Consider the Source

Interviewing New Service Provider Relationship Manager – Ask the Tough Questions!

By: Cynthia Batty, Global Competency Lead, Service Management, TPI

You are in the second year of a service provider relationship, and your first relationship manager is ready to roll off to a new assignment. Your service provider has offered two candidates to interview – what should you ask them?

You’ll want to know how they perceive the service provider’s role: you need someone who is experienced and smart, with the wits and wisdom to discern when things need to be changed or improved. You want someone with the guts to stand up for what is right – no matter which side that might be. You need dedication to governance ideals, to innovation, to a good and peaceful relationship, and to working together with each player in the environment. Here is a list of questions you might consider asking your two candidates, by category.

Experience

• What is your experience in managing other relationships? What were the areas you found most challenging to the relationship?
• If you could change one thing about your last engagement, what would it be and why?
• Have you found situations where you would have recommended the client organize themselves differently than they were? What was the situation and how would you have changed it?

Governance

• What kinds of governance meetings do you think are important in a services relationship? How do you see the service provider’s role in the governance meetings?
• How would you help your client ensure that the services remain aligned to the business needs?
• Do you think that the contract must be amended from time to time to keep the relationship in synch, or should the contract be a static document?

Services

• What do you think makes for the best service delivery structure in a services relationship?
• How important do you think service levels are in a relationship? The statement of work?

Relationship

• What are the things you think make for a successful services relationship?
• How do you approach problems in the relationship?
• What are the things you think are most damaging to a services relationship, and how do you work to ensure that these challenges are addressed?
• How do you approach the paradox that it is your job to deliver services to the contract and budget, while the client is motivated to get whatever they need to manage their business requirements?

Innovation

• What do you think your role is in ensuring that innovation is encouraged and developed in the services relationship?

Integration

• What is your perspective on working with other service providers in the environment? What is the best way to work together effectively?
• How do you plan to work with the client’s retained IT organization?

Business Process

• What are the strong points of your company’s approach to business process with clients? What would you change if you could?

When you know each candidates position on these areas, you will be in a good position to make a truly informed and three-dimensional decision about who is right for you – and if neither candidate meets your criteria, ask for another one.

Sourcing Strategy Drivers: Incentive to Automate?

By Peter Allen, Partner & Managing Director, TPI

In May, I posed Three Big Questions with regard to sourcing strategy. The last question is one of the more common concerning the alignment of incentives, specifically around the topic of automation and process improvement. The argument goes along the lines of: If you’re being paid for effort, what’s the motive to become more efficient?

Lest you think this is one more negative artifact of wage-based contracting, I’d remind you that this is a topic linked to the lingering issue of “innovation” (or lack thereof) through traditional outsourcing, too. 

And, while it’s more acute for considering the outsourcing option, I also hear it in the context of moving a process to a captive offshore location. 

At the risk of stating the obvious, service-based relationships tend to work when the objectives of the parties are made to align.  In the outsourcing industry, I’ve long felt that there is an inherent conflict for many relationships that lack an overt design around motivations for improvement. That is, most service providers tend to gear their client support organizations around an objective for revenue expansion/growth.  This is commonly diametrically opposed to the priority for the client, which is to spend less money.

We guide our clients to focus on enabling the providers with the ability to enhance their profit margins over time.  This means that they need to be remunerated for output, not for effort.  Conversely, our guidance for the provider community is to elevate the significance of profitability over revenue growth.

Doing this will motivate the parties to reduce errors (reduces cost from rework and rectification) and to commoditize/standardize services so that they can be undertaken by less skilled and lower paid staff.

Without a strategic sourcing design in place, it’s quite common for the “same mess for less” to result.  That said, I can tell you that the benefits of automation, process improvement, and leveraged investments are absolutely possible if the relationship is designed with that end in mind.

Your Service Delivery Managers – Expected to be experts in everything!

By Cynthia Batty, Global Competency Lead, Service Management, TPI

Most of my clients have built their new service management and governance organizations using the people who were in the lead roles before the outsourcing. There are good reasons for doing this: these are the people who understand the business process, technology, and needs of the business, and generally are the people who helped to develop the services statements of work and evaluate the service providers. Who better to manage the service provider than this team?

However, managing service providers is a very different type of work than managing in-house employees. Working through a third party requires a different skillset; the people in this role need to be good managers, achieve results through influence, understand contracts and how to turn contractual language into results for their business stakeholders, how and when to negotiate with service providers – in a firm but fair manner, support and palliate internal stakeholders, and still, with all this, understand the services for which they are responsible and accountable. I often tell my client’s service delivery managers that they have the hardest job in the company!

TPI’s research has shown some clear issues in this area:

• Of clients’ staff initially assigned to manage an outsourcing transaction, 60% had no prior experience with outsourcing
• 40% of clients surveyed said they did not provide any initial training for the team assigned to manage the agreement
• Only 20% of clients surveyed feel they provide enough training for their staff

So, if the individuals in the jobs before the outsourcing have no prior experience, and have not had any training to help them understand this new world, is it any wonder that there are challenges in the sourcing engagement? And we continue to find that well into the sourcing delivery lifecycle there are often gaps in skills and knowledge on the client side that are contributors to less than excellent service delivery.

Learning about managing third parties doing your work is a long-term activity; it takes consistent and conscious application. At any point in the sourcing lifecycle it makes sense to step back and look again at the skills and capabilities of the service delivery team. We help clients frequently at this point in time, to continue maturing their skills.

Are you having this experience? How does it manifest for you? What are you doing to ensure that your service delivery team continues to grow and mature? What do you find is getting in the way of this maturing process? I’m very interested in hearing from you.

Top 5 Actions to Heighten the Strategic Impact of Your Procurement Organization

By Bill Huber, Director, CPO Services, TPI

During tough economic times, procurement is often called upon to “win” price and payment term concessions from suppliers and service providers in order to boost the bottom line. While there is no question that part of procurement’s role is to ensure that a company is paying the best price, the “blunt instrument” approach tends to simply focus on supplier profit margins without doing anything to improve quality or drive innovation that ultimately, permanently removes real costs from the supply chain. 

                                                                                              

Here are five actions that you can take to raise the strategic impact of your procurement organization.

1. Define the target role for your procurement organization. Review your department objectives and formalize the role and results that you would like procurement to achieve for your company during tough economic times. Set strategic objectives in terms of innovation, quality, cost savings and customer service that the procurement organization will embrace as a response to recessionary times, and measure your progress toward those goals.

2. Segment your supply base. A formal tiering of your supply base, with best-practice supplier management processes for the top tier, can have a dramatic effect on the value that you derive from your most important suppliers. Set frequencies for reporting, monitoring, collaboration and financial reviews with each, and require that your most strategic suppliers bring a certain number of innovation suggestions to the table each period. Set a formal process whereby these suggestions will be vetted, with the best ideas submitted for review by an executive-level procurement governance team.

3. Realign your resources. Identify underutilized or misaligned resources, and shift roles to focus talent on your greatest areas of opportunity. Often individuals who have been focused on a particular commodity because of their expertise could bring a fresh perspective to other categories. People who make the greatest impact in their current areas can have an even greater effect on an entirely different category.   

4. Review processes and technology to identify roadblocks and underutilized capabilities. Processes can be slower and more cumbersome than they need to be. Stay on the lookout for procurement processes that were designed to address a past problem that is no longer relevant today. Also, organizations often have only partially deployed procurement technology solutions for lack of resources to support a more ambitious rollout. A second look can reveal underutilized technology that could be leveraged with a different support model to drive faster cost savings or improve visibility or user satisfaction.

5. Evaluate governance structures, and change if necessary. Good procurement governance should enable transparency and balanced decision making. In order for it to be effective, procurement governance must be designed to ensure that important decisions are made at the right level to balance risks with rewards, and to ensure a timely flow of information to the right levels of the organization.  

Implementation of these five actions could ultimately improve the effectiveness of your procurement organization by 3 to 5 percent or more, increasing your impact on the bottom line and transforming the role that procurement plays within your company.

TPI’s CPO Services experts can collaborate with you to assess your current procurement processes, then help you identify and implement strategies to improve quality, drive innovation and permanently remove real costs from the supply chain.

Contact us today to begin the dialogue.

IT Project Sins: Lessons from the British Computing Society Lovelace Lecture

By Daniel Jones, Partner and Director, Public Sector, TPI

I recently attended the annual British Computing Society Lovelace Lecture in London.  The lecturer, Maurice Perks, an IBM fellow, chose as his presentation title “The sins of IT projects and why they can fail”. He had boiled his experience down to 10 sins, having started originally with 7, deadly of course, and at one point having a list of 30.  No doubt most of us could easily add to his list of 10!

I started with low expectations, as the theme is one that is regularly reported on by government bodies in the UK, with a list of reasons that looks depressingly familiar.  The initial temptation was to wonder why we were not talking about how we get better by learning from past mistakes; which of course we did discuss as the evening progressed. In the event, Maurice delivered some very valuable insights across the whole spectrum of technical, operational, business and user perspectives.  Sourcing was mentioned, but more in passing than as a main theme.

So what did I take away from the evening?  Three things are very clear:

1. Select a supplier based on their ability to demonstrate use and adherence to robust methods that ensure that points of failure are avoided (e.g. interfaces that simply don’t join up or systems that don’t scale). 

   This, in turn, requires a good understanding of where the risks lie and of how best to mitigate them; just giving the end to end problem to one supplier may seem like a risk transfer, but it can go horribly wrong if the supplier lacks the engineering capabilities required.

2. Large-scale projects need to be planned and sourced with rigour; especially since they are unavoidable for many governments. They must also be flexible - due to the time it takes to deliver – with reasonable deadlines for completion. This requires honest and open dialogue in the sourcing process.
3. When running a sourcing process, it is vital to arrive at the contract award point with both the buying team and the supplier team ready and excited by the transition to delivery. Too often, at the end of major public sector procurement, both teams just want a holiday.

Trust is the Key in Long Term Contracts

By Dinesh Goel, Partner, TPI

I know this has been written and spoken about umpteen times, but I feel so strongly that good and successful outsourcing arrangements are founded upon a high degree of trust in the relationship between the buy and the sell side.

In my experience, most companies attempt to do a good job while writing and finalizing the contract with a service provider – with or without the use of external advisors.  Arguably, the contracts that use an external advisor can withstand the test of time better. That said, there are often significant variations in the final contracts due to the amount of control, flexibility and balanced risk-reward platform these contracts target to create for and between the parties. Notwithstanding these variations, the single most important ingredient in a successful arrangement is the level of trust both parties are able to create in their relationship. While a well written, flexible and balanced contract is also vital to the success of the contract, it is certainly not sufficient.

How do parties end up creating a trustworthy relationship?

Trust is built, like in any business or personal relationship, through consistent adoption of simple principles:

• Actions and behaviors that are positive and generate confidence in the other party
• Strive to deliver on the promises
• Promise only what you can deliver
• Take a broader view of the relationship when it comes to minor adjustments to the work or commercials
• Focus on quality and predictability
• Have a customer-centric mindset  – but that does not necessarily mean accepting something unreasonable from the customer

Similar principles apply to the buy side. The customer has to make prompt decisions, provide timely and accurate information, and treat their provider teams with due respect for their skill and competency.

The net result of all this will be that the relationship will drive the contract and not vice versa and that is the sign of a long term successful relationship.

THE ROLE OF PROCUREMENT IN A RECESSIONARY ECONOMY – HOW TO ATTAIN SAVINGS QUICKLY – Part 2

By Bill Huber, Director, CPO Services, TPI and Shahid Bhatty, Senior Advisor

In our previous post, we commented on the recent IACCM (International Association for Contract and Commercial Management) survey of procurement professionals, across a broad spectrum of industry verticals, on the most pressing issues facing them in the current recessionary environment.  Similar to other business functions, effective procurement leaders will prepare and secure executive support for a business plan annually, and update it as required through the year.
 
However, in order to create and implement a procurement business plan (planned strategic sourcing activities), organizations need resources and tools to gain visibility to spend, change management skills to implement procurement policies and procedures, and their key resources focused on the core activity of generating savings.  Many organizations have attempted to take on these challenges and have had varying degrees of success, as attested by the results of the IACCM survey. As a consequence, some procurement organizations have lost credibility.  In fact, in the IACCM survey, when asked how procurement is viewed by internal stakeholders, only 20 percent viewed procurement as a trusted advisor!

This is not surprising, since it is uncommon to see organizations or individuals perceived to be in a compliance role treated as trusted advisors.  We believe that in procurement, governance needs to be clearly differentiated from compliance. Enterprise governance must rely on an effective compliance approach to provide real time business intelligence to executive decision makers and reinforce the objectives of procurement policies, but the two activities need not be performed by the same set of individuals.  In fact, it is usually more effective to separate the two, since governance requires leadership and influencing skills and compliance requires transactional and auditing skills.

One way to raise the effectiveness of procurement governance is to engage outside service providers to perform many of the activities that will improve compliance.  Based on an organization’s maturity profile, these service providers can be engaged selectively to:

• Perform transactional activities and a few non-core functions/categories so that retained resources can concentrate on the core activities of managing critical relationships and driving savings strategies
• Conduct strategic sourcing activities for certain commodities where they bring the category expertise and necessary tools to achieve rapid time to savings; the scope can range from a few categories to almost all non-unique indirect spend categories
• Provide or support tools and technology that procurement can leverage to offer greater spend visibility
• Provide change management expertise to help procurement implement the new programs and create greater visibility across the stakeholder/user community
• Support governance structures with participation from key executives within the company that outline defined/structured programs to generate savings create operational efficiencies and manage the associated change, thus helping raise the profile of procurement within the company

This approach optimizes the strengths and economic advantages of internal and external resources. In today’s recessionary environment where procurement is under tremendous pressure to achieve greater savings, working with outside service providers may be the quickest and most cost effective way to meet objectives. 

Pricing Pressures: Living and Dying by the Sword

By Peter Allen, Partner & Managing Director, TPI

Many outsourcing industry service providers are talking about the demands they are receiving from their clients for pricing concessions. We know of several cases in which clients are calling for a 5-15 percent reduction in the rates they pay for offshore labor and market analysts are following with reductions in the earnings estimates for several of the industry leaders.

I can’t resist pointing out that this is the downward edge of the labor arbitrage sword.

In these situations, I offer a different recipe to the parties.  Rather than focus on squeezing the price of the commodity – and an hour’s worth of work or a day’s wage – why not look to maximize the value created through the relationship?

I tell the service providers:  if you’re a leader in our industry, then turn the knowledge that you have gained from the work you’ve performed for your client into a different proposition.  Take more risk, in return for the ability to sustain your margins. 

I tell the clients: pushing the providers on their unit prices only creates issues at other places in the value chain.  There are only so many levers available to the providers in a wage-arbitrage relationship.  They will need to take actions in response to your pricing mandates that transfer more risk to you, the client.

At the risk of over-generalizing, these market conditions demand that companies increase the variability of their cost base and focus on total costs rather than unit costs. That means that your outsourcing service providers should be narrowed to a cadre that are able to scale down and up with your business, and do so without exacerbating your risk profile.

Ironically, I think this is best achieved by giving those providers more work – by leveraging the knowledge they’ve gained around your systems and applications to take on more scope, perhaps to include operational responsibilities.

Beware the pressure on unit costs when the bigger prize is improved total costs.

THE ROLE OF PROCUREMENT IN A RECESSIONARY ECONOMY – HOW TO ATTAIN SAVINGS QUICKLY

By Bill Huber, Director, CPO Services, TPI and Shahid Bhatty, Senior Advisor

IACCM (International Association for Contract and Commercial Management) recently commissioned a global study of procurement professionals, across a broad spectrum of industry verticals, on the most pressing issues facing them in the current recessionary environment.  Almost 80 percent of the respondents indicated that the most pressing challenge facing them in 2009 was generating cost savings for their organizations.  The other challenges outlined were risk management (resiliency of supply/service chain, managing of legal terms and risk) followed by an ability to procure goods/services.

The survey respondents were also asked to identify which areas had the greatest impact on their ability to achieve their stated goals. The results are listed below:

 

So, the question is – how can procurement organizations overcome the barriers listed above? What can a procurement organization do to raise its profile within the company and be seen as the primary vehicle in setting up supplier relationships and performance? How can it overcome the lack of resources or the lack of visibility into spend patterns? How can it ensure that procurement policies and procedures are implemented? 

One obvious solution is to grow from within and raise the stature of the procurement organization with the C-suite.  But in order to do this, a procurement organization has to know how to relate to the C-suite. This includes abstract skills such as managing perceptions, framing procurement in the context of the big picture (not single mindedly framing the big picture in the context of procurement), and managing provider relationships judiciously and collaboratively (not autocratically).  It also includes the financial savvy to articulate the business case, risks and operational requirements for real benefits. For example, the procurement group of a major IT services company created a procurement business plan every year outlining:

• Savings to be generated by the group, typically via planned strategic sourcing activities
• Planned investments by the group in order to attain the savings
• Participation level required from internal stakeholders/users to participate in sourcing activities
• Operational services levels that will be established with internal stakeholders/users of the procurement group

The plan, presented to C-suite annually co-signed by business unit leads, ensured that the group received a higher profile within the company and that changes implemented for savings were used to monitor the group’s performance in a similar manner to any other business unit. 

SIG Conference: Day 1 Review – First Impressions

By Bill Huber, Director, CPO Services, TPI

The 35th Sourcing Interests Group kicked off its summit yesterday in Baltimore, MD.  There are over 325 attendees this year, up slightly from last fall.  The healthy attendance at a time when discretionary travel has been restricted across the board underscores the critical importance of current sourcing issues. 

I had the opportunity to speak with a number of the delegates during the opening reception and breaks.  Several themes are emerging:

Increased focus on domestic outsourcing:

• A document management outsourcer discussed how the past year has been net neutral in terms of full time employees (FTEs), despite the declining economy and the loss of some customers from industry consolidation.  Most of the work performed is domestic and on site at client locations. 
• A financial services executive was looking for domestic outsourcing providers.  Looking for opportunities to save money that would not get them into political trouble since the strings attached with TARP funding are onerous.
• An Indian based provider outlined recruiting activities around certain U.S. hub cities.

Increased focus on procurement outsourcing:

• One company case example discussed indirect procurement as one of three “towers” outsourced along with IT applications and Finance and Administration.  Of these three towers, procurement has the smallest impact on headcount and the largest business case impact and overall cost savings.

Shortening of outsourcing cycle times:

• Unisys CEO Ed Coleman used the term “sourcing speed dating”  in reference to what he described as a “12 month cycle to make an outsourcing decision.”  Coleman pointed out that many companies simply don’t have time for that when  thriftiness and simplicity are prevailing themes.    If outsourcing can save money, how can companies afford to take 12 months to implement it?  Every month that goes by means savings dollars out the door. Coleman also predicted increased movement to “platform as a service” delivery models where customers can “buy by the drink.”

Innovation:

• During the “Less is More” period, companies must wring additional value from existing capital investments, including outsourcing relationships.  Several providers indicated that their customers are constantly looking for price concessions, but only now are they beginning to act on cost savings opportunities through innovation that were previously ignored.  While customers still expect to see some movement on price, they are appreciative of those providers who can bring meaningful suggestions for improving operations and reducing overall costs. 
• In his keynote presentation, TCS America President Surya Kant identified three techniques to improve innovation in outsourcing:
  1. Contracts with funding budgets specifically set aside for innovation initiatives
  2. Contracts with cost savings guaranteed through innovation provisions
  3. Joint governance metrics on the number of proactive innovation proposals submitted by the service provider, the percentage accepted by the customer, and the benefits realized from implemented innovations

Where will this lead?  Here are my initial predictions:

• Indian and multi-national service providers will increasingly develop approaches to export some of their operational capabilities in employee on-boarding, training, process mapping, technology, and performance measurement to North America to increase delivery of outsourcing within the U.S. to complement their offshore capabilities.  Reduced labor arbitrage benefits will be partially offset by a more favorable political/regulatory climate for domestic approaches, especially within certain industries such as financial services and automotive. 
• Similarly, providers will continue to increase their philanthropic participation in their customers’ communities.   
• Sourcing will increasingly include elements of provider/customer collaboration during the selection process, focusing on innovation and flexible relationships that can mature over time. 
• Companies will shift more of their sourcing energies from the transaction to the governance process to optimize their strategic relationships. Governance will be accomplished at a more strategic level, focusing on capability alignment and innovation as equally important to operational and financial metrics.

More to follow!  Stay tuned…