Hudson & Yorke: Top 10 secrets to outsourcing success

Successfully outsourcing a technology service can be a complex challenge. Those organisations that structure the deal well have driven innovation, improved service quality, increased agility and reduced costs. The prerequisites for any such contract is total clarity of the business requirements and the establishment of a governance and communications framework to allow the sourcing process to move forward efficiently. Identifying the business requirements requires a thorough understanding of the current environment. It is frequently the case that large organisations with complex network infrastructures do not have a complete picture of their current environment.

While it is a significant undertaking to build this understanding, it is critically important that this information is complete and available to support the sourcing process. The combination of clear business requirements and transparent communications minimises risks to the client and vendor, leading to better outcomes for both.

In our experience of developing the sourcing strategy and negotiating contracts, the best deals have established a mutually beneficial relationship for the client and vendor. From those outsource deals we have distilled our top ten secrets to outsourcing success…

1. Clearly define the business strategy
Being clear about the longer-term business strategy helps to ensure that the outsource contract has the flexibility to support and enable that strategy. Building an outsourcing arrangement around the genuine needs of the business significantly improves the ability to demonstrate success over the contract lifecycle.

2. Establish a detailed understanding of your current environment
Taking the time up-front to carry out a complete due diligence covering the end-to-end technology and commercial environment will pay dividends later in the process.  Fully understanding what you have today is key to determining what you need tomorrow.

3. Drive collaboration across service towers
Facilitating a working environment which encourages service innovation and collaboration across multiple service towers will improve service levels and allow a more dynamic approach to service delivery.  Embedding collaboration across related services from the outset lays the groundwork for less bureaucracy, faster decision-making and working towards a common goal.

4. Embed a clear governance framework from the outset
Although time spent up-front doing this will cost in the short-term, it is important to recognise that the successful delivery of an outsourcing contract requires significant up-front investment. It is essential that time is invested in developing an appropriate governance framework with the necessary vendor and service management structures. Furthermore, it is crucial that this regime be reflected in the contractual agreement to ensure adherence to it.

5. Maintain good communication with stakeholders and accountable executives
Keeping stakeholders engaged and establishing communication channels will maintain confidence in the outsourcing process.  Actively involving the executive sponsor will build trust and support for the outsourcing arrangement.

6. Align the contract to the target operating model
Investing time up-front defining the target operating model and accompanying governance structures for an outsourcing ecosystem is essential, but will be wasted if the contractual agreement is not aligned to the required outputs.

7. Maintain competitive tension to the very end
Maintaining competitive tension in the negotiation phase with multiple vendors will actually speed up the negotiation process.  Vendors tend to slow down once they realise they are the last horse in the race.  Keep up the pressure by ensuring the vendors know it’s not yet a done deal. It is good business practice to have an alternative option right up to the contract signature point, particularly where detailed final negotiations can expose issues with the preferred vendor solution.

8. Time-box contract negotiations
Establishing a strictly time-boxed schedule for the negotiation and contract signing schedule shows the vendors you mean business.  More importantly sticking to the schedule proves your commitment to the process and encourages the vendors to do the same.

9. Dedicate resources for negotiations
Enabling the negotiation team to dedicate their time to negotiations is imperative if you want to get a deal signed on time. Where possible, deputise “day job” responsibilities and shift attention wholly to the negotiation activities to maintain focus and speed up decision-making.

10. Take a partnership approach
After all, you’re going to be working with the chosen provider for some time.  Taking a partnership approach by ensuring the contract is a commercial win-win for client and vendor alike sets the foundations for a successful outsource.

Outsourcing is a key strategic decision for any organisation. There are inevitably many pitfalls along the journey. These tips provide valuable guidance to enable you to lay the foundations for a more successful outsource agreement. With an increasing trend away from large monolithic outsource deals towards smaller contracts and multiple vendors/service providers it becomes even more important to foster a spirit of collaboration across all outsourced arrangements. Following this approach will help to establish a more collaborative vendor/client relationship and ensure you get the best outsource deal for your business and achieve the benefits envisaged in the original outsource business case.

An article from Daniel Hunt, Senior Consultant in the Global Finance & Commerce practice of Hudson & Yorke. This article was first published in Outsource #37 (Autumn 2014).