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With the acceleration in both commissioning and outsourcing, the public and private sectors alike are becoming increasingly reliant on third-party suppliers to effectively operate. At the same time, the environment in which outsourcing projects need to be run is getting tougher and tougher due to a vicious cycle of external factors which cannot be directly controlled, such as the macro global economic and political volatility; customer choice; competitor activity; corporate restructures; and potential changes to internal sponsors.
Perhaps, then, it is no surprise that some 64% of third-parties fail to meet stakeholder expectations and contractual commitments, according to recent research we have undertaken. But this stark reality lays bare the need for organisations to up their game when it comes to effectively managing their suppliers.
Two main outsourcing challenges spring to the fore when considering the role of third-party suppliers. Firstly, how do you plan and mobilise projects in the face of uncertainty, whilst balancing this against the understandable desire for detail and ‘accuracy’ in project plans and business cases? Secondly, how do you get the best out of your suppliers when inherent commercial and contractual constraints make it virtually impossible to respond to all these external factors in a cost effective and timely way?
The short answer to both of these questions is to not rely on ‘old fashioned’ project and third-party supplier management techniques. In the current environment, these simply don’t work and can actually hinder, rather than help, executives who are trying to transform their organisations.
Instead, organisations should bear in mind several key principals when it comes to third-party suppliers which can have a dramatic impact on efficiency and delivering better results:
Look (and measure) over the long term: Measure success on the performance against the contract over the lifetime of the arrangement, not just on whether a deal is done, and make sure everybody knows, and understands, what is critical.
Set the goalposts: From the outset, be clear with your suppliers on the outcomes you are looking to achieve, and establish monitoring processes against them. Constantly re-visit these outcomes to make sure they are not being adversely impacted or watered down as you focus on the specifics.
Consider the customer: Ensure that the impact on the customer of dealing with a third-party is sufficiently considered before outsourcing commences. The organisations which are most successful at this clearly communicate to their customers the benefits of the arrangements and effectively manage the transition to minimise customer complaints.
Disrupt the disruption: Outsourcing can be very disruptive – both to those who are directly impacted by it, and those who will need to work with the new third-party. Incorporate people management activity into the project plan so that key messages are sequenced in the right order and that the appropriate internal capabilities and behaviours are in place to make it work.
Know thyself: Be 100% clear on the functions that are being outsourced. If organisations don’t fully understand their current architecture, key processes, volumes and data integrity before outsourcing, it is almost impossible to establish an unambiguous arrangement with a supplier. Furthermore, understand the key aspects of your business that will need to interface with the supplier and determine the extent to which existing systems, processes and capabilities need to change.
Plan for some ‘risky business’: Ensure that your risk assessment covers all key factors, and not just the financials, including understanding both the ‘as is’ and ‘to be’ level of risk exposure.
Don’t expect miracles: Too many organisations believe outsourcing will immediately address the poor performance of people, processes, performance or data integrity. Successful outsourcing projects should ensure that any claims by the third party on improving performance are appropriately validated.
Think ahead: Ambiguity in the contract will hurt you in the long run. Whilst no one has a crystal ball, take the time to explore likely scenarios and test how, in the new outsourced world, these scenarios will work with existing systems and processes. This should include an understanding of how the legal contract is kept alive in the real world. Remember, whilst outsourcers are experts at taking on elements of an operation, they will never have the in-depth knowledge of your business.
Keep it simple: Ensure the deal structure is as simple as possible and appropriate management overhead is put in place to manage the contractual relationship and operational performance. There will also be a need to understand, at the outset, how the ‘exiting’ arrangements would happen.
By keeping these key principles in mind, the effectiveness of third-party supplier relationships can be improved, and they can have a realistic chance of meeting expectations and obligations in an outsourcing programme.