Consider the Source

When Should Government Work Be Outsourced?

By Daniel Jones, Partner and Director, Public Sector

Professional service contracts are a relatively small part of the services brought in by governments, but the impact can be high and widespread use of consultants can quickly result in a very large expenditure on presentations and reports. To curtail this practice, the Department of Homeland Security recently announced a workforce assessment initiative reviewing all professional services contracts exceeding one million dollars before a new contract is awarded or an existing contract is renewed.

This raises an interesting question of what constitutes an inherently governmental function, particularly when looking at the wider question of Public Sector outsourcing.  A significant increase in government work was outsourced to private companies during the Bush administration as well as the Thatcher administration in the UK. There is no easy answer to the question of what needs to be done by public servants, although there are, at least at first sight, some obvious areas - policing, armed services, courts, taxation and border control, but all of these include activities that can and are outsourced, often to great benefit. Ultimately the answer as to where to draw the line on outsourcing will result from a political decision on the role of the private sector in delivering public services.

Some would argue that public services are special and that a sensitive public service should not be outsourced, but there are examples of great services delivered by commercial organisations for government, just as there are examples of exceptionally poor services delivered by public sector employees. The difference has generally to do with leadership, service design and levels of investment, rather than any difference in the motivation or values of public servants and corporate employees. Where the service is outsourced, a key determinant of service quality is the ability of the public sector to provide effective service management and governance.

Professional services are a lot less tangible than outsourcing and public sector organisations in all the major economies will be looking hard at the value they receive from their advisors - and rightly so.  In some cases they will undoubtedly conclude that the work should have been done by a government employee, or that they did not receive value for the money spent.

Not all professional services fall into this category.  There are some areas where external specialists, supplementing a skilled internal team, can make a very significant difference, particularly if they come with proven methods, in depth experience, and a wealth of detailed data to support their advice.

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.

Plug the Immaturity Leakages

Guest Blog entry from Dinesh Goel, Director, TPI.

We hear all the time about relationship and performance issues between the client and the service provider. That’s because service management and governance practices are relatively immature. At least that’s what our findings point to.

TPI conducted market research through its Governance Excellence Program and found out the following:

• Sixty  percent of the teams deployed to manage outsourced contracts had no prior outsourcing experience

• Forty percent of the respondents said they provided no initial training to the team     staffed for managing the outsourced contracts
• Only 20 percent of the respondents felt that sufficient training was provided to the outsourcing management team.

While outsourced relationships have certainly grown in size and volume over the years, we find that there’s a significant lag in maturity of managing relationships and contracts to results. There’s also considerable loss of anticipated value from such contracts simply on account of the fact that no one is managing the contract to performance and expectations tightly.

Institutionalization of strong service management and governance disciplines and processes appears to be a “past due” requirement. The pain can only increase as time elapses given the increasing momentum and growth of the outsourcing industry. To fill the void, we, at TPI, have started offering ongoing “Governance Services” to our clients – a service that implements the discipline leveraging the intellectual property of the firm and executes the processes on behalf of the clients using an automated tool.

The onus is on individual industry participants to take action. Act fast and prevent further loss of value.

 

Picking the Sourcing Flavors

Today's blog comes from Peter Allen, Partner and Managing Director, TPI.

Across professions and industries, those of us who provide services to paying customers strive to obtain a position of recognition best evidenced by the difference made to those who hire us for our expertise.  It’s human nature. 

Unless we’re truly in the business of providing non-differentiated (aka commodity) services to our customers, we want to be recognized and compensated for being better at what we do than others in our field of work.  We also want to recover our investments and the risks we take in building an offering to serve a market need.

In the field of outsourced services, many outsourcing buyers and their service providers are asking whether there’s an opportunity to achieve partnership-oriented relationships.  Conversely, has the industry moved to a position analogous to that of gasoline stations where providers on virtually every corner compete on the basis of unit prices?

The Sourcing Chicken Game

Today's blog on negotiations for sourcing transactions comes from Peter Allen, Director & Managing Partner, TPI.

Businesses play the game of chicken for many sourcing transactions, and that is not good for either party.

A recent survey by the well respected International Association for Contract & Commercial Management (IACCM) indicates that negotiations are dominated by quarrels over short-term considerations. Battles revolve around short-term costs, risk allocation and self-protection, driven by the continued perception of adversarial roles between buyers and providers of outsourced services.

Recently, IACCM published an excellent and timely compendium of contractual terms commonly encountered as points of contention in trading relationships. It includes those specific to sourcing contracts and is a good starting point for examining unfulfilled expectations.

A Rising Tide Lifts All Boats?

Today’s guest blog on European outsourcing comes from Duncan Aitchison, Partner and President, EMEA, TPI.

The outsourcing market has seen a near seismic shift over the last two years in the geographic profile of market demand. No one is standing still.

For the majority of the past three decades the United States has been the leading buyer of outsourced services. In fact, just five years ago it comprised 66 percent of the outsourcing contract value. By the end of 2007, this picture changed dramatically. The United States accounted for less than 30 percent of the global contract value while Europe led by 50 percent in the same period.

So how has this change impacted the service provider community and the European heritage providers in particular?

Firefighter Quits, Takes Job as Innovator

The pundits are everywhere espousing evidence of the failure of outsourcing. Look at all the “failed” relationships, they say.

These same commentators don’t seem to have the numbers to back up their pronouncements, but let’s agree that much smoke has been created around this topic. There’s even some fire. Except it doesn’t always – or even frequently – start where you might think. And it doesn’t have to burn down the house.

Conversations with many experienced client executives – the people who manage active outsourcing arrangements – do reveal some ongoing “fire fighting” in their relationships. The causes and severity vary, but one theme typically emerges: Most clients just aren’t equipped to manage all the dimensions of commercial outsourcing arrangements.

In fact, the skill sets and nuances required go well beyond what you need for standard contract management. And even if a client has the DNA for the job, he or she may not have the tools to stay on top of the relation and make it produce results beyond the basic service being provided.

Service providers heartily agree. They document how clients and providers enter into a relationship whose complexity may not be understood up front. That builds up stress over time as expectations don’t match and the stuff that really matters – and that may not be in the contract – gets ignored.

We recently were asked to measure several client governance teams to see how well they performed the essential activities that contribute to a healthy buyer-provider relationship. Participants were able to benchmark their organizations with those of their peers. At the risk of fanning flames, here are some results: 

• Only 19% of clients feel they provide enough training for members of their governance organization
• Only 25% of clients did a formal assessment of the skills and capabilities of their original governance team members against a defined job description for the new role
• Only 10% of clients have intra-company best-practice forums for outsourcing management (suggesting that most activities are "stove piped" and re-created multiple times across a company)    
• 60% of clients believe their internal organization is as much to blame or more so for root causes of outsourcing dissatisfaction (versus dissatisfaction caused by the service provider)
  
  

What this tells us is that the time has come for the science of governance over outsourcing relationships to become more prominent. We all know that service providers sometimes don’t measure up. But we also are learning that clients need to be accountable in managing their relationships if they want to move from the role of fire douser to a position of leadership supporting innovation.

TPI’s Governance Excellence Program, including the benchmarking facet, is described here [http://www.tpi.net/knowledgecenter/governanceexcellence/] for anyone interested in learning more.

New Breed: Today’s CIO Must Manage Sourcing Portfolio Too

An insightful post  by John Sloat on Information Week’s Web site uses the example of Australian airline Qantas (disclosure: a TPI client) to make the point that today’s information leaders need to be able to juggle their own homegrown projects with managing multiple, even overlapping, sourcing relations with outside vendors. 

Gone are the days when CIOs were judged solely on their ability to deliver and maintain new systems. Now the performance review measures whether the CIO can balance a technology strategy with a comprehensive “resourcing” plan to deliver the Three Cs: topflight Capabilities, desired Capacity and best Cost.

Few companies believe they can get all three without turning to outside providers, which is how CIOs took on the extra responsibility of managing a portfolio of external resources.

From my vantage, the progressive CIOs are dedicating significant time to their resourcing strategies, trying to get everything in line with the overall business plan.

Any astute CIO knows that outsourcing has to be considered as a service-delivery option. It certainly is the appropriate choice when an external firm can do a job better than you can. But the hard work only begins at this point. Managing the seams between outsourced service and internal function is more art than science.

Look for the stock of the most artful CIOs to keep climbing.

 

Processes or Services?

For nearly a year, I’ve been carrying around an article that was sent to me by a colleague. I seem to pull it out on every trip, reading and re-reading on planes and trying to assess whether it has anything to say about any of our clients.

Thomas Davenport's article, “The Coming Commoditization of PROCESS,” was published a couple of years ago in the Harvard Business Review. I've read it enough times that you don't have to, but should you be so inclined, it's here: http://harvardbusinessonline.hbsp.harvard.edu/hbsp/hbr/articles/article.jsp?articleID=R0506F&ml_action=get-article&print=true

Davenport's premise is that a broad set of process standards soon will make it easy to figure out whether a business capability can be improved by outsourcing it. Such standards allegedly also will make it easier to compare service providers and evaluate the costs/benefits of outsourcing. Eventually these costs and benefits will be so transparent to buyers that outsourced processes will become a commodity, and prices will fall dramatically.

Davenport writes that the low costs and low risk of outsourcing will then accelerate the flow of jobs offshore. He concludes that these changes are already happening with some business processes and eventually will spread across all commonly performed processes.

Hmm.

Despite the convenience that is implied by Davenport, that’s not what I hear clients are looking for. In fact, many have tired of the endless droning on about “best practice processes,” or “process reengineering,” or even “process portability.” One client recently told me, “Peter, your industry seems to be in love with its processes when what your clients want to buy are services.”

It's a notable distinction.

Let's put a real-world example under the microscope. For instance: Has the use of the Software Engineering Institute’s Capability Maturity Model really leveled the software development playing field? Granted, it’s been instrumental in improving the quality of software processes, and it’s a fine measure of legitimacy as a development organization, but do clients really select providers based on their CMM level? Not that I’ve seen.

Process standards are supposed to create confidence in the effectiveness of the end result. They aren't there as the sole criteria for selecting a service provider. It’s the services that really matter, and those services are distinct by virtue of the way in which they are delivered.

As we like to tell our clients, the how is just as important as the what in successful outsourcing.