to the scope of services and skilful problem solving. It’s amazing how many organizations with failing outsourcing deals say “We did that!” Yeah, right.