Outsource agreements are characterised by long durations and high switching costs. Some fail; some drive innovation and soar; most get by. What is the role of trust in such a service and what can you do to obtain the best value?
Volkswagen is being pilloried world-wide for deliberately deceiving customers and the public in diesel engine emissions. It has admitted to cheating in tests; first in diesels, then in petrol. Other car manufacturers may also have cheated. VW shares dropped from 162 to 106 (35%) over the weekend of the announcement. The names G4S and Serco in our industry and others beyond have paid a high price for deceit.
Such egregious behaviour is mercifully rare. Those who are most trusted pay the highest price when it is violated. This is a particular concern in outsource relationships which can, and perhaps should, be particularly intimate.
“Trust” as a term is normally imbued with positive overtones. One who trusts is receptive to advice. It is associated with intimacy and love. It is slow to build, quick to destroy.
The Value of Trust
Trust is essential to the function of society. It allows us to cooperate, “give and take” does not get far without it. Shop-keepers can display wares with a fair chance that their shelves will not be picked clean by thieves. Agreements may be formed with some hope of fulfilment. This is essential to the formation and effective function of long-term relationships.
In outsourcing today, brand is seen most powerfully in access to expertise and networks that can quickly and credibly be assembled to address a particular customer’s need. Most customers and advisors seek suppliers who have addressed a similar need in a comparable customer before. In selecting potential suppliers, a customer is well advised to reject any suitor who fails to convince that they can reliably reach minimum quality thresholds. Agile relationships are hard to contract for in precise and prescient terms. Modern agreements, particularly SIAM, rely heavily upon it whereas the older looked more to prescription and audit.
One of the principal reasons for outsourcing an activity to another party is that they are seen as specialists who care and excel in provision of that service. Why do yourself what another can do better? The combination is stronger than each operating independently. A member of my client’s staff openly acknowledged the need to turn to their supplier for advice on a technical matter, they being the subject-matter experts. How natural it was to turn to the supplier for advice. They were trusted for their expertise.
The Public Sector can get into real problems with trust. There are laws against bribery. Few are so stupid as to be caught. The problem is that trust is an intangible that is usually not measured, not quantified and so scored at naught in selection assessment. If you value it, value it. Ensure your advisor has put appropriate weight on suitable proxies.
David Hume observed “Truth arises from disagreement amongst friends.” I love a good debate. It is stimulating, enlightening and one is occasionally led to an unexpected conclusion. Such an approach demands respectful listening to the counter-point. There may be wisdom in the opponent. An interlocutor who knows that their concerns have been given fair hearing and have been acknowledged in the solution is likely to move through acknowledgement, through support to advocacy of the agreed approach.
Trust is not universal or binary. I have friends who I trust as entertaining companions, but would never rely upon in business. A supplier can be trusted technical advisor and at the same time commercially despised. One I know can be relied upon to argue each syllable in a contract to minimise their delivery of value. The approach to managing this outfit is the commercial equivalent of six of the best. An odd attitude, but they seem to enjoy it.
At the heart of trust is “can I rely on you always to act in my interest?” There are many aspects of this: Delivery on promises made; consistent diligent performance; advising with insight; maintain confidence and privacy; recover well from difficulty; commercial and financial probity and doubtless others. Trust can start in one area and be extended to others. Some should never be trusted to run a bath.
A sponsor with whom I worked taught me a great deal about trust. Our work together started slowly with an introduction from her most trusted manager. I was asked to do little assignments, then bigger. What she trusted me to do changed over time. She complemented my skills and experience by pairing me with others suitable to the task in hand. We enjoyed working together, both benefitting from the contribution of the other and finding that together we could achieve more.
When I asked her to go into battle to advance the cause, she took the ammunition to heart and delivered. Our work was built upon a few basic rules, particular to the situation:
I had to know where I was going many months ahead; she did not want to be troubled with the detail.
I had to deliver what I said I would. She relied on this for her own credibility and to commit to colleagues.
Uncertainty is a given. Change happens. Be ready to explain what has happened, show that due care has been taken and flag risk early. Keep surprises small.
If a risk arose or a problem critical to success arose that I could not resolve alone, she was there to solve it. She would focus every atom of her ferocious attention on these issues, fighting as only she could. She could work on people that I could not reach. I just had to be very selective in what was escalated.
This told her a lot about what I was capable of, and where the boundaries were. There are few occasions as constructive in building trust as a crisis effectively addressed together.
Wise customers realise that it is just as important for them to be trusting and trustworthy as it is for their suppliers. They have commitments on which the success of the joint endeavour is dependent. Governance and associated decisions go on throughout the duration of the contract. A level of attention is required of the senior staff, if only to appoint an able lieutenant to supervise the operations, address deviation and intermittently recognise the outcome.
Deal promptly with disagreement and a breach of acceptable norms. Actions should have consequences if they matter. If there is none, it will soon be noticed. A fine customer CIO a while ago provided a strong example to the account team of which I was a member. When we did well, he praised us publicly. When we did not, we knew we would be pressed on the cause and had best have the story well-prepared to show what had been done to prevent recurrence. This is truly the Intelligent Customer at work. This takes energy, care, attention and perseverance. Such a customer is firm but fair, winning consistent results and value in return.
Politicians are occasionally a fine example. Boris Yeltsin and Ronald Reagan had many reasons to distrust each other. Reagan quoted a Russian proverb in negotiations on nuclear disarmament: “Доверяй, но проверяй” (“doveryai, no proveryai”), which translates as “trust and verify”. If only the contract managers of Serco and G4S had taken the care to validate their invoices, how much trouble may have been avoided? I have seen too many outsource relationships go sour due to a combination of customer negligence in performance, contract and financial management and supplier exploitation. Once trust is lost, the best course is often to bring the relationship to an orderly close. Before starting out again, make sure the root cause is solved on both sides. You will need a lot of help!
Rarely, there is egregious breach of trust. There is criminality and exploitation, sometimes in conspiracy. The latest fashion is to expose this in sport (FIFA, IAAF). There is also careless loss, as where Sony, Target, TalkTalk and possibly Vodafone (though they protest otherwise) have been subject to the theft of customer data and corporate secrets. TalkTalk points to a supplier as the route for one of its three recent hacking violations.
An attentive, intelligent customer will ask probing questions at regular intervals and at key events. This is not easy to do, requiring expertise, time and effort. Many boards are waking up to the fact that they do not have anyone with technical understanding in their ranks. How can such a body ask the right questions, let alone understand the answers? If all you have to rely on is your ability to read body-language, you are on thin ice indeed. How safe are your crown jewels?
Most carelessness is not down to a single cause, but the accumulated interaction of many factors. That is why it is so difficult to put right and needs to be approached on many fronts. The accumulated disregard or basic inattention to good practice. The poor security architecture or practice. The cancelled governance meetings. The obligations that are not delivered and go un-reported. We betray ourselves if we do not care enough to protest at such treatment.
Such a state takes sustained effort over an extended period to put right. The effort must be made by both customer and supplier. This is difficult to orchestrate, but if leaders on both sides are determined to fix it, progress is possible. The recommended route is:
Diagnose the issues. A thorough comparison of your performance and that of the other party with good practice is essential. The use of a trusted and dispassionate third party may help ensure that the root is addressed honestly. Make the case for change (or give up and do something more productive).
Get-well plan. Prioritise the issues and develop your recovery plan. You may choose to synchronise this with the other party, but sometimes it is easier to work in private.
Fix the base performance issues. Easy to say, but without this, treating the emotion is a waste of time. I recommend using a Business Transformation approach to manage the change.
Work on the relationship. Build the governance mechanisms, the roles, processes, supporting tools (e.g. reporting) to keep performance good and respect high.
This approach regards the relationship as a symptom of two parties’ behaviour. They act the way they do not because of corporate culture alone. You need an appropriately informed guide to support you through the change.
Trust is the product of long and hard-earned performance. It is immensely valuable and should be guarded as an asset. There will always be criminals and the reckless. A good sourcing decision will evaluate, rank and value proxies for trust. Ultimately, we have to make a choice and make the best of it through delivery. If you met yourself the other side of the table in a commercial relationship, would you justifiably trust your new partner?
This article was first published in Outsource Magazine and is published with permission.