Is your outsourcing vendor really your partner?

InnfosyslogoI’ve just returned from an excellent InfosysBPO customer event in Philadelphia.   Was refreshing to have a services firm allow industry experts, its customers and prospects talk freely about the industry and the burning issues.  I especially enjoyed:

    • TPI’s Sue Danino, leading a panel discussing pricing models;
    • Wayne Mincey from the Hackett Group treated us to some confidential new data on world-class performance (a lot of vigorous note-taking during that one…);
    • Jason Busch on top form discussing the exorbitant price of zinc and how this impacts procurement BPO;
    • Micheal De Zeuw, Infosys’ VP in charge of their Philips BPO engagement, discuss their journey;
    • AMR research’s panel discussing service provider governance, led by some British guy.

One of the key issues that came out of the AMR panel was the discussion centered on whether "your vendor is really your partner".   Sunil Narang, VP of Finance for Level 3 Communications, vehemently argued the case that his firm would have never achieved the success it has with its BPO, if it hadn’t developed a partner-style relationship with its provider, based on a great deal of mutual trust and working together.  On the flip-side, I have had many discussions with other sourcing executives who claim their vendor relationship is definitely not a partnership, but a contractual agreement.

My view is you really have to take control over your vendor relationship and drive the agenda, and it often takes a couple of years to get to the stage where you and your vendor feel you have a good understanding of what you need.  If you can develop a relationship which feels like a true partnership, then you must be doing an great job, as this is not the case with everyone.  Much depends on the skill of the sourcing leader within the buyer to create a mutually workable outsourcing environment.  However, this is a skill that most executives need to learn "on-the-job" through real-life experience.  So if you have not lived and breathed an outsourcing relationship, treat the situation like a marriage with a very solid pre-nuptual agreement.  Love to hear your views on this….

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17 Comments

  1. Posted March 13, 2008 at 3:45 pm | Permalink

    Just like you said Phil, it takes trust and time to be able to truly feel comfortable with each other. Also, the model has to be just right. You just can’t bring in a bunch of strangers to work in a pseudo-hybrid model with the internal people in your organization. Employees would feel threated and the relationship would be doomed from the start.

    Incrementing the level of responsability as time passes, ensuring the same mission, vision, and attitude as well as proper comfort working with each other will ensure success. A proper system of checks and balances must be in order, to make sure the shifts in direction are timely and organized, proactive, not reactive.

    Hans

  2. Posted March 13, 2008 at 3:48 pm | Permalink

    Being on the vendor side of the fence, I can say there are a few clients who would certainly say “Yes” to the question. We have a software dev and BPO/KPO setup back in India and have developed good long standing partnerships with our clients.

    Of course it took some time, but at the end we are pretty much in a Win Win Situation.

    The real answer lies in how much synergy both parties bring to the table. If business for one means business for the other, then that we got a match.

  3. Posted March 13, 2008 at 5:41 pm | Permalink

    Phil,

    At its core, any outsourced arrangement will be what is written on paper. This will clearly drive the behavior of both parties. The commercial terms are what will ultimately motivate the vendor and the client in the actions it pursues. Now, this does not mean that these terms can’t be written where both have significant skin the game and both serve mutually beneficial interests. In fact, when agreements are written in that fashion, IMO, that is when you get the best results.

    Once you have the above taken care of, this is when the true partnership can flourish. Insuring you have a partner that has the right SME to deploy to your project, insuring systems and processes are universal, insuring open access to each others information flow so that you can speak in non-cryptic terms about key areas or developments. In addition, insuring that you have regular and regimented performance review processes to keep everyone on track.

    Lastly, if a true partnership is desired, then both parties should act like it. Create a culture where vendors and clients are invited to strategy meetings, dedicate space and time to insure that the client and vendor feel that each is an extension of another and include everyone involved in the contribution process.

    Feel free to ping me if you need further clarity.

    Thanks … Brian S.

  4. Posted March 14, 2008 at 12:48 am | Permalink

    Unless you have a joint venture with your “partner”, your “partner” is a vendor.

    Without any doubt, your vendor will never succeed unless both parties work together. Quality teams, training teams, root cause analysis/continuos improvement project, etc. They just can’t be done without mutual effort. The most successful project have this positive, synergistic spirit. In the midst of the euphoria, clients praise their “partners.” Frankly, this is success. However, vendor managers create this success by setting the tone and ensuring the vendors are fully aligned with the client goals.

    However, without any doubt whatsoever, your vendor is not a “partner”. Here’s why:

    - Would a partner employ a highly compensated, well-trained legal and sales team to negotiate the best deal they could? Sit through contract renewal negotiations sometime and watch incumbent vendors flex their muscle. The best vendors have dedicated big deal negotiations teams.

    - Would a partner seek to expand its revenue growth and profitability while you seek to reduce costs and create a multi-vendor sourcing strategy? Listen to your vendor make arguments why they can be they can be your sole supplier some time.

    - Bad things sometimes happen. When your IP or confidentiality is released, what limitations of liability has your “partner” negotiated?

    - Would your “partner” use your company’s name to market its services to your competitors? Even the most secretive projects are disclosed and shared. Vendors are the best source of competitive intelligence possible.

    - Organizational changes happen. When your client’s executive changes and brings his/her old vendor into the picture because of a different vision/strategy, where is the partnership in a termination or multi-sourcing strategy?

    Build a healthy, honest relationship. Seek to be your client’s best vendor and your vendor’s best client. Be mutually profitable and build great capabilities. Vendors – the customers of your customer are your customers. However, never, ever believe that your vendor is anything but a vendor or your client is anything but a client until you create a JV.

    Tony
    http://360vendormanagement.com/

  5. Posted March 14, 2008 at 7:50 am | Permalink

    The same outsourcing provider can be a vendor to some customers and a partner to some.

    For an outsourcing company to get elevated to a level of partner requires commitment from both the sides. Sometimes, the offshore company doesnt do full justice to the relationship considering costs, risks, profitability, or incapability. Or the customer comes with a fixed mindset – This company is my vendor, i give him work and he executes…nothing more nothing less…

    To build a true partnership, there should be give and take….Both customer and the outsourcing company have to be ready to make investments in time, resources and some amount of money to learn, stabilize and grow…

    Customer should understand – It is not right to expect results from day one. Understand outsourcing is not just about low costs.
    Partner should understand – Customer is new to such a relationship and has to be guided through this entire process. Right from choosing the working model, identifying which work/project/service to be outsourced, resources to costs.

    This mutual give and take will help in building trust and confidence growing the relationship from vendor-customer to true partnership. And success of a real outsourcing relationship happens when both the parties become partners in the venture.

    All said and done, there will always be a small element of vendor in the partnership.

    Sailaja Sivalenka

  6. Posted March 14, 2008 at 7:54 am | Permalink

    Phil,

    In todays market there are different models that are employed by companies to achieve goals/ results in a onsite/ offsite model.
    The ability of an outsourcing company in becoming a partner is dependent on both the companies.

    Firstly, investments need to be made on both ends to faclitate the creation of innovation teams that can help define the model that needs to be implemented.

    Secondly, there needs to be transperancy between the two companies.

    Thirdly, there needs to be a joint control and check system which is not biased towards either party.

    Finally, the term of the business partnership should be defined at the start and should not be too complicated.

    Once these conditions are met the outsouring company becomes a true partner with the client.

    Thanks,
    Paramjit

  7. Posted March 14, 2008 at 8:53 am | Permalink

    Phil,

    Interesting question. The vendor would like to be a real partner for sure but it is often down to the client to let them truly become one. Most clients state this as an intent on the ITT/RFP round and prior to working with the vendor but never actually offer that level of transparency into their organisation.

    I work for a business that has a different model that is based around commoditising vendors i.e. we are an outsource programme manager who contracts with the client direct and manages that relationship very tightly – a true relationship must exist for this type of outsource to flourish. However, we then place that work with a vendor who then has little or no contact with the client direct and we manage them as a delivery vehicle with very strong controls. It works for us and our clients but does nothing for the vendor/client relationship.

    Best regards,

    Ian Haines

  8. Posted March 14, 2008 at 10:58 am | Permalink

    Phil,

    I would be curious as to a correlation study between the two camps (partner vs. vendor) and the perceived success of the relationship from the perspective of the client and the provider. I suspect that you would find the “partner” camp generally has fought through the initial battles of aligning expectations and deliverables and has arrived at a balance point that works for both parties (i.e. both are pleased with the relationship). In the case of the “vendor” camp, I would suspect that you would find one side viewing the relationship as a success and the other chaffing (depending on who had the better negotiators during the contract phase).

    At the last company I founded, Empagio, I implemented the John Gamble “Clients for Life” methodology. A key tenet of that philosophy is “Right Client, Right Terms”. In my experience, if a client does not wish to view the relationship as a true partnership (win/win), then ultimately it will have a high likelihood of devolving into a win/lose relationship with either the client or the provider coming out on top. And in those cases even the “winner” is generally bloodied.

    Many “grow at all cost” executives may not agree, but unless a prospect demonstrated a true willingness to be a strong partner, we simply would not pursue a relationship with them. It is easy to win business. It is harder to deliver it in a way that results in a client success and provider profitability. I would rather pass on business that I don’t believe has the right dynamics for success in favor of quality “partner” clients that ultimately deliver profitability, referenceability, and positive energy (morale) for the delivery team.

    Regards,

    R

  9. Posted March 14, 2008 at 5:37 pm | Permalink

    Phil,

    Great question: I do feel that in the beginning of most any sourcing agreement the Term Partner will simply be rhetoric as part of the sales pitch to the client. As most customers tend to go the outsourcing route to reduce costs, just because they have outsourced something doesn’t mean they don’t want to continue looking for efficiencies and further cost reductions.

    Another big deciding factor is how the agreement is arranged. As stated previously, the terms will often dictate how the relationship unfolds. I think any agreement will need strong governance and compliance up front on both parties to ensure the Customer is receiving the Right Service, within the right billing period, within the appropriate quality measurements.

    What I have seen is where the customer doesn’t mind their current run rate, but would like to Reduce costs/increase efficiencies to free up revenue that will allow the Customer to fund additional services and or technology in their environment. It is often hard for the Sourcing party to look beyond the loss of revenue in the near term at the expected additional or increased resources that might come from it.

    I have seen it take 4-5 years for both the Outsourcer and the customer to truly act like partners and think about what services and technologies are out there, and how they can implement them so it can be a Win/Win for both companies.

    Brian

  10. Annie O'Grady
    Posted March 14, 2008 at 6:19 pm | Permalink

    Okay so first let’s look at definitions (per Dictionary.com):
    Partner – One that is united or associated with another or others in an activity or a sphere of common interest, especially:
    •A member of a business partnership.
    •A spouse.
    Vendor – someone who promotes or exchanges goods or services for money

    Outsourcing defined as a Partnership? It seems the use of the word ‘partner’ is inappropriate when discussing Outsourcing. Are they putting up their own money in the company? Are they making a marriage commitment (in sickness and in health)? (NB: This could be a new offering but I have not seen type of structuring).

    Your analogy with marriage is an excellent one. My folks were married happily for 50 years. I once asked my father his formula for such a long and happy marriage.
    -Long courtship
    -Common goals, motives and vision
    -For better and for worse (unemployment, illness)
    -In sickness and in health
    -Forgiveness and self-sacrifice
    -Exclusive relationship

    So to clarify:
    -Haste makes wastes. Take time to be clear on what, why, how, when and how much before hitching up. Alternative is to go on dates (e.g. small projects to test services).
    -What are the common goals? Productivity can be mutual beneficial but not sure this requires a ‘partnership’. This requires an efficient vendor. There is always the nagging realisation that Customers want savings and Vendors want a new revenue stream/profits).
    -For better or For worse? What happens when times are tough? Does the ‘partner’ share the pain?
    -Is the vendor motivated to grow the customer’s share price? Or as an employee, motivated to increase the value of their own company?
    -Where is the exclusivity? Is it wise for a customer to share its ultimate strategy? How long will it be before the competitors get this information?

    Very simply, negotiate a strong commercial contract that is fully transparent (bi-lateral) and under pinned with mutual respect.

    NB: Like Level3, I have had many positive outsourcing relationships as a CIO as well as working on the vendor-side. All experiences were when I had:
    -A strong professional relationship with truth, honesty and understanding
    -Common organization sizes (no David and Goliath)
    -Strong governance
    -Comprehensive contract (this was beneficial for both customer and vendor)

    Looking at it from a slightly different angle, what are you Outsourcing?
    -IT Strategy – This requires intimate knowledge of the Corporate Strategy. This requires ‘exclusivity’ and to be a confidante of the organization. A contract should protect IPR for both the customer and vendor.
    -Project management/Applications implementation – A vendor
    -Transaction and/or Fulfillment processing – A vendor (unless a joint venture)
    -Infrastructure/Desktop support – A vendor

    If you would like to discuss further, please feel free to email.

    Kind regards
    Annie O’Grady

  11. Posted March 15, 2008 at 3:31 pm | Permalink

    Hi Phil,

    Great insight as always!

    I would completely second Randy Cooper’s illustration of the issue here. While you need to work hard to win your status as a vendor with your customer, you have to work even harder and smarter to establish yourself as a partner. Transition from vendor to partner doesn’t just happen, it takes a strong vision like “Customer for Life” and the related mind-set and delivery passion at all levels in your company, to really convert your vendorship into a partnership.

    I’ve seen many deals where the providers greedily hop on, considering them short-term HIGH profit makers without putting due consideration and effort into building “value” in the contracts and the delivery to their customers. Such one-way deals are hard on customers right away, and often quickly become a LOSS to the providers as well – I am not just referring to a long-term loss caused by bad reputation, but also the short-term $ loss.

    The strategic value of the project and the level of your service/product in the customer’s value-chain also, to an extent, determines your vendor vs partner status. However, this should not be considered the only determinant for the value of the relationship. I’ve experienced multiple scenarios where the provider starts with a relatively low-value project, but based on the effort they’ve taken to deliver value ito the relationship, have ultimately resulted in their becoming one of the customer’s preferred-vendors for their most strategic projects.

    Unless you are in a monopoly situtation, which no vendor can claim to have in the outsourcing arena, you have to align your services to the business objectives of your customer – and the best (and least painful) way of achieving this, is by thinking yourself as a partner rather than just a vendor.

    In some cases, vendors should push for a stake in the project’s success – and link that success to their employees’ monetary benefits.

    I am sure it’s not far away when something like ROR (Return On Relationship) will become an important corporate-performance parameter.

  12. Shyam Kerkar
    Posted March 16, 2008 at 12:16 pm | Permalink

    Phil

    To echo the thought that everybody has expressed – building a partnership with a service provider requires extensive investments of time and management / planning effort.

    It is no doubt possible for a buyer to continue demonstrating success in a model where the buyer is responsible for strategic & tactical management while provider is responsible for operations. While not the most healthy relationship – it is sustainable, or at least sustainable until external forces do not cause either the buyer or provider to change their business model.

    A more healthy relationship is a partnership approach, but this requires nurturing. It might however, be possible to couple the goals of the service provider with that of the buyer with somewhat lesser investment.

    Most mature buyers today hold annual IT planning summits where all their service providers are invited. The unit CIOs present their IT roadmap (and budgets) and the providers showcase capabilities and share best-practices. Among other things, this allows the buyers to benefit from the providers learning best practices from each other. Additionally, the providers make suggestions to improve the IT roadmap as they bid for components there-of.

    Unfortunately, given the longer term engagements in ITES / BPO – these annual summits by buyers may not apply. This actually moves the responsibly of conducting such summits to the service providers. No doubt the service providers have their own mechanisms to internalize and cross-share with other customers, the best practices that they discover with one customer. However, its possible to gain additional buy in to implement such best practices if the provider conducts a summit for all customers and perhaps for prospects.

    While the service provider contributes in terms of bringing in best practices – its for the buyer to share his plans & problem statements with the provider.

    It is the responsibility of the Contract Manager or the Sourcing Manager to mandate half-yearly / annual business review meetings requiring participation from the buyer CxO and the provider leadership & consulting team. It should be possible in such meetings to share strategic issues & imperatives – with the provider sharing their experience of resolving such issues.

    A few such business review meetings later — there is automatically sufficient trust established at the management level to work in a win-win partnership mode rather than a provider-vendor mode.

    Shyam

  13. Dorina Grossu
    Posted March 16, 2008 at 12:42 pm | Permalink

    Phil,

    My experience taught me that suppliers who do not have trained workforce, same operational systems as their clients, solid business principles will not survive, and as a result clients will not stay in business. Yes, there are outside challenges but many of those are uncontrollable while supplier-client relationship is within their own areas of influence.

    Creating partnership with suppliers is one of the answers to business survival.

    Toyota developed long term relationship with their suppliers, and they became successful. What 3M did with most of their suppliers? 3% price reduction every year? I do not see this as a partnership relationship, do you?

    Dorina

  14. Posted March 17, 2008 at 4:49 pm | Permalink

    Phil,

    You have raised an excellent question and also hinted at possible answers. For any long term outsourcing relationship to work, a sense of partnership holds the key. Both parties need to work on this quite pro-actively, starting at an early point of the relationship.

    The provider needs to make an effort to understand the client’s market and business challenges, thereby going over and beyond the daily transactions of an operational nature. In this context, I (as client), have looked for situations, when the provider has added value and functionality to the work specifications my in-house team has developed.

    The client needs to make an effort to understand the operational and local business conditions of the provider, and provide support as necessary. In this context, I (as provider) have looked for situations, where the client has implemented a seamless management plan that integrates and complements work across locations.

    The above are a few examples of an emerging partnership, there are several other ways by which opportunities for partnership can be explored. Partnering always remains a Work In Progress. It takes time to develop, after a few successful engagements. However it can be accelerated by creating and building on opportunities, similar to the ones above.

    Thank you

    Uttiya

  15. Posted March 18, 2008 at 11:30 am | Permalink

    Phil-

    I have been on both sides of that relationship in the service delivery outsourcing environment. I have been the “client’ and the “vendor/partner.” The idea of vendor vs partner is something that has been hotly debated. I’ve been in meeting rooms at Microsoft where several hour discussions were devoted to that very topic- should we call our outsource vendors “vendors” or “partners”? The ironic outcome was that the nature of the relationship and the way the business was run didn’t change, only the nomenclature changed.

    At its core, whether an outsource vendor is a vendor or a partner is not influenced by what you call them. You can call them a partner but unless you treat them like a partner; mutual trust, transparency in decision making (at least as much as possible) and taking actions that are mutually beneficial, they are still a vendor.

  16. Posted April 11, 2008 at 4:27 pm | Permalink

    When we say Business Process Outsourcing(BPO) it contains the transmission of processes along with the associated operational activities and responsibilities. In any outsourcing agreement, there are at least two parties involved:

    1) The Client – which is the company decides to have an external party perform one or more of its business processes and,
    2) The Provider – which is the company that executes the business process on behalf of the client.

    So, in terms of partnership, it’s the responsibility of the both parties, if both wants to make it successful well, they must work together.

  17. Posted September 30, 2008 at 12:26 am | Permalink

    This idea is very familiar to those of us who work for vendors in India. We like to be treated as partners, we feel we deserve to be treated as partners due to one single reason: we know a lot more about how India outsourcing works than any buyer does!

    Hence, if someone buys our services and then says “I am paying; do as I tell you to do”, they are not getting full value for their money. They are just buying some capacity in India and then making their managers (who know very little about India) manage that capacity. Most likely the result will be below par.

    On the other hand, if they say “You guys are the experts in India offshore. Let’s talk” – that’s more like it! Now we are operating in a partnership mode and the results could be spectacular. Point is, if you hire a special skill, and then ignore it, what does that make you?

    Where the Indian vendors go wrong is in not putting a value on the partnership. The commercials continue to be effort based, capacity lease contracts. Partnership becomes an empty word. If the commercials become outcome-based, then it is no longer an empty word.

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