Sourcing management: the secret to outsourcing success?

EquaTerra has longed preached the value of good outsourcing governance and service provider management to the success of business process and information technology outsourcing (ITO) efforts. While this is intuitive it is important to validate this fact when defining outsourcing governance budgets, models and resource plans. Newly released EquaTerra research further confirms the connection between outsourcing governance, sourcing management and outsourcing success and satisfaction.

Results found in the 2009-2010 roll-up of the EquaTerra European ITO service provider performance and satisfaction (SPPS) studies and the recently released global Finance and Accounting Outsourcing (FAO) SPPS study illustrate the direct correlation between sourcing management strengths and outsourcing service provider satisfaction. The 2009-2010 ITO SPPS studies analyzed over 1,600 ITO contracts held by large European organisations across all major industry segments and the FAO study analyzed 110+ of the largest global FAO deals in the market. The model for these studies is that EquaTerra surveys and interviews a single key senior stakeholder responsible for actively managing the outsourcing effort and service provider relationship. This helps ensure that the assessment is getting as close to possible to the “eye of the beholder” that matters most in specific ITO and FAO deals.

Buyers were asked to self-assess their sourcing management capabilities on a four-point scale ranging from weak to excellent. They were also asked their overall satisfaction levels with their service provider’s performance on a six-point scale ranging from very unsatisfied to very satisfied. The figure below illustrates the cross-tabulated results of these two questions. The percentages at the right end of each bar represent the percentage of respondents that assessed their organisation’s sourcing management capabilities at that level.

ITO respondents that assessed their sourcing management capabilities as excellent on average scored their satisfaction levels with their service provider’s performance 19 percent higher than those that assessed their sourcing management capabilities as weak. The correlation is even stronger with FAO buyers where the gap in service provider scores between excellent and weak assessments is 22 percent. While a skeptic might debate whether or not 68 percent and 57 percent of FAO and ITO buyers respectively are “excellent” or “good” at sourcing management, this not the point. Even if buyers inflate the capabilities, it is the correlation that is important.

There are many potential reasons for this strong, direct correlation. One is that, as stated above, outsourcing governance and sourcing management are critical to outsourcing success and buyers that have strong capabilities are in a better position to make outsourcing work. A second is that buyers that feel they are good at sourcing management – whether they are or not – are more comfortable with trusting their service providers and putting more faith in the quality of their deliverables, always a subjective assessment. The reverse corollary of this is that buyers that feel they are weak at managing their service providers may possess an inherent distrust of the provider or fear they are not getting what they contracted for and do not know it one way or the other.

Whether it is the result of the power of positive thinking or the strength of good outsourcing governance practices, the sourcing management and service provider correlation is clear.  It further reinforces the need for all outsourcing buyers to focus on sourcing management and outsourcing governance as key levers to enable more successful outsourcing efforts.

Source: Outsource

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