Sustaining a High-Commitment Relationship


In the high-stakes transformational-outsourcing game, partners sign up together for goals they can’t guarantee with organizations they don’t control, and they bet their careers on the outcome. It requires unflinching commitment to an outcome that may be years away and a partner to share the journey. Although the potential rewards are enormous, unexpected shifts in technology or the competitive landscape could call for mid- course corrections at any moment. Executives forge strong relationships to see them through this whitewater ride. One CEO told us, ‘‘I work side by side with my counterpart at [the partner company] to ensure that we anticipate and confront change as it happens.’’

When executives reflect on the secret to effective outsourcing, they all reach the same conclusion: Trust is vital. However, most executives, even outsourcing veterans, built trusting relationships intuitively—with varying levels of success. And, like culture, trust is not built directly; it grows as a result of experiences. Transformational outsourcing leaves no room for error in this critical activity.

The conventional wisdom about managing outsourcing relationships guides executives in exactly the wrong direction when it comes to transformational partnerships. If leaders focus only on establishing clear accountability, specified service levels, and disciplined change control, they will miss the forest for the trees. These concerns have their place; they are important features of a healthy operation. But they fall far short of the tools executives need to manage intimate partnerships. If they focus only on these contract management tools, a company’s executives are actually encouraging their outsourcing provider to act less like a partner, not more.

To achieve the level of flexible, intense guidance that transformational outsourcing demands, executives establish a foundation of clear expectations, a structure of mutual benefit, the capability to do what must be done, and regular feedback. Then they activate a positive cycle by managing relationships deliberately with four types of intense communications: contract negotiations, a track record of performance, strategic governance, and personal relationships (see Exhibit 7.6).

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Exhibit 7.6: Use intense communications to sustain commitment.

Contract Negotiations

In transformational outsourcing, executives use contract negotiations to make sure they have the right conversations. At the beginning of the initiative—and every time they revisit the model—they discuss key objectives and measures of success, how to make sure both partners have skin in the game, and how to deal with the big transitions. The process could not be more different from the kind of dickering over contract compliance that conventional outsourcing frequently inspires. Instead, these frank discussions set the tone for an open and honest dialogue. As one government executive remarked, ‘‘The relationship started when we agreed up front that our business partner deserved to make a fair margin.’’ And delegating this process to an aggressive legal team may get you a better price, but it may also lead to a poorer relationship.

Strategic Governance

Keeping a transformational outsourcing relationship on course means jointly managing strategic execution as the transformation plays out. The CEO of one major UK grocery chain and its outsourcing provider’s lead partner have offices on the same floor so they can meet frequently. They jointly report to the board of directors every second week to keep the high-stakes agenda on track. At Family Christian Stores, the outsourcing provider’s lead partner functioned as the CIO and participated as a full member of the CEO’s direct staff.

Effective governance starts at the top of the company and extends throughout the organization. Some outsourcing providers stress the importance of account management—point people who coordinate the relationship. For transformational outsourcing, good governance looks more like a ‘‘zipper than a funnel,’’ according to Mont Phelps, CEO of Netivity Solutions, an information-technology outsourcing provider. Individuals at all levels of the relationship actively work together at the interface.

Formal communication processes also help structure solid connections. Operating managers communicate daily to monitor activities and resolve issues. Business unit executives meet monthly to assess progress and make course corrections. Senior executives address strategic direction in quarterly sessions. Every company does this the same way. So what makes some governance structures much more effective than others? Often it’s the informal communication that makes all the difference. An executive at a U.S. laboratory that is noted for its ability to manage strategic partnerships effectively routinely posts individuals from her organization to two-year appointments at the partner’s site. These people develop strong informal bonds with their colleagues that prove invaluable. When a difficulty or dispute arises in the collaboration—which it always does— the on-site person can use the informal channel to raise and possibly even resolve the issue. If it has to go through the structured process, the extra weight it carries can be divisive. Even if the issue cannot be resolved informally, it can be socialized. Then, when it does come up at the formal meeting, some of its heat has already been vented.

In an environment where accountability runs high, but control is elusive, transformational leaders substitute visibility for ownership. Companies open their books so their outsourcing partners can see their costs and margins. They open their boardrooms so partners can see—and influence—their strategies. And it goes the other way, too. A company that signs up for transformational outsourcing wants to know that the partner on which it is utterly dependent is making a fair and reasonable profit for its effort.

Track Record of Performance

Business partners build credibility through performance. No matter how effectively both parties articulate their vision at the outset, things get cloudy fast. Both partners will need a way to crystallize and communicate the progress they’ve made as they go along. Some track the cumulative benefits that have accrued as a result of the partnership. Others publicize their insights in jointly authored articles and speeches. Still others pause periodically to capture the progress in writing. These narratives not only document the headway companies are making, but provide a way to highlight roadblocks, rally support for course corrections, and refocus on the ultimate objective. It’s not just the fact that they have set and met prom- ises, but the way they use this information that makes demonstrated performance a lever for relationship management. As one executive remarked, ‘‘We periodically remind each other that what we have accomplished has been both difficult and significant. It helps motivate us to press on together.’’

Personal Relationships

In the end, outsourcing partnerships are about people. A successful software services entrepreneur said something to me recently that I think captures this point superbly. He was reflecting on his company’s earlier attempt to expand from systems integration services into packaged software products. He said, ‘‘When you’re selling a product, you sell the product first, your company second, and yourself third. When you’re selling a service, you sell yourself first, your company second, and the service third.’’ Transformational outsourcing is a service in every sense of the word, and its success relies on the specific individuals who champion the initiative. In British Petroleum’s long-standing arrangement for back- office services in the North Sea, the two people who originally crafted the relationship have stayed involved, even though their company assignments have changed several times. They attribute the initiative’s success and longevity, at least in part, to this mature personal relationship.[5]

What do we mean by a personal relationship? ‘‘We’re not talking about hot tubs and Champagne,’’ quips one senior vice president, ‘‘but the personal side of these business partnerships makes all the difference.’’ Executives from both sides spend social time together, but the real bonds develop as they work shoulder-to-shoulder to transform the company. At its best, this personal chemistry builds at all levels of the business partner- ship—from the leadership to the individuals on the front lines of radically changing business processes.

[5]Jane Linder, Alvin Jacobson, Matthew Breitfelder, and Mark Arnold, ‘‘Business Transformation Outsourcing: Partnering for Radical Change,’’ Accenture Institute for Strategic Change research report, July 2001.




Outsourcing for Radical Change(c) A Bold Approach to Enterprise Transformation
Outsourcing for Radical Change: A Bold Approach to Enterprise Transformation
ISBN: 0814472184
EAN: 2147483647
Year: 2006
Pages: 135

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