If outsourcing were an employee, it would be fired… Part 1

Lee Coulter is... Lee Coulter (click for bio)

The first time I spoke to Lee Coulter, I was an analyst at the old AMR Research (now Gartner) and managed to get him on the phone, where I hoped to convince Kraft’s global überlord of shared services, IT and outsourcing to spend a day at a roundtable I was organizing.  ”You’ve got 5 minutes to convince me why I should invest my time with you”, was his response. I knew straight away this was a guy who didn’t like to xxxx around.

Since then, Lee has been a great friend in helping us establish the HfS Research organization three years ago, in addition to lending his time and support helping us assemble the most irresistible community of senior sourcing practitioners.  For those of you attending our dreamSource summit this Spring, Lee and I will co-host a session entitled “If outsourcing were an employee, it would be fired“.  Lee, who today has built and now leads shared services for heathcare provider, Ascension Health, caught up with us last week to talk about the session and why we called it just that…

Phil Fersht (HfS Research):  Good morning Lee – a pleasure to get you on the line today. You’ve been a well known figure in sourcing shared services and outsourcing world for quite a few years now.  Can you tell us a bit about your background and how you got to where you are today?

Lee Coulter (Ascension Health):  Sure, Phil, I guess it goes back quite a ways!  Originally, I guess I was starting my career in what wasn’t really an outsourcing or shared services configuration. Actually as a delivery guy, I was a service engineer delivering services to hospitals and health systems. Twelve years, later I had moved from delivering services for diagnostic imaging equipment to delivering services for IT. And it was pretty surprising to me to find that the whole delivery process was a copy-paste, it was the same stuff.  Today, I am in my sixth industry and I have managed every function in a company except marketing.  And every time I come to look at these things I find the service delivery process is the same. So, shared services and outsourcing I don’t really consider them to be different. There happens to be a second set of shareholders in an outsourcing relationship, but the dynamics of establishing the service, the KPI’s, the unit of service, the unit of cost, the drive to innovate and then retransform, all of those things… they are essentially the same.

So, I had an opportunity through my career to sit on a commercial outsourcer as well as a buyer and doing so with long-shore, off-shore, near-shore, in-sources, outsources I have kind of had a chance to do kind of all the major things within the industry.

Phil:  So, what’s changed, would you say, in the last decade? Do you feel that the attitudes and approaches of enterprises have shifted at all, or do you think we are still going around in the same circles?

Lee:  One of the expressions I have been using lately is that the expectation of the business today is far more than simply to “successfully transact”.  When you look at what typically gets included in the shared service or outsourcing scope, it is typically transactional or business-rules based work. If we look back to the 80’s and 90’s, it was really about “getting to OK”. If you got “OK”, meaning you successfully reduced the cost of delivering it and you successfully met the very basic expectation of simply “do the transactions and do them satisfactorily well”, that was the challenge. Today, that is no longer considered a challenge; those are now table-stakes.

So for every practitioner, whether they live inside a commercial provider, or inside a company, the expectation is much bigger. It is around business process effectiveness, business process transformation, business insight through analytics, the addition of certain skill-sets that are created to help manage in a shared services or outsourcing environment, like project management and quality, Six Sigma and that kind of stuff. So, all of a sudden what used to be the objective has now become the table-stake. Now businesses are expecting a whole different level of contribution – I’m not just saying performance, but contribution by the shared services/governance organization.

And now you also introduce a couple of major disruptors, namely technology and cloud. And it’s kind of funny, cloud has been around a very long time. When we go back far enough we could argue that AOL, CompuServe is where cloud and well, I guess in the strictest definition they were.  In the way we talk about cloud today, where you have applications-as-a-service and cloud-based service platforms which are location-agnostic, in terms of whether resources are need to be there delivering service, it really changes the game in terms of what level of contribution you can have to an organization.

Phil:  We’ve got new data that shows the desire to standardize processes is very, very strong behind an outsourcing decision. How much is that playing into the hands of the providers who have good technology?  Do you think that the ability to couple good platforms with the right process is now the way to go?  

Lee:  Absolutely, I would even offer a little bit more, which is the level of variation in core processes is diminishing from organization to organization.  What do I mean by that?  Well, if we go into some of the tried and true world of shared services and outsourcing… let’s take F&A, AP – your basic hire-to-retire services. It used to be that there was a pretty enormous variation. But, over the last twenty years the adoption of things like SAP and other ERP solutions and the broadly available best practice operating models for running these parts of your organization, have resulted in less variation. Well that means a service provider can build a technology platform and it used to be it was a pretty big leap in terms of process transformation to get a client from their existing process to what we’ll call a best practice standard operating model.  More and more companies, to the extent that has been possible for them, have already attempted to adopt these best practice operating models.  So, it increases the speed and minimizes the amount of change and disruption from these transitions.

Phil:  Lee, we are delighted to have you lead one of our core sessions at our dreamSource summit this year.  And, I am going to give you credit for coming up with the title “If outsourcing were an employee, it would be fired”. How did you come up with that and what is the thinking behind it?

Lee:  So, let’s say you have signed an employment agreement with someone to become and employee for seven years with some options to extend.  Your employee starts and you put some objectives out there around getting control of the stuff and delivering these transactions.  You have your annual review and they’re saying, “I’ve now got control of the process and I’m transacting.  Pretty soon it will be stable and I will be consistently transacting these services”.  You get to the next year and you ask the employee what are their objectives and your employee responds “Well I am going to keep right on transacting”. And the following year you ask “What are your objectives this year” and the employee responds “Well, I am going to try and transact a little bit less expensively”. And every year is the same conversation about “Well, I am going to meet my SLA’s, and I am going to try and not disrupt our business”.  Is that the kind of employee you want working in your organization?  It’s really become the longest-lived most frustrating conversations around outsourcing in the nation.

The framework of the relationship between outsourcing as an employee and the employer needs to be driven to change, and the employee needs to provoke that.  For the folks that work for me, if they give me the same goals this year that they had last year, and their performance is simply a “meets expectations”, well if I keep them around that long, my expectation is that we continually increase the scope of our objectives and that we look for ways to increase our contributions to the business and force ourselves, by virtue of establishing these goals, to do that.

The vast majority of outsourcing relationships don’t fit this model. All the FTE relationships that every single year has the same expectation – “Well, I am going to transact and I am going to wrestle with you on forex and inflation to offset the price reduction you think we should get”.   That’s not an employee I want, I don’t know about you…

Stay tuned for Part II (click here) where we talk about how this industry can get out of its own way to evolve these rigid relationships…

Lee Coulter (pictured above) is Senior Vice President and Chief Executive Officer, Ascension Health Ministry Service Center, LLC.  As a distinguished practioner in the fields of outsourcing and shared services he has held several senior operations leadership roles at Kraft, AON and GE.  Lee also serves on the board if HfS Research.  You can view his full bio by clicking here.

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13 Comments

  1. Eric
    Posted February 17, 2013 at 7:37 pm | Permalink

    This discussion is right on the money. It’s amazing how so many companies today treat outsourcing like some sort of one time engagement and not an ongoing relationship. Highlighting the issue is one thing, having senior management understand how to shift the mindset in another,

    Eric

  2. William DeMedio MD
    Posted February 18, 2013 at 12:24 am | Permalink

    Oftentimes, an outsourcing arrangement need not be an ongoing affair. BPO that assures decreases in costs, increases productivity or both can be utilized as a means to an end. The outsourcing organization can keep data on their client and contact them when they find “a better way” and resume the relationship.

    It is key that the contract organization maintain an ongoing customer relationship with the client and look for new ways to serve them that can be effectively marketed and presented as the situation warrants.

    I am always looking for new and more efficient ways to do things. It would also help if I had a specialist looking out for me and keeping me informed. It would be especially helpful if that specialist designed a specific business process I am utilizing. They would be the true “horse for the course”.

  3. Rupendra Singh Rawat
    Posted February 18, 2013 at 2:08 am | Permalink

    It is really a great way of presenting one side of the coin. I think it would be interesting to flip the coin and see how many buyers really come up to a level in which they could treat their Service provider as their partner.
    There are multiple Service Providers that are proactive enough about improving their client business and about creating that ‘business effectiveness’ but more often their ‘business tranformational’ ideas fall in the deaf ears of their client.

    Business Process outsourcing has been about ‘non-core’ jobs and labor arbitrage and nothing much seems to have changed except the word labor arbitrage that is more of ‘Cost arbitrage’ now.

  4. Tim McGuinness
    Posted February 18, 2013 at 3:12 am | Permalink

    Your entire premise is flawed. Outsourcing is not a problem, it is the failure of the client to properly understand what they want done, create realistic requirements, and understand what contract terms mean. I have used outsourcing with GREAT success. Dumb managers should stay in the shallow end of the pool.

  5. Posted February 18, 2013 at 8:25 am | Permalink

    “If outsourcing were an employee, it would be fired…”

    Since oursourcing decisions are made and led by company executives, I’m not sure that it’s outsourcing that needs to be fired.

    Note: this comment is not directed at Mr. Coulter. It’s a comment on the state of the corporate world.

  6. Phil Fersht
    Posted February 18, 2013 at 8:57 am | Permalink

    @Christopher: I don’t think Lee is questioning the outsourcing decision, but more the way it managed once the decision is made and the engagement up and running. Those corporate executives may set the initial goals, but they need to be flexible and smart enough to put in place sensible governance which can evolve these goals and metrics, as they would an employee. Remember, outsourcing is about managing groups of people, not solely contracts,

    PF

  7. Phil Fersht
    Posted February 18, 2013 at 9:21 am | Permalink

    @Tim – the problem lies where, as Lee points out, some companies just focus on “getting to OK”. They make an outsourcing decision (for whatever reason) and they’re done. They’ve outsourced, and do not see (or understand) the need to do anything more than uphold the metrics of that contract until it runs down. It’s like hiring an employee and never changing the goals and metrics as that employee’s role evolves / responsibilities change / company needs change. Dumb managers fail to recognize outsourcing as an extension of their team and capabilities, and to manage their relationship as they would their own staff – with defined goals, metrics, shared ideas etc.

    Having said that, this premise will change depending on what processes / functions are actually outsourced. For example, if you outsource payroll, the common goals may simply be to run payrolls, cut paychecks and provide detailed reports back to management. Where there is limited room to innovate, there may be limited room to evolve a relationship beyond something that is “OK”. However, when we look at areas such as P2P, analytics or app development, or other areas where these is significant potential to find additional productivity, access corporate data to base complex decisions, or new ways of operating to find new thresholds of performance, then smarter, more collaborative management of the outsourcing relationship is critical.

    Corporate outsourcing heads and governance leads who fail to “get beyond OK” in areas where there is real potential to create value, should be fired – or moved into roles where “OK = Success”.

    PF

  8. Andrew Wagoner
    Posted February 18, 2013 at 11:01 am | Permalink

    Love this discussion guys. It all boils down to what is important for the company doing the outsourcing. If they care about improving, constantly measuring success and evaluating their goals, then they need to start managing their provider more like an “employee”. However, if they simply do not care and only want to meet flashing green lights and checking the boxes, then the discussion is moot. I happen to believe that most companies still care about improvement and doing outsourcing in a smart way,

    Andrew Wagoner

  9. Tim
    Posted February 18, 2013 at 1:58 pm | Permalink

    Outsourcing is not a one-size-fits-all function. A lot has to do with what you need (or think you need) outsourcing for? If it is spike fulfillment or just horsepower, the ‘contribution’ expectation may not be that much. Likewise, if it is a cost play only, then achieving the benefits and improving on them year-over-year may be a perfectly reasonable expectation. As you look to bring expertise from the supply side that complements your enterprise objectives for the long term, that ‘contribution’ should become far more apparent and expected. Do suppliers know when that incremental ‘contribution’ is needed or expected? Maybe they don’t have anything more to give, or maybe the client has not produced an environment for such sharing. For me, that is where the maturity of the relationship between Client and Supplier needs to be defined and must evolve.

  10. Bakshi
    Posted February 19, 2013 at 1:26 am | Permalink

    outsourcing can never be fired and if its treated like an employee whereas the client wud indirectly become the ‘employer’. . Then should the employer not spend time ‘finding’ the right employee for itself, one who understands the targets assigned and Ofcourse to maintain market position with it’s fluctuating components and to be without saying cost-effective which is again to say have it’s ear glued to newer technology and different ways &methods entering the market which attimes reduce the cost by a good 10%-20%and that too is good business rather than spending on cost factors and ending up with less gross profit even if one has done tremendous amount of successful business.

  11. Steven Jo
    Posted February 19, 2013 at 12:44 pm | Permalink

    Outsourcing can definitely be fired. And similar standards should be held for corporate outsourcing heads and governance leads.

    A business needs to clearly identify its outsourcing objectives and expectations from its outsourcing providers prior to establishing a relationship. This is critical now because we have a broader range of reasons to outsource; it is not always about cost. And differing strategies call for different contracts and governance frameworks. Fee structures and termination agreements would align to those objectives and expectations, and the nature of dialogue between client and provider would change. If done right, this places accountability right where it needs to be… in the provider’s lap. I agree with Phil — outsourcing managers who don’t recognize this should be fired (or reassigned).

    Good topic guys. Looking forward to hearing more about it at dreamsource.

  12. Harvey Halperin
    Posted February 25, 2013 at 6:09 pm | Permalink

    Article is spot on and up to date so to speak. As a veteran of the outsourcing, BPO days meaningful partnership, transformation of process is truly the way to go. Biggest issue is finding a hands on buyer who accepts this.
    Its not enough that the C suite and middle managementt expect this, as the “buyers” biggest pressure is to save $$$, I have observed this first hand. Many middle management “people” “protect their ass by going with the flow, meaning saving of $$$ is good enought makes them look good……..enough.????? Not in the long run.
    \

  13. Sanjeevi N
    Posted March 24, 2013 at 10:28 pm | Permalink

    Lee’s comments / thoughts are reflection of what is happening in majority of transactions/deals. However, we should not be blind to the fact that the each corporate is at various stages of evolution in learning and mastering the art of outsourcing to make it as an integral part of their eco system to help them grow and flourish. There are definitely a set of organizations which are pioneering in making the outsourcing as an aid to their growth and prosperity will show way for the corporates at the level of “OK=Success” to follow… Bottom line is Outsourcing providers should have the ability to cater to the needs of both the breed of corporates. It is not advisable to question the standing of a corporate if they are at “OK=Success” level… instead help them discover a way forward to help master the art and unleash the value of outsourcing for mutual value.

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