Thursday, August 23, 2012

A premium for hassle-free outsourcing?

The biggest pain in outsourcing is the hassle that one has to go through to manage a service provider - the hassle of managing the quality and levels of service, while having let go of control over processes. Service providers should learn to manage themselves, and I would bet that any experienced buyer will pay a premium for a hassle-free outsourcing service.

In my previous avatar, I was a management consultant who spent quite a bit of time advising companies on outsourcing, and advising service providers on delivering quality outsourcing services. Now, when I am a buyer of outsourcing services myself, albeit in a smaller vein, I have begun to realize the pain that buyers go through in the outsourcing process.

There is nothing more painful than to see the service provider perform poorly after having let go of control over your process and trusted a third party to deliver it for you. What makes it extremely painful in an outsourcing setup is the relative lack of visibility and control in managing performance vis-a-vis an internal setup. 

It is much easier to identify and establish corrective measures early when its an internal team: given your visibility it is much easier to identify poor performers or points of poor performance and institute corrective actions in-time: motivations, incentives, training, change, whatever.

If an external team performs poorly, you will only realize that issue post-facto and with significant amount of delay. Yes, everyone talks about fine-grained service levels and governance meetings to manage, but unless you are reviewing at a minutae level on a daily basis, there is limited chance that you will identify points of failure early. 

What's even worse is that it is possible for managers from the external party to not report poor performance (as one will realize, not everything can be measured or monitored impartially). Plus close review is against the fundamental tenet of outsourcing, which postulates a hands-off behavior to the extent possible. 

So when poor performance occurs, tracing that poor performance and resolving it is an incredible hassle.

Now the reality in any process management is that there will always be points of poor performance. Success lies in identifying and resolving those performance challenges early. Outsourcing makes it a hassle, and that is why it is such a pain.

I always used to wonder why most vendor managers in outsourcing relationships crib about their service providers. Now I know. I'd pay a premium for a service provider who would give me no hassle. Someone who could manage himself, and give me a pain-less outsourcing experience.

These are my hands-on learnings:
1. Be super diligent while identifying service providers. If one expends X effort in identifying and getting on-board employees, plan to expend 2-3X+ effort in identifying a quality vendor. Most people focus on capabilities and price, but attitudes, mindset, and work ethic make a much bigger difference. And reference checks make a world of a difference. (think of it as hiring taken to the next level). 
2. Manage closely, particularly at the start of a relationship. Do not let go early in a relationship. Spend time establishing behaviors and correctly setting expectations on performance like the vendor is your internal team. It is one thing to put things down on paper or on a contract, but it is quite another to institute those in people. 
3. Incentize. Incentivize positive and negative behaviors clearly. Have bonuses and penalties. It is easy to believe that everything will work well based on loose notions of mutual trust, but believe me, that it does not work in an outsourced setup as well as in an internal team. It is much easier to manage performance and attitudes if incentives are set well.

Before I close, let me say though that I am, and have always been, a big fan of outsourcing. I have always believed that one should focus on the core and outsource everything else. But hassle-free experiences are essential for outsourcing to succeed. 
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