How Buyers Can Avoid a Big Outsourcing Pitfall

“It’s a trial by fire.” That’s how many outsourcing buyers’ relationship managers describe their job. They’re the ones who lack prior experience or training in how to manage an outsourcing relationship but are required to take on that responsibility.

The segment of inexperienced/untrained outsourcing relationship managers is large. Unfortunately, they and their companies face serious challenges that erode their outsourcing return on investment (ROI).

The Outsourcing Center studied a slice of these buyers. The study found some disturbing trends: (a) what the buyers didn’t know, and (b) what they did about it.

Who are the buyers in the study?

Outsourcing Center analyzed the findings from information reported by 64 buyers participants whose relationships had existed for longer than one year and had moved beyond the transition phase.

Half of these buyer companies (50 percent) assigned someone without prior experience or training to manage their outsourcing relationship.

Of the 50 percent that selected relationship managers with prior experience, 22 percent said the prior experience was too narrow to enable them to be effective enough for their current relationship, which was broader in scope and complexity.

Based on their industries, there was also a fairly even split among the types of companies that comprise the inexperienced managers segment (healthcare, manufacturing, financial institutions, telecommunications, energy/utilities, insurance, and travel).

The survey revealed that 41 percent of the companies put inexperienced/untrained relationship managers in place.

Why is this lack of experience important?

This is a significant finding because industry articles, white papers, conferences, etc. started to really hammer the fact that buyers managing their outsourcing relationship is essential for successful outcomes and that, without effective management, outsourcing deals can fail completely or at a minimum fail to completely achieve their anticipated outcomes.

So what happened? Did these buyers ignore the clear message about the importance of relationship management?

What the buyers didn’t know, which led to challenges

Recalling the early stages of their outsourcing relationships, several buyers in the Outsourcing Center study made comments along the lines of: “We were told we needed someone to manage the relationship, but we really didn’t know what that meant.”

This led to two primary directions the companies took in selecting their relationship managers:

• Many thought that an individual who had prior experience managing the process (or even a department) before it was outsourced was a good choice for relationship manager.
• Many thought that “managing the relationship” is the same thing as “managing the service provider’s performance.”

Both of the above mindsets led to situations the relationship managers described as “a lot of challenges.” Those challenges fall into 10 main areas. The buyers described them as follows:

1. Not being able to stop micromanaging the service provider (not knowing how to focus only on what gets done, and when, rather than how). Most managers with this problem were prior process/department managers.
2. Not understanding how to use service-level agreements effectively. Many of the companies with this dilemma had not had in-house service level commitments. Most of the buyers with this dilemma experienced problems in trying to tie penalties and incentives to the service levels; unfortunately, their strategies ultimately drove the wrong behavior from the service provider.
3. Not knowing how to bring about better communication so that the buyer was more aware of what the service provider is doing, and why.
4. Not being clear on the relationship manager’s role and responsibilities as opposed to upper-management or operational management responsibilities.
5. Not being able to really listen and understand the provider’s perspective.
6. Not knowing how to make sure the service provider clearly understands the buyer’s needs and priorities.
7. Not knowing how to deal with change management with the service provider.
8. Not knowing whether and when to trust the provider enough to feel comfortable in being honest and complete in information-sharing.
9. Not knowing how to partner and where partnering boundaries lie.
10. Not knowing how to move the relationship to the next level, let alone to an optimal level.

Any of the above areas would create problems for an outsourcing relationship, and most of the study participants stated they had more than one of these characteristics.

What the buyers did to correct the problem

Having experienced multiple challenges from the relationship manager’s lack of knowledge, some of the companies then invested in relationship-management training after the fact.

When did the formal training take place? In most cases, it occurred right after the parties completed the transition phase or near the end of that phase.

In a few cases, it occurred as much as two or three years after the relationship start date and even a year after the transition phase was completed.

What kind of training did the companies invest in for their relationship managers?

The study found a range, from paying for formal training programs at universities and with leadership/executive/management coaches to paying for attendance at industry conferences or for industry analyst/consulting materials.

Their training efforts focused on the following topics:

• Change management skills
• Negotiation skills
• Project management skills
• Transition skills
• Communication skills
• Partnering skills

However, a disturbing finding of the study is that only 29 percent of the companies with inexperienced managers later invested in relationship-management training even after experiencing challenges from a lack of knowledge.

Avoiding the pitfall

Given the 10 areas of challenges listed above, one must assume that many outsourcing relationships with inexperienced managers (especially short-term contracts) fail to achieve their ROI, or manage to only cover what was contractually obligated, with no further advancement in the shared knowledge of what makes a successful partnership.

Companies can easily avoid the pitfall of potential relationship failure that awaits relationships managed by someone lacking the knowledge of how to drive the relationship to achieve the intended goals. Even without funding for formal training, there is a wealth of free information about relationship management available in hundreds of articles and white papers on Outsourcing Center (and many other Internet sites).

In addition, some of the study participants reported that they or their companies set up an informal mentoring relationship for the managers with experienced peers.