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Business Process Management Journal Crafting a successful outsourcing vendor/client relationship Lisa Webb, Justin
Business Process Management Journal Crafting a successful outsourcing vendor/client relationship Lisa Webb, Justin

Business Process Management Journal

Crafting a successful outsourcing vendor/client relationship Lisa Webb, Justin Laborde,

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Lisa Webb, Justin Laborde, (2005) "Crafting a successful outsourcing vendor/client relationship", Business Process Management Journal, Vol. 11 Issue: 5, pp.437-443, https://doi.org/10.1108/14637150510619812 Permanent link to this document:

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(1998),"A practical guide to successful outsourcing", Empowerment in Organizations, Vol. 6 Iss 3 pp. 94-106 <a href="https://doi.org/10.1108/14634449810210832">https://

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INDUSTRIAL EDITORIAL

Crafting a successful outsourcing vendor/client relationship

Lisa Webb and Justin Laborde

ClientLogic, Nashville, Tennessee, USA

Successful

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Abstract

Purpose – This paper seeks to describe what makes an outsourcer/client relationship successful and what outsourcers can do to ensure the longetivity of their client relationship. Design/methodology/approach – The authors discuss several important aspects of a successful relationship. Findings – The outsourcing services market has exploded in recent years as more and more companies recognize the benefits of outsourcing to qualified firms. Competition among the many outsourcing firms that presently exist is fierce, and will get even more competitive in the coming years. Outsourcing is an emotional decision, especially for the first time outsourcer, and the success of an outsourcing arrangement depends greatly on the success of the client/vendor relationship. Originality/value – Shows that it is how the client feels – whether or not an outsourcer is taking care of them – that will decide whether the outsourcing relationship continues or whether the engagement is handed over to an outsourcer’s competitor.

Keywords Outsourcing, Buyer-seller relationships, Critical success factors

Paper type General review

In outsourcing relationships, the attention of both the outsourcer and the client is necessarily focused on the client’s customers and making sure they are happy. But there is one aspect of the outsourcing relationship that many clients leave unasked of you, the vendor they have chosen – what will you, Mr Vendor, do for me if I become your client? How will you make me happy? The outsourcing services market has exploded in recent years as more and more companies recognize the benefits of outsourcing to firms that can meet their requirements. Naturally, competition among the many outsourcing firms that presently exist is fierce, and figures to get even more competitive. Your clients may have chosen you as their outsourcing partner for a number of spoken reasons – excellent references, sound financials, or a proven track record of experience in a particular vertical. But let us face it – when you look at your competition and the key differentials that set you apart from the rest of the outsourcing pack, there really are not many things that make one outstanding outsourcer “truly” different from another. It is likely that prices, availability, or experience played a large role in a client’s decision of which outsourcer to hire. Choosing to outsource or to continue to outsource to a particular vendor is obviously an important and expensive decision. But anyone thinking these decisions are based solely on cognitive reasons such as financials, track record, references, etc. is mistaken. The decision could have also been made based on something as minor as the relationships forged during the buying process or on the personality of the salesperson and others with whom the prospect came into contact. “The choice of outsourcing candidates is no longer made on a cost-cutting basis. Other

candidates is no longer made on a cost-cutting basis. Other Business Process Management Journal Vol. 11

Business Process Management Journal Vol. 11 No. 5, 2005 pp. 437-443 q Emerald Group Publishing Limited

1463-7154

DOI 10.1108/14637150510619812

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factors like non-core business competency, expensive technological updates, and being in line with corporate strategy play an important role in determining outsourcing candidates”, said Zhu et al. (2001) in Management Decision . Outsourcing is an emotional decision too, especially for the first time outsourcer, and the success and longetivity of an outsourcing arrangement depend greatly on the success of the client/vendor relationship. “As the scope of (business process outsourcing) explodes, relationships are the key to creating value in an expanding universe” (Linder and Cantrell, 2002). When a client considers outsourcing for the first time, he will undoubtedly have many concerns. The client will want to know he is getting the best price and ensure that the outsourcer’s performance and service levels will make his company look good. The client may also be concerned about losing the balance of power in the relationship with his outsourcer or with how he will recover staff and intellectual property if the outsourcing arrangement is not successful. The client may be fearful of the effects outsourcing a particular business function may have on customer services, as well as the impact such a move may have on the community in which his company operates (Zhu et al. , 2001). Additionally, there are often employees’ jobs at stake when companies enter into outsourcing arrangements. It is possible that the company has grown exponentially or that a subset of employees who have been through all of the aspects of business development now, with the arrival of outsourcing, find themselves without a job. The purpose of outsourcing is often to reduce costs, thus layoffs might be inevitable if jobs and skill sets overlap between the client and you, the outsourcing service provider. As a result, clients may be adamant about negotiating the best deal for their employees who are being laid off. A measure of understanding is helpful when dealing with clients and their laid off or outsourced employees. “When a company makes a decision to outsource a function, proper arrangements for the employees who are currently performing the function must be made. No outsourcing effort can be successful without the full support of the affected employees” (Zhu et al. , 2001). It may be beneficial to work with your client in order to keep employees informed with as much relevant information as possible once the agreements have been made. Possible ways of doing this include posting frequently asked questions and making senior executives available to those employees who may be impacted one way or another by the outsourcing decision. Owen Snyder, senior human resources business partner at Unisys, said in a recent interview in Network World magazine: “People have fears and they don’t like change, and you’ll have to make the changes comfortable. They’ll worry about whether they’ll retain their jobs, whether they’ll have to prove themselves to the new company and they are concerned about their benefits – medical, pension, and 401(k)” (Leung, 2003). Helping the client work through the fears of his employees will aid the client immensely and be greatly appreciated.

Successful relationships lead to successful outsourcing arrangements A 2002 report released by Cutting Edge Information Inc., a Durham, NC-based research and consulting firm, found that 40 percent of companies in a wide range of industries were dissatisfied with their outsourcing relationships. The report found that this dissatisfaction springs from a lack of understanding about why a company outsources certain processes, a lack of understanding about the vendors that are available, or

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a lack of communication with the outsourcing vendor. Other times, the outsourcer’s responsibilities were not specific enough or its performance was too difficult to

measure (Malhotra, 2002). Remember, business is about relationships and the more successful outsourcing relationships are those in which the outsourcer has become “like family” to the client. Said Douglas Freeman, CEO of NetBank Inc. of Alpharetta, Ga., “It’s five times as hard

to manage outsourcing than it is to manage people who work for you” (Malhotra, 2002).

According to Jane Linder and Susan Cantrell, both from Accenture, “organizations

have a better chance of succeeding with (business process outsourcing) when they craft

a relationship that specifically meets their needs. There is no one-size-fits-all approach that guarantees good results. However, many executives and outsourcing providers

lack a comprehensive approach for designing an effective relationship

the relationship between the outsourcing organization and the outsourcing provider is

a critical factor in realizing the expanding potential of business process outsourcing”

(Linder and Cantrell, 2002). The basis for the successful outsourcing vendor/client relationship begins with the formulation of the contract. In order to lower a client’s operating costs, allow them to free up resources, and concentrate on their core business, outsourcers must ensure that their arrangement with their client is carefully constructed and well-managed from the beginning ( Los Angeles Times , 2002). The contract should address, of course, the specific products ad services to be delivered, how and when they will be delivered, the terms of payment, and what you, the vendor, will provide if you fail to live up to the contract. It is also recommended that you and the client stipulate in the contract who in the outsourcing firm has access to what information, who has the authority, and how conflicts will be resolved. Also, make sure that the contract details the specific targets that must be met by the outsourcer and establishes a system for monitoring these targets throughout the relationship ( Los Angeles Times , 2002). “The more you can work out these kinds of issues ahead of time, the better your chance for a mutually beneficial relationship” ( Los Angeles Times , 2002). Both the vendor and the client must be in agreement concerning the scope and structure of the project, a requirement of a successful relationship that the contract helps ensure. That said, the contract itself must be perceived by both parties as fair and mutually beneficial. This understanding is necessary in order for trust, which is vital to an ongoing long-term strategic relationship, to develop (Deckelman, 1998). Many times outsourcing contracts do not succeed because the expectations of the client and the abilities of the vendor are not realistically established at the onset of the relationship. Fully defining the expectations and abilities of both parties and thereby laying to rest idealistic or misunderstood expectations is critical to the success of a client/outsourcer relationship. “Exchange partners must be clear in detailing their expectations with respect to sharing any cost savings and productivity gains, and they must outline the precise requirements of all service activities” (Lynch, 2001). Inevitably, however, situations will arise during the course of a multi-year outsourcing arrangement that even meticulously crafted and planned contracts do not cover (Horwitt, 1996). It is thus very important to incorporate flexibility into an outsourcing contract. Randy Peyser, general manager of the banking practice at IBM Global Services, said “In the old days, there used to be fixed scope and fixed price But now outsourcing is a living, breathing arrangement” (Malhotra, 2002).

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There are many concerns the client contemplating an outsourcing relationship has about whether you – Mr Vendor (and Mr Outsider) – will “fit” within the family and culture he has worked so hard to build within his organization. Outsourcers may seek to impose discipline on a client organization, discipline to which the client’s employees may not be accustomed. The client may not be able to implement unplanned changes the outsourcer recommends as quickly as desired. Additionally, “adapting to the rigorous processes required by an outsourcer may be difficult in some corporate cultures” (Perkins, 2003). As an outsourcer, you must be flexible and adaptable to your client’s needs and customs. Not all businesses require the same level of assistance for every program. Some clients may wish to relinquish all control of a program, while some may prefer to retain some aspect of a staff function or technology. Different clients may have vastly different preferences, thus outsourcers will need to allow for flexible arrangements to accommodate these preferences and increase the comfort level of clients. Clients also need to be confident that their outsourcer will not compromise their competitive advantage or position and will maintain the confidentiality of their corporate information. Reassure your clients that you will keep their customer information secure and private at all times. New cyber-disclosure laws, of which your client will undoubtedly be aware, essentially mean that your client is equally responsible if you allow their customer data to be compromised, stolen, or hacked (Perkins, 2003). You, Mr Outsider, must allay these concerns. To be sure, effective outsourcing relationships take time and effort to build. Says Constance Kobylarz, a Principal with Aton International, Inc., “business executives must plan how and where the outsource partner fits into the overall business. This plan must be communicated to all employees and reinforced with incentives. Lack of understanding and incentives often leads employees to feel threatened. The result can be a lack of communication and cooperation with the outsource partner which defeats the goals of the partnership” (Kobylarz, 2001). Communication and cooperation between a client and their outsourcer allow for the formation of mutual respect and understanding, qualities, which can greatly increase the longetivity of an outsourcing relationship. But, remember, any outsourcing relationship is a two-way street. Says Cathy Nuccio, Vice President and General Manager of ICT Group, the relationship between an outsource service provider and a client must be mutually supportive. “The provider will offer expertise and best practices in customer service, technology and cost management. The client brings subject matter expertise, company culture and industry experience. The two joined together in a symbiotic relationship will lead to a successful venture” (Nuccio, 2002). If this mutual interdependency is present, then the client/outsourcer relationship should be “amenable to constructive engagement and adjustment” (Kellogg, 1995). According to Ernst & Young, a leading accounting and management consulting firm, the best outsourcing relationships establish specific and measurable goals and objectives; ensure the relationship is beneficial to both parties; maintain mutual willingness to learn from one another; involve senior managers and seek their support; use a joint, multi-level relationship management approach; and continually track performance and provide feedback (Zhu et al. , 2001). Companies who choose to outsource are, by their very nature, busy – they have chosen to outsource because they want to focus more on their core competency and less on such things as taking calls or fulfilling orders. They want to leave these tasks to

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someone who claims them as their core competencies. In other words, they want to leave these tasks to you, the outsourcer. “Generally speaking, in the new environment, the vendor’s role is to deliver efficiency – skills, people, processes, measurement, and accountability” (Willis, 2001). Once the client has agreed to partner with you, an outsourcer who will do what is written in the contract, it is important to remember that just doing what is required and expected is not what keeps a client loyal. Rather, it is the aspects of the “unwritten contract” between a vendor and a client that strengthens the relationship to the point that it becomes an invaluable partnership. As the outsourcer, it is your efforts to “go the extra mile” that stand out to the client and that will make you part of the client’s “family”. Remember – the decision-maker in the deal, the person who actually chose you as their company’s vendor, needs to look good to his superiors, and what you do to help him look good goes a long way in solidifying your partnership with him. That being said, clients need an outsourcer who will proactively communicate with them. If the client is asked by someone inside his company how the outsourcing arrangement is going, already knowing this information rather than having to ask you for it is key. By outsourcing, clients are losing a measure of control over a function. This sudden loss of control can cause great stress for the client, especially if the function he has outsourced is vital to the success of his business. Obviously, stress and anxiety can hinder the effectiveness of a client/vendor relationship. To reduce a client’s stress level, outsourcers must understand the client’s needs and wants, educate the client to keep expectations realistic, and communicate effectively and often with the client (Woodward, 2000). You should agree beforehand on a detailed reporting schedule, with dates and times specified, and, as the outsourcer, you should stick to this schedule. Regular meetings between outsourcing vendors and in-house project managers allow for the regular exchange of information and helps ensure that expectations are still manageable and in sync (Horwitt, 1996). You may also wish to establish clear communications channels, perhaps even a single point of contact; define communication routines and pathways; and use effective communicators who know how to listen, ask questions, and present information clearly. Also, schedule meetings at defined organizational levels. Further, allay your client’s concerns about surrendering control by “specifying an organizational hierarchy for dispute resolution, with unresolved disputes going to higher levels in the organization for hearing and/or appeal” (Kellogg, 1995). Also, clients want outsourcers to bring them new ideas – to show them the latest technology, how to cut their costs, and better ways to run their business. If you are in a position to provide constructive feedback, act as your client’s eyes and ears regarding their customer or marketing campaigns and provide them with written feedback and reports on a regular basis. Also determine if additional opportunities exist for you to serve the client (Cardella, 1998). These aspects of “going the extra mile” and fulfilling the “unwritten contract” make the client look smart to others within his organization. “Leveraging what your outsource provider knows can be one of the keys to staying ahead of your competition and adding to your bottom line”, says Kobylarz (2001) of Aton International Inc. By putting forth this effort, the strength of your relationship with your client is increased. Remember, clients do not want to be taken for granted. They have come to you – chosen you – because they feel that, as an outsourcer, you know aspects of their business even better than they do. Give the client the information

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he needs to do his job better. Do not forget that personalized aspects of client relationships matter. Encourage site visits. Encourage constructive feedback from your clients. Take all of your clients’ calls and try not to keep them waiting. “Keeping a client waiting not only damages the relationship between the client and the vendor, but potentially between the client and their boss” (Cardella, 1998). Remember that it is the strength of the relationship, not whether or not you simply complete your contractual obligations, that can determine whether the client sends further business your way or counts down the days until the contract ends and he can sever the relationship for good. As mentioned before, outsourcers must also allow for flexibility and change as their relationship with a client matures over time. Long-term arrangements must be amenable to changing market conditions, technologies, and customer demands. According to Alfred Kellogg of American Banker magazine, “though the specifics of change are unpredictable, its occurrence is a certainty”. How well does your contract with your client reflect this fact? How well is your outsourcing company able to react to broader changes in the marketplace? Your answers to these questions dictate the long-term viability of your relationships with you clients. Unless you are the low price leader among outsourcers, your relationships with your clients are based on more factors than what is written in the contract. Taking the relationship to the next level – becoming a consultant and trusted advisor to the client – is critical to the success of your outsourcing business. As Dawn Willis of Compass explains, “in a firmly grounded relationship built on trust, the outsourcer will be more likely to invest in value initiatives, because the outsourcer trusts the client to take the investment seriously and in good faith. If trust is lacking, then the outsourcer has little incentive to make the effort, and the client has little reason to value the effort”. In the end, it is how the client feels – whether or not you are taking care of them – that will decide whether your relationship continues and prospers or whether your engagement is handed over to your competition.

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