Sunday, August 30, 2009

It's All About Outcomes, Right?

Did you notice the great article by Rob Preston in InformationWeek?  Entitled Down To Business: Outsourcing's Next Big Thing, the article makes the case that "lowest-cost services and status quo providers are a dime a dozen."

Outcome-based outsourcing isn't more widespread, the article says, because most vendors and customers aren't prepared to manage them. All outcomes, whether judged on business results, product quality, or timeliness, must be quantifiable.

I noticed this article right on the heels of an email from a former colleague who has been working with many enterprise clients that are struggling with their outsourcing arrangements.  Andrew asks, "why relationships with outsourcing suppliers don't seem to reach the same level of trust and mutuality as is found in say manufacturing?  Both are commercial, both can be vital to an organisation's success and perception in the market place, both are driven by a profit motive, but one seems to be more valued than the other."

The common rub here is striking (at least to me).  It's knowing what outcome/result is expected.  When a company contracts for manufactured product, there is rarely a debate about whether or not the recieved outcome is what was expected.  There's a tangible product to touch, and feel, and weigh.

But for contracted services - payroll, network connectivity, accounts receivable processing, or applications management (for a few examples), the business value of the relationship is often left ambiguous.  This isn't intentional, of course, but it is a reality.

Experienced companies that have endured a first wave of outsourcing are coming to understand that they are getting what they're paying for.  Indeed, as Mr. Preston observes through the InformationWeek survey cited in his article, 20% of the IT pros working with Indian outsourcers cited the "ability to tie project costs to business goals" as a key benefit that would prompt them to work with an outsourcer again.

I, for one, am tired of this elusive topic.  It's time for the service provider industry to step forward and take responsibility for outcomes.  That said, it's also time for the client side of these relationships to quit managing the "how" and focus on the "what". 

The most powerful statement in the article, in my view, was this: "Outsourcing managers fear losing status and control if they're no longer managing people and projects; and support from top management may be lacking, especially if the benefits of structuring outsourcing contracts around outcomes aren't obvious."

Bingo.  It's "politics."  Personal and organizational influence models.

So, how does this really change?  I have some ideas ... that I am eager to put into practice.  But ... what do you think? 

1 comment:

  1. Peter:

    You raise several excellent points.

    I think that you correct with your statement about manufacturing. Success is very measurable and concrete.

    Contracted services in many instances are "dial-tone" services. For example, anything less than 100% delivery at nothing less than on-time for payroll would be unacceptable. So how does either the Service Provider or Client take more responsibility than they are for outcomes. How can value be added here? I certainly am open to Service Providers suggestions...

    Perhaps, creating a pool of investment dollars (savings and profit given from both sides) for innovation?

    And "politics," the biggest source of value leakage for both parties...

    Steve Koutros
    Managing Director
    Delta Management Advisors