The choice of partner can have profound effects, in love and in commerce. Few get married with the intent of immediate divorce. What considerations should sway your selection of a partner? A good selection results in your finding the party that delivers you the best value solution to your need.
The Office of National Statistics [Ref 1] tells us that 40% of marriages are expected to end in divorce by the 20th wedding anniversary, of which 6% is due to the death of a spouse. 16% of marriages reach the 60th wedding Anniversary. 42% of British marriages end in divorce. Numbers for the US are reported rather differently, but show slightly lower levels [Ref 2]. With that, I shall let the analogy rest.
For some purchases, we want a swift and casual transaction. I may like my local coffee-shop, but will not despair if forced to buy elsewhere. Some services are close to this ease of substitution. Here I shall assume that the transaction has significant cost, change incurs material disruption and is therefore not entered into lightly.
Some recent research by the Boston Consulting Group [Ref 3] reviewed the factors that they found correlated with successful outcomes from outsourced relations. Before thinking about selection, it seems to make a great deal of sense to ensure that the house is in order sufficiently to sustain the relationship. What the research identified as their critical success factors were:
- The rigour of contract assessment. Stress-test the terms thoroughly before signing them.
- The degree of transparency of the contract’s pricing structure. Cost structure, vendor cost drivers and sources of profit.
- The effectiveness of the company’s engagement model in managing vendors.
- The retained service organisation’s ability to manage the outsourcing programme.
- The retained service organisation’s ability to manage the contract.
This is a much researched area by many parties. Some emphasise other aspects and produce a quite different list. There are many factors to get right, the debate is not over the validity of these but the priority.
In discussing this recently with an informed colleague, she firmly added the theme “Trust”. By this she meant informed participation within a respectful environment. Should one side seek to exploit short-term advantage to score points at the expense of the other, trust is the first victim. If you want a zombie of a partner, go ahead, pull that trigger! Trust can and should be based on evidence of value comparable to the market. It does not extend to using privileged information (like that of your partner’s sources of profit) against them.
One criterion that commonly comes up early on in discussions of selection criteria is “do they know my industry?” This should be treated with caution.
In some industries, there has been a long and nasty history of incest. This has bred some very ugly progeny. Protected from the Darwinian struggle of competition, muddled incompetence has festered on both sides. If your prospective supplier succeeds only within your industry, ask yourself why? If it is because few can reach the height of service or specialism required (high service levels to the leading financial services companies, security in National Defence) you may well be justified. If not, be suspicious.
A prospective supplier should show great interest in your business and in what they need to do to work well with you. Have they taken trouble to get to know you, have you helped them? Are they self-centred and arrogant, or do they listen carefully to comprehend and address your need. This is not the same as addressing only one sector, it is symptomatic of careful alignment. The search for the best partner is a diligent exploration for the party who can bring you the best value. This is best achieved by joint problem-solving between the customer and prospective suppliers as they jointly struggle to find the best service approach to suit the need. This is hard work! You must expose your need; they must be frank about their competence and what they can make work for you. It helps greatly to start with a party who has a good match, as the process is such hard work that you will not be able to sustain it with more than two or three, and to have this process professionally facilitated. You get to a better solution faster that way.
Most IT operations are largely industry independent. Weighting industry trading-history heavily is therefore a mistake in anything other than Applications Development, where an understanding of industry practice, process, value and risks has notable benefit. We shall come to cultural alignment later, this being significant.
Some smart people in Toyota postulated an approach many years ago called the “Five – Whys” to get to the root cause of a problem [Ref 4]. The next time someone suggests to you that industry knowledge should be allocated 20% or so, ask them Why? and keep going. If it leads to you a factor such as security or quality of customer contact centre, declare delight and rate that instead. Your thinking is now clearer.
A recent client provided a good example of thoughtful selection. The team and process was well informed and guided with clear roles. The head of procurement stepped up to administering the process, dispassionate about the outcome but determined to see fair play. He called on the expert and the opinionated for their input, the result being an agreed briefing to vendors, selection factors and weighting. The stakeholders knew their concerns had been thoroughly accommodated. Those performing roles such as site visits were briefed on what to look for. As the group had carefully evaluated the critical success factors, these were used to inform the selection criteria and weighting.
Getting it all done on schedule, when the best people had full day-jobs to do at the same time was a challenge. The incentive of making a sensible selection in time or having a daft one imposed on them was sufficient to concentrate minds.
What is Important?
Before defining criteria, there are three essential and difficult questions:
- What are the benefits we expected, what do we need to put in place to get them?
- What are the risks that we have to manage?
- What are the dependencies on / of other areas that imply critical success factors for the service in our environment?
- How do we arrange the interactions to capture the best value outcome for all?
If you thoroughly know the answers to these questions, you will be in a strong position to establish your selection criteria and weighting. You will also be able to justify your approach and decision.
Every supplier has a core set of services and situations in which it thrives. It can push a certain way outside this and still succeed. Push it too far, and it either needs to find a complementary partner to plug the gaps, or there is trouble.
In reality, every bidder is an alliance of suppliers in one form or another. A pure service supplier will call on others to supply software, hardware and tools. Most outsourcers are heavy users of outsourcing and partnering themselves. This is nothing to fear or be ashamed of in an industry that is all about “do what you do best.” Just make sure you know what you are getting and that it makes sense to you and for the supplier.
Multi-supplier service has become fashionable of late. Such trends are excellent as a prompt to challenge past practice and a terrible foundation for strategy. Fashion passes; clear thinking does not.
A while ago, when conducting an investigation into a failed service, a colleague noted that the distribution of service quality between the major suppliers was rather less than the distribution within each of the suppliers. Vendor brand counts for something, but it alone is not reliable. This is where the previously quoted research findings come into play, and the customer needs to construct effective governance to establish and maintain a good environment for the service. If you hoped that the use of Outsourcing meant that you can entirely forget about the service and let it look after itself, I am sorry to disappoint.
In love and vendor selection, personality has a huge influence. We have already spoken of joint problem-solving. The challenge is further compounded by the “switcheroo”. The team selling is quite unlikely to be the team that delivers to you, or at least not for long. Change of individuals makes it very difficult for a prospective customer to assess whether the staff they are to deal with should be trusted with running a bath, let alone their business. As a customer, are you behaving in a way that attracts the prospective customer’s best people or persuades them they will succeed better on another account?
No supplier deliberately assigns badly matched managers to a customer. A wise customer will know themselves and what they need from a partner. Many couples find that one party complements the other, recognising what their own weaknesses are and what they need from the other. Knowing weakness is vital to building strength. If a supplier should assign a badly matched manager, it is wise for the customer quickly and without blame to point this out and require a replacement. A good person can be a bad match.
Aspects to Consider
Any review of supplier competence will start with the quality of fit of the service to customer need, supported by credible proof statements. Do they have a good approach to solving your core issues? Can they do the job asked of them? Is the experience cited accessible to the team that will deliver to you, or was it in Outer Mongolia years ago?
To get to a sensible answer, the customer must first frame the issue and requirement. What to buy? If your service is large, consider the lot structure, how much you wish each supplier to do, or to let all to a single supplier. A good lot structure reflects the natural division of labour as well as customer strategy. A bad one creates stumbling blocks, fragments processes and adds wasteful cost. One of the current trends in the market is to fragment procurement. Rather than build one colossal corporate applications suite (and be hostage to the supplier for ever more), it seems attractive to many to buy best-of-breed components which can more easily be substituted. That makes a lot of sense. Integrating it and maintaining the end-to-end user experience is where the challenge then lies. Is your proposed way forward convincing overall, or just for each element in isolation? Does this supplier show signs of getting along well with other suppliers or are they just being polite to the person who will hire them?
Just as customers seek good suppliers, suppliers seek good customers. It is almost impossible for a supplier to make money from an unhappy customer; if you do not know what you want or the supplier cannot see the edge that they bring, expect them to qualify out. Do you work well together to identify and solve problems? If you get on well during the selection process, this aspect of collaborative solution-building is a good predictor of later success. If the other side does not get it when you go into this mode, keep looking.
You and your supplier will need to agree on terms and sign a contract. Some attempt contractual certainty, writing an encyclopaedic tome. Where matters are stable and predictable, this has the virtue of precision, if rarely of clarity. Where your business is rapidly moving, the job of keeping it up to date to reflect business and service needs is nigh impossible and very expensive. At the other extreme, some wish for little more than a letter of intent. When all is rosy, this is certainly flexible. If you ever need to rely on it to enforce performance, you may regret it. Good legal advice helps to manage the down-side risk.
As well as the promised performance of the final transformed service, consider the path of transition. How credible are the transition plans and delivery capability? Transition is a high-risk activity for both customer and supplier. If a CIO endorses the appointment of a supplier who fumbles the ball badly as soon as it is passed to them, it is not only the supplier who will suffer.
Consider how the service will need to change over time. Flexibility has a cost, and should not be allowed to be a synonym for indecision. How may demand change and why? What are the trends that indicate the relative importance of factors changing over time (e.g. the channel change towards the web makes high resilience 24*7 operation increasingly important). Help the supplier to fix as much as possible (it saves you a lot of money) and show them where and why you need flexibility, asking how their approach delivers it. Some aspects such as dependencies on other suppliers will need to be kept flexible in appendices so that they can be changed with the supplier landscape.
Think about scale. Do not expect the big suppliers to get out of bed if you have two people and a cat supporting your operation today. They know they do not compete in your area. Equally, if you have highly integrated service needs operating at scale, there are few SMEs who can lead such a provision.
The quality levels needed depend on the consequences of failure and the likelihood of occurrence. Quality comes from many factors. The authors of the quality movement knew the essence of assurance vs quality control. This is why ITIL has continual service improvement at its heart. True quality is really hard to do, requiring high levels of integrity across many interactions. This requires deep maturity and diligence in ensuring that the bidders have designed and priced what you need in. The immature will make themselves known under rigorous questioning if you do it right. The degree of care taken in assessment should be matched to its importance to you. ISO certification is a useful start. Site visits and evidence should be gathered if you are serious about it. If it does not matter, you can be more superficial. I am suspicious of suppliers that operate with high levels of contractors for extended periods as this appears to be correlated with low managerial maturity and poor service performance.
Security has always been an issue. As I write this, Barclays Bank has suffered a criminal breach of customer information security that will cost it dearly. As well as confidence in measures against cyber-attack, information security management has been given a level of exposure by Mr Snowden that was a rude awakening for many. He attacked his own client, as well as raising many questions about what data should be stored where, and who can be trusted to do what.
A thorough assessment should be led by the heart, dispassionately supported by rational analysis and evidence. Ask the right questions. Trust your feelings and probe the evidence. Use advice judiciously to concentrate on the essentials efficiently. There are grounds then for hope that you will be one of the many that grow happily old together, delighting in the discovery of new talent in each other. From such flows innovation, success and profitable contentment.
“Coming together is a beginning; keeping together is progress; working together is success.”
This article was first published in Outsource Magazine, Issue 35, Spring 2014, and is reproduced with permission.
- Number, Timing and Duration of Marriages and Divorces: 2009. Rose M. Kreider, Renee Ellis United States Census Bureau
- Increasing the Odds of Success in IT Outsourcing, Heiner Himmelreich, Wim De Bruyne, Peter Burggraaff, and Gertjan Dewaele