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“Outsourcing, by definition, requires the buyer to relinquish control of a process to the supplier, who is an expert in the process and able to perform it better, faster, and cheaper,” stated Peter Bendor-Samuel, CEO of global sourcing advisory firm, Everest Group, in a 2004 interview for an Outsourcing Journal article.
Bendor-Samuel went on to explain that the buyer must still verify whether it’s getting what it pays for and thus needs to establish a strong governance structure that includes monitoring performance.
Ravi Aron, Assistant Professor at Johns Hopkins University, explains the difference between monitoring and controlling the provider’s performance. “Controlling is telling them how to do their work. With monitoring, buyers establish objectives (what to do) but leave the how to the provider’s managers.” He adds that monitoring requires a granular system of metrics and a mechanism to track performance against service level agreements.
Giving up control over the outsourced process is a basic principle in how outsourcing works, but many buyers find it difficult to do this at the outset of a relationship. Some go ahead and start their outsourcing relationship even though they are not comfortable with giving up control over the work, and it inevitably leads to challenges. Service providers report that the buyer’s micromanaging causes the provider’s staff to feel the buyer does not trust their capabilities, which then leads to relationship issues.
Another result of not being comfortable with giving up control is not getting the scope of services correct. An example is Owens & Minor, whose Vice President, Information Technology & Program Development, Paul Higday, explained to Outsourcing Center that his firm had not been ready to give up control over all the related functions when it started a relationship with Perot Systems. O&M had not outsourced before and thought that not retaining control over some functions would be “too big a change.” But they later realized that mindset caused them to leave on the table some mutual opportunities for value creation.
Factors that cause initial discomfort
Outsourcing Center interviewed 64 buyers on this topic as part of its 2010 annual Outsourcing Excellence Awards program. Those who launched their relationships without being comfortable in not controlling the process cited feelings ranging from trepidation, anxiety, nervousness, and uneasiness to “great uncertainty about whether it would work.”
In describing why they were not comfortable with giving up control over their outsourced processes, four main factors bubbled to the top:
What can buyers that are new to outsourcing do to help themselves gain this necessary comfort? How can the service providers contribute to the comfort level? Outsourcing Center looked at the factors that built comfort for the buyers in the study.
Sixty-nine percent of the surveyed buyers reported being comfortable with turning over control of their work at the outset of the relationship. The factors can be segmented into three areas: (1) influences of provider, (2) joint influence from buyer and provider, and (3) influences of other people outside the relationship.
Comfort factors cited include:
Among the remaining 13 percent of comfort-enabling factors were such items as the provider communicating clearly about actions of the buyer that would be necessary for success, the fact that processes and change would be governed by Six Sigma, and the commitment demonstrated by the provider’s top executives.
Leap of faith?
It’s not unusual to hear people describe an outsourcing initiative as “a leap of faith.” In reality, it’s more a matter of trust or confidence than faith. Faith is a belief that is not based on proof. Trust, on the other hand, must be earned; one must demonstrate trustworthiness and reliability. In outsourcing, those demonstrations begin up front during the provider selection process and contract negotiation and provide some buyers with the necessary comfort level to turn over control of their outsourced process.
Others, initially hesitant, continue to closely watch trustworthiness and reliability demonstrations during the transition phase to erase any remaining anxieties and build confidence in the provider. Interestingly, of the 31 percent of surveyed buyers that reported they launched their relationships without a strong level of comfort for turning over control of their process, 100 percent reported they were completely comfortable by the end of the transition process, recognizing their “hard work” up front in selecting the right provider paid off.