Extend the Partnership to New Arenas

A good relationship opens new doors. Once partners master the art of working together, it only makes sense for them to explore other opportunities to combine their skills and assets in valuable ways. Most start simply. They extend the outsourcing partnership to other parts of the company’s business where it might be profitable. MOL started with fi-nance and accounting and later incorporated the back office for the energy-trading function. Thomas Cook is considering expanding its relationship with Accenture to include additional processes like procurement and yield management for its airlines. These extensions carry their own compelling business cases, but they also take advantage of the strong, trusting relationships that partners have established. Trust takes some of the coordination risk out of these ventures.

To expand the initiative’s scope to entirely new arenas, most partners do not issue an entirely new request for proposal. They just work out the details with their current partner. This approach saves the time and cost of managing a multi-bidder sourcing process, but it can also eliminate the parts of the process that enable all the right discussions between the partners. Prudent leaders document the process, identify the stakeholder issues, evaluate business model implications, and envision future scenarios.

Then they negotiate a written agreement that documents their aspirations, their principles in managing the process, their financial arrangements, and their management process.

Thomas Cook has developed a template for this kind of agreement to institutionalize the approach for each organization that participates in the overall outsourcing partnership. While the details may vary, creating this kind of standard operating procedure reinforces good practice and makes continued partnering easy. It also places the responsibility for defining roles and accountabilities squarely on the managers who are setting up the agreement. When these arrangements are negotiated centrally, companies are not likely to get the same level of engagement and ownership from local management as this approach provides. The learning that is accumulated over multiple iterations of the process can also be incorporated into the template.

In each of its agreements, Thomas Cook takes the time to include a preamble. This section outlines the way the partners intend to work together. By acknowledging that a provider will not be blamed when issues are caused by the company and by outlining how disputes will be resolved, the two organizations can avoid endless legalistic specifications about how to handle every transactional detail. Neil Hammond, director of strategic sourcing and IT efficiency for Thomas Cook, explains: ‘‘Everyone is concerned about what happens if things go wrong. But you don’t want to document all that detail. You should be trying to deal with that on a relationship level. Sometimes it will be one company’s fault, sometimes it will be the other’s. So we say that if it’s clearly our responsibility and we fail, the supplier won’t be held to blame. It is a statement of intention.’’

Of course, setting up a relationship and a process for the first time, and bringing a new organization into it, are two entirely different things. The first involves an extensive design process—the partners are starting from scratch. For the second, the existing relationship and operating assets create a huge pull of gravity. Why would a company want to set up a separate processing center when it already had one in operation? But managers of the newly entering organization will almost certainly claim that the existing center or process or relationship does not fully meet their needs. They will ask for the latitude to do some things differently. This issue will appear as a tactical consideration, but it is not. Deciding how much process consistency the enterprise needs and in what areas is a long- term strategic call. If the senior team has not yet established this policy, it should. Otherwise, the organization is inadvertently choosing to operate with a cornucopia of inconsistent processes.

A small number of companies that are transforming through outsourcing reach even more deeply into their partnership for innovation. Fifteen percent of the companies among our examples go beyond extending the partnership to new processes or functions within the company. They deliberately search for business opportunities that combine the partners’ expertise or assets in innovative ways. Thomas Cook provides an especially good example. This organization started with a two-part agenda: to fix the old and to create the new. The executive team realized they could return the company to profitability by cutting costs and streamlining processes, but they could never achieve their growth goals this way. Moving from third to first in the UK travel industry would require more innovation.

Thomas Cook explicitly invited their transformational outsourcing partner to take that journey with them by making innovation part of the partner’s quarterly performance evaluation. They put bite in the invitation, but not just for their partner—for themselves as well. How? They obligated their partner to appear before the senior executive team each quarter with a presentation of innovative ideas. This motivated their partner to attend to this issue, and, equally important, it guaranteed that the executive team would find time on its busy agenda to listen. The team would evaluate the quality of the ideas, and that assessment would influence the partner’s bonus for the quarter. So in one stroke of the word processor, Thomas Cook established a mechanism for engaging with its partner—at the right level of the organization—that would generate a discussion about innovative business ideas each quarter.

For example, Thomas Cook’s partner has an expertise in emerging supply-chain technologies—specifically radio frequency identification tags. The partners are considering how these might be used to improve baggage handling for vacation travelers. Thomas Cook knows every customer’s hotel before he or she gets on the airplane. It could use this technology to scan the luggage and have customers’ bags delivered directly to the hotel. In the low-margin packaged holiday business, this could improve the customer experience enough to be an important differentiating factor.

These two partners are looking beyond their own local skills and expertise as sources for new business opportunities. For example, a subsidiary of Thomas Cook’s outsourcing partner provides airline reservation and passenger financial-transaction-processing services. This organization already counts 40 airlines as its customers, and it might provide some benefits to Thomas Cook Airlines as well.

Finally, Thomas Cook is looking at its multinational outsourcing provider as a market for its services. Reasons Thomas Cook’s group business transformation and operations director Marco Trecroce: ‘‘Seventy-five thousand Accenture employees worldwide have to get their holidays somewhere. It may as well be from us.’’ If this arrangement works out, Thomas Cook will take its place beside a selected list of other vendors who offer their products and services directly through the internal Accent- ure portal.

The extent to which these ideas turn into good business for Thomas Cook remains to be seen. But the company’s approach puts it way ahead of most other transforming organizations that hope for product and service innovation while they reward operational excellence.