Outcomes, outcomes, analytics, analytics, innovation, innovation… Outcomes, outcomes, analytics, analytics, innovation, innovation… Outcomes, outcomes, analytics, analytics, innovation, innovation… Hurry while stocks last folks!
Well, we have some shocking news for you all… these things are only making the “nice to haves” category when it comes to provider selection, as buyers look at more immediate, tangible benefits from providers.
Our seminal State of Outsourcing Study, conducted with the support of KPMG, where we delved into the views and dynamics of 399 enterprises, has revealed that today’s wizening outsourcing buyer is looking at industry experience and the provision of talent that can do more than just the basics, when it comes to choosing between their providers:
So, if industry knowledge and talent are so important, why aren’t many providers pushing these as their differentiators?
The answer’s simple – most providers are tooled up to deliver what was contracted, not what the client really needs. Most large outsourcing deals today were (and many still are) initially negotiated and brokered by different teams, on both the provider and buyer sides, than the teams which ended up running the engagements. Too many enterprise outsourcing relationships, today, were (and many still are) brokered to solve yesterday’s challenges – namely, driving out labor costs, mitigating risks, and achieving a basic level of operational performance.
These are now “table-stakes” – or should be – for any serious enterprise buyer or provider. However, if your talent pool was hired and developed only to perform against those objectives, and you contracted with a provider to deliver precisely what was agreed five years’ ago, then how, exactly, do you expect to rise to an improved level of performance? Until enterprise buyers make these attributes critical during negotiation and selection, providers will continue to push their table-stakes capabilities, and throw in all the “nice to haves” as marketing frosting – because they know they can never likely to be held accountable to them. How many times have you heard the cry “we were promised innovation, better analytics and all these wonderful new capabilities, but haven’t seen anything“? Well, that’s because they didn’t actually buy those things…
Then why are we so obsessed with the act of sourcing, as opposed to the management and success of a long term relationship?
The problem we have – as an industry – is that we’re obsessed by the act of sourcing, as opposed to the practice of managing it effectively over the long haul. However, as the data insinuates, as buyers become more experienced, and governance executives get more involved in future decisions, the approach from many providers has to change. We’re already seeing this with several contracts coming up for renewal, where the buyers are inviting others to the party, seriously looking to see if they can get more value from another provider (and many forlornly wishing it wasn’t so damned hard to kick out their incumbent).
Their problem has, simply, been that they opted to go with a provider to achieve the basic table stakes, and they now feel that said provider cannot deliver anything much beyond the current performance, due the constraints of their current contract – and, in several cases, because their provider simply does not have the acumen or talent availability to help them attain improved new levels of performance.
Until governance executives, with real working experience of outsourcing in their organization, get involved in the brokering of contracts and provider selection discussions, we’re going to be plagued with many outsourcing engagements where the provider is never really delivering much value beyond cost.
Most enterprises are looking for help getting from “mediocre” to “better-than-average” – they’re not yet ready for “world-class”
The other issue we are dealing with here, is that providers are obsessed with positioning themselves as having solutions that are, simply, far beyond the immediate realities of their clients – many are simply looking for better mileage form their Chevy before considering a Cadillac. Achieving incredible “business outcomes” is a journey both a provider and buyer can work on over the years of getting to know each other. It is not something that can be bought and sold on day one. Moreover, the same can be said for reaping great value from analytics, or developing a realistic innovation roadmap – these are delights that take years to achieve – and competent providers will provide the right teams to create the environments in which their clients can progress along their journeys.
It’s clear, when you examine the key topics on the minds of enterprise executives, that it’s baby steps for most of them, as they look for more value from outsourcing:
Two items dominate: how to change, and how to move leadership away from the legacy “cost reduction” mindset. It’s clear that enterprises need to tackle these two areas before they can really get stuck into the longer term benefits that can be achieved.
The Bottom-line: Providers are being judged by clients expecting more… and many need to up their game
You don’t need to spend hours cutting up survey data to fully realize what is happening in outsourcing today – you just need to talk to a few clients to get the fuller picture: essentially, many are trying to fight their way out of the corners in which they unwittingly found themselves, where they were signed up to receive low-cost, adequate operations.. and expected to be “content” with that. At the same time, it’s nigh-on impossible to attain better performance and efficiencies from your operations if you have the provider’s C-team delivering your processes from some far-flung location.
And there lies the Catch-22; Your firm bought cheap and adequate and if you can’t turn around in 3 years and show where that next 10-20% of productivity is coming from, your job may well be next on the line. There’s a scary attrition rate of buyers who got pushed out of their firms after a couple of years of grappling with the mediocrity, where settling for the status quo clearly wasn’t an option.
The only solution is for the majority of enterprises to change their whole approach to selecting – and working with – providers, and most of them are only now in the process of asking some very tough questions… and trying to figure out how to change their whole approach to managing engagements.
Click here to view our full array of blogs that discuss our “State of Outsourcing” study findings, conducted in partnership with KPMG LLP