We’ve been calling it for seven years now, and finally the chickens are coming home to roost for the outsourcing business: clients are genuinely walking away from outsourcing relationships which provide mediocre value.
And, while some savvy providers are sensing the defections with a few notable re-bid wins of late, many still have their heads in the sand and hoping that once they win a new client, they’ll never leave them… oh how wrong they could be, as revealed by 312 enterprise buyers during our new State of Outsourcing study with KPMG:
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So, why are so many outsourcing relationships hitting the skids?
While we’re at pains to point out that relationships fail to deliver innovation where buyers lack the skills and capabilities, it’s also blindingly obvious that many providers are not coming to the table with the goods either:
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As you can see, it’s the same old story – in fact, buyer satisfaction has actually got worse over the last three years (see our 2011 State of Outsourcing results). At least, back then, the large majority of enterprise clients enjoyed some degree of value from their relationship, while today, barely a third of buyers are seeing positive impact in terms of having improved strategic talent, better operational analytics support, better technologies, process transformation, automation… the list goes on.
The three main issues driving this churn problem – and how providers can address them more effectively
1) Buyers’ expectations – and impatience levels – have markedly increased. The world of business operations has evolved at an almost alarming clip over the last five years – it’s as if the recovery from the worst recession in living memory has driven an impatience from business leaders to advance their capabilities and cost efficiencies much faster than the snail’s pace of yesteryear, when ERP rollouts were calculated by the decade and outsourcing evaluations took three years just to get a meeting together. Suddenly, buyers want to talk about where they expect to be in a couple of years, they’re asking questions about robotic automation and developing meaningful analytics capabilities, they’re asking how their provider can help them improve the way they do things – not merely manage their legacy processes at cheaper rates.
How providers need to respond: Prepare more diligently to manage your clients over the longer-term. You know many are going to start asking for the “what’s next?” quicker than you expected, so be prepared with a plan to deliver it. Otherwise, they may no longer be your client when the re-bid process kicks in….
2) Most providers are still obsessing with the next deal, as opposed to cementing their existing relationships. The real “tangible” money on the table for providers today, is when they win a brand new deal that adds to their win-rate, their Wall Street scripts and feeds their PR machine. However, the cost of losing a client is far, far worse – the lost income, the ignominy, the negative perception from the industry. As more deals begin to churn, the focus will shift to protecting the base, and not just pursing the new.
How providers need to respond: Start replacing the old-school sales guys with the fat expense accounts and standard issue BMWs or Jags (you know the type) with operationally-savvy account managers who understand how operations need to be run. While they may be less fun on the golf course, they’ll be much better-placed to develop your clients down the road.
3) Buyers still think that innovation should be free, despite the fact they bought labor arbitrage. If you didn’t pay for it, why should you get any? The perennial problem with outsourcing is the fact that low-cost still wins the day, with most sourcing advisors strong-arming providers to respond to RFPs in three weeks and allowing very little (if any) interaction time for providers to interact with their clients in advance to develop the right solution and get a stronger balance between delivery capability and desired outcomes. In most these cases, the buyer and provider teams brokering the deal hand them off to the operations teams on both sides to manage, with little room for investment on either side to do anything more than basic delivery with low-end resources.
How providers need to respond: Invest in more direct communications and sales cycles with clients, and be less reliant on the advisor channel for your future business. You need to develop relationships where you can spend more time with your clients to get this right, not second guess their needs and rely on some fudged math to get a deal done.