An outsourcing provider’s quality of services and the achievement of the agreed-upon mutually beneficial objectives are essential to success. But there are additional actions that service providers and buyers can take to boost the return on investment and increase the life expectancy of their relationships, that is, strengthen outsourcing relationships.
To identify these relationship-strengthening actions, Outsourcing Center conducted a survey among 66 of the buyers and providers participating in its Outsourcing Excellence Awards program. We asked the providers to list the actions their customers took, which resulted in strengthening their relationship. We asked the customers to identify their own actions that they believed boosted the effectiveness of the relationship as well as the things their providers did to deepen the relationship.
They identified the following seven types of actions to strengthen outsourcing relationships. At the heart of each is a mindset that focuses on looking out for each other’s best interests.
1. Testimonials
One hundred percent of the service providers stated that the most valuable action of their clients was testimonials. Sixty-five percent most appreciated their clients providing testimonials in the form of references to the providers’ prospective customers. Thirty-five percent said their clients’ testimonials in participating in conferences, seminars, client forums, webinars, awards programs, and articles was the most effective action.
Eight percent of the surveyed customers said they appreciated their provider’s invitations to participate in testimonials at industry events as it gave them an opportunity for their peers to see them as leaders in their industry.
2. Increasing business
An overwhelming majority (68 percent) of both buyers and providers stated that increasing the scope of service demonstrated long-term commitment and was one of the most important ways to strengthen their relationship. This action includes:
- Adding scope to reward the provider for excellent service or to compensate for process improvements that reduce the buyer’s cost but also reduce the provider’s margin
- Raising the bar and giving the provider more challenging work higher up on the value chain
- Providing opportunities for other business units (or government entities) to consider the provider for outsourcing initiatives
- Providing opportunities for the buyer’s external customers to consider the provider for outsourcing services
- Renewing a contract
3. Skin in the game
Although gain-sharing or other financial incentive programs often are the “skin in the game” in outsourcing relationships, the surveyed participants discussed a different kind of action that demonstrates commitment and strengthens a relationship. Examples of such actions are as follows:
- A provider invested in a Black Belt program for both the provider’s and customers’ teams supporting the contract.
- A provider kept its employees’ salary increases low during an economic crisis to help ensure the buyer could continue to do business with the provider.
- When a buyer informed its provider of a large budget cut due to the economy, the provider (voluntarily cutting into its margin) came back with a proposal that fit the buyer’s new budget yet delivered high-quality services.
Buyers also put skin in the game in order to strengthen a relationship. For instance, a surveyed provider stated that its customer developed an incentive / bonus system to enlist the buyer’s staff’s proactive transfer of more tasks to the provider.
Another provider cited its customer’s actions in sponsoring financial incentives for the provider’s top performer and long-tenured employees.
4. Increasing expertise
This action is a mutual undertaking and takes shape in several ways. Buyers do the following activities:
- Help the provider gain capabilities in applications and technology platforms that the provider can then take to its other customers. This occurs either with the buyer’s proprietary technologies or through the buyer (as a pilot user) providing feedback on technologies the provider is developing
- Help deepen and broaden the provider’s domain knowledge of the buyer’s industry and keeping the provider apprised of trends
- Make sure the provider has visibility into the buyer’s IT strategic road map
From the provider’s side, actions include bringing in outside experts to help the buyer in an area of interest, regarding what worked or didn’t work elsewhere. (New healthcare legislation in the United States is an example). The surveyed buyers reported that their providers frequently provide these resources at no cost.
Similarly, some outsourcers provided extra resources upon request for special initiatives and did so at great risk since no agreement or statement of work was signed for the initiatives.
Buyers also stated that it strengthened the relationship when providers proactively kept them advised as to new technologies.
5. Crisis management
Buyers include in these types of actions the provider’s effort to continually minimize impacts to the buyer’s business as well as spending extra money or going outside the realms of the contract (at the provider’s cost) in order to deliver services on time – even if the delay in services is not the provider’s fault.
Another action buyers said strengthens a relationship is the provider being flexible regarding issues that arise because something was not clearly stated in the contract.
Providers, on the other hand, said it deepened their relationship when their customers proactively brought an issue to their attention for discussion without waiting for a scheduled formal governance meeting.
One survey participant described an incident where it grossly underestimated the effort it would take to implement its solution in a particular geographic region. Negotiations were all the more difficult because there was employee resistance to the outsourcing initiative in that region. The provider stated that the buyer demonstrated its commitment to deepening the relationship by being flexible and understanding the financial constraints facing the provider because of the miscalculation. The buyer was flexible enough to get the negotiations out of deadlock and begin moving the project toward a mutually acceptable resolution.
6. Relationship management
Other actions to cement a relationship include a customer’s effort to improve its management of the relationship. Examples of such actions that the survey participants cited include:
- Learning how to prioritize projects given to the service provider
- Adding an experienced outsourcing manager (instead of just a project manager or the former manager of the in-house service)
- Investing in training on change management and win-win negotiations
- Making the effort to determine what is important to the provider’s business
7. Future orientation
Both buyer and service providers participating in the survey stated that an essential element in strengthening a relationship is holding meetings attended by senior executives of both companies to discuss how to improve or enhance the relationship.
Some also implemented a survey between the two teams as the basis for the discussion later in the executive meeting. Survey questions focused on such aspects as how they could communicate more candidly, how they felt the other team was performing as far as enhancing or constraining services, ideas for how each team could do its job better for the end user, and suggestions on how they could increase their collaboration.
Just as plants need water and nurturing, the most successful buyers and providers know that a successful relationship is a work in progress and requires an investment of effort and time (and sometimes money). By taking the above steps that are appropriate in your own situation, you can deepen the value of your outsourcing relationship and enable it to not only endure challenges but also thrive.