Are Your Goals Aligned?

A partnership doesn’t mean that the service provider has free rein. For a partnership to work, there must be mutual cooperation towards achieving a goal. Service level agreements, KPIs and the like are still important. But they are not all-important. Rather, they are part of a bigger picture. The real question is, are the goals that are important to the client being met by the provider?

Thus, the first step to building a partnership is to ensure the goals are realistic, achievable and aligned.

There are three distinct types of goals in an outsourcing relationship, and misalignment of any of them could get in the way of a partnership, jeopardizing the results you need for your organization. However, often only two sets of goals are considered important: the client’s goals of service performance and budget objectives and the service provider’s goal of profitability.

It is essential that these two goals be realistic. A partnership cannot survive if the service provider over-promises savings and finds itself unable to deliver the savings while maintaining service levels. Increasing competition and the large scale of many outsourcing companies reduces costs, but it’s important to realize that the outsourcing company is in business to make a profit. The reality is simple: When your service provider is losing money, it can’t give you the service you need.

So, while the goal of many procurement exercises is to reduce costs, the scale of the reduction should be reasonable if a partnership is to succeed. There’s a direct relationship between service levels and resources, and resources cost money.

A third set of goals has a significant impact on the success of outsourcing, yet is often overlooked. These are the goals of the client’s staff, known as the stay-back team, who have remained with the client to manage the outsourced services and who are accountable for the results.

Managing the outsourcing relationship is usually left to the stay-back team. If this is the first time the client is outsourcing facility services, the stay-back team should be trained how to manage and told what is expected of them.

The stay-back team members need to support the outsourcing initiative and its goals, and not let their own internal or personal goals get in the way. For example, the stay-back team’s goal may be to demonstrate its own value, so it ends up over-managing the service provider or competing with the service provider’s team to get credit for initiatives or service delivery. The key performance indicators, service levels and the penalty/reward systems may be inadvertently designed to create this misalignment.

With that sort of internal competition, a partnership cannot survive. Instead, the stay-back team needs to support the outsourcing service provider to ensure that the provider is successful. After all, when the provider screws up, the stay-back team also screws up — and so does the facility manager responsible for the overall outsourcing arrangement. It’s not possible to simply blame the service provider; they’ve become an extension of you.

Of course if a service provider isn’t trustworthy, the efforts of the stay-back team will be wasted.

Is Your Procurement Process Designed For Partnership?

It is essential that you go into the procurement process with the recognition that cost, service levels and scope are part of a triangle. If you change one, you usually affect the others.
So the first thing to keep in mind in the procurement process is that the overall goal of the outsourcing effort needs to be clear and understood by both parties. For instance, if your procurement process is designed to save money and that’s it, then be honest and expect your provider to manage appropriately.

Being clear about your own corporate goal makes it easier to find the service provider that is the best fit. With that goal in mind, you can ask the right questions in your RFP and evaluate proposals based on what matters to you. During the selection process, include meetings with each service provider if your organization or governance allows it and build an interview stage into the process. The depth of these interviews depends on the scope and size of your initiative. Selecting the right company in the first place creates the foundation for your partnership and outsourcing success.

Establishing a realistic cost based on your organization’s financial goals and performance priorities is critical to the success of a partnership. Ask specifically how the service provider will achieve cost reductions and what the impact will be on service levels, including what modifications the service provider would make to specifications, service levels and KPI targets to meet both your financial and your performance goals. In most outsourcing contracts, the delivery methods, staffing and other factors are left up to the service provider as part of their bid and significantly affect costs. Yet most service providers are bidding based solely on what you tell them in an RFP document, so it’s very hard to be completely accurate. If your goal is a partnership, include a flexible process that enables you to discuss objectives and negotiate with the service provider to balance goals and costs cooperatively from the start.

Without a fair, balanced and flexible contract, you aren’t likely to get the cooperative relationship that a partnership relies on.

An outsourcing service contract includes provisions designed to divide risk between the parties as well as clauses designed to make decisions easier to reach and disputes easier to resolve — in other words, to manage the grey areas that surface. Be sure the contract specifies what will happen when the scope changes, the portfolio changes, specifications change, legislative requirements change or other unknown pressures arise. A partnership is built on clarity and fairness about how issues like these are dealt with. By eliminating uncertainty, you also enable the bidders to provide a more accurate price.

While there are many contract models, a complex outsourcing arrangement with many subcontracted services is typically best handled with a management fee and a flow-through arrangement for most of the costs. This provides flexibility, visibility, and control over the resources, costs, and specifications of the subcontracted service while eliminating some of the issues involved with a fully included fixed price. You can build in a sharing arrangement for savings, but continuous savings simply won’t be sustainable if you want to maintain the same service levels. This shouldn’t be the way the service provider expects to make its profits.

The contract model can also stifle innovation, continuous improvement and the introduction of new techniques and technologies. These are areas where a service provider can provide some of the best value as a partner. A flexible approach to implementing the service provider’s ideas can provide incentive for both parties. For instance, if the service provider can implement innovations that improve your results or save you money, yet the financial model means related costs must be absorbed by the service provider, the provider is not likely to implement these innovations. It’s better to have your contract include a cost/benefit sharing mechanism or a way to fund these types of incremental costs to provide flexibility.

The length of the contract also affects the chances a partnership will succeed. A contract that’s re-bid every two years doesn’t suggest that a long-term relationship is being created. A longer contract with extended renewal options is more likely to foster a partnership, simply because of the longer time horizon. By building in some renewal periods, you can extend the contract easily if things are going well and renegotiate pricing instead of re-bidding the service.

Are You Treating Your Partner Like a Partner?

Of course, not everything can be reflected in the contract. The relationship between the service provider and stay-back team has to be flexible enough to enable changes as the relationship progresses. A narrow adherence to the contract will be detrimental to the relationship. But be sure to document agreements and changes so that, when you move on, your replacement understands why things are the way they are.

There will always be problems, and sometimes the service provider will make mistakes. In a partnership, the service provider is given a chance to fix the mistake and make sure it doesn’t happen again. How they recover is almost more important than being perfect in the first place. Blaming and punishing the service provider won’t foster a strong working relationship and may cause them to hide things or stop communicating about important issues.

When you deal with issues, consider what you would have done when you were managing the service yourself, probably with fewer constraints, and manage the provider accordingly. Flexibility is probably what enabled you to manage successfully. It’s the same flexibility your service provider needs to be successful with a working partnership.

Of course, for this to happen there should be trust between the service provider and stay-back team. Establish this early through regular and open communication. Both sides should be open and honest to build a relationship; even a hint of mistrust can poison the dynamic. If possible, co-locate their key staff with yours to foster a more integrated working relationship and ensure that your issues, goals and problems are communicated. Include the service provider in meetings so they hear information directly and can use their experience to help you with issues.

Outsourcing isn’t a “set it and forget it” proposition. It requires effort to make it work the way it should. That’s all the more true with a partnership.

To get the full value of a partnership, which is more than simply shifting the risk and responsibility to someone else at the lowest possible cost, you have to actively manage the relationship. While outsourcing is often a way to reduce headcount, you should continue to use progressive performance management approaches similar to the ones you use with valuable employees.

Don’t Rely on SLAs and KPIs

Tools developed to manage outsourcing relationships, including service levels agreements and KPIs, are meant to ensure that service provider outcomes are aligned with the goals of the client organization.
However, it’s too easy to simply depend on service levels and KPIs as tools to communicate with and manage the service provider. A rigid measurement and reward/penalty system that tracks intermediate results, reports on them after the fact, and delivers a financial penalty or reward based on those results focuses both parties on those specific issues with less regard for the bigger picture. A dependency on measures and a reward/penalty system can also drive bad behavior even in people with the best intentions.

A true partnership goes beyond KPIs and uses a progressive, ongoing performance communication process, including less formal performance and service assessment tools, regular meetings, and cooperative discussions about problems and solutions. Be flexible, adjust targets, add new measures and let some slide when other issues become more important. A partnership moves toward managing and improving results while delivering the required services. — Michel Theriault