Renegotiation is a fact of life for nearly every outsourcing deal. Industry research shows that more than half of deals are renegotiated before their term expires, many within the ?rst two years of deal signing. With so many older deals coming to term, and newer deals more often incorporating shorter terms (more like 3-7 years vs. 8-10 years), renegotiation is becoming an inevitable activity in the outsourcing industry.

[More]

Over the course of this series of posts, I have touched upon the types of skills and behaviors that enable -- and are necessary for -- outsourcing success. In this closing piece, I will focus on the change management program to implement these new skills and behaviors.

Depending on the realities of a particular buyer-provider environment and the kind of relationship that is envisioned, it may be more or less important to equip individuals to deal with some of these relationship dynamics and exhibit these behaviors. There will generally also be some differences in terms of which individuals in which roles will need more or fewer of these skills. An effective change management program, however, should avail itself of at least these key organizational levers:

[More]

Regardless of the specific goals or implicit challenges in any type of outsourcing relationship, they all require that certain dynamics be well managed or else value will deteriorate for both parties. The following set of dynamics is illustrative of some of the problems faced by most complex outsourcing relationships:

1. Agreeing on scope, deliverables, and work plans for an initiative
2. Resolving a disagreement about whether something is in or out of scope
3. Managing perceptions of service provider performance (from both sides of the relationship)
4. Gaining the necessary alignment with internal stakeholders around a specific business requirement or action plan
5. Building trust and an effective working relationship with the provider's delivery team (after the sales team has moved on)

[More]

Dealing with the transitions involved in a complex outsourcing arrangement requires new skills, behaviors, and significant changes in mindset and assumptions. Those charged with working with the provider have to transition from accomplishing results by directly managing the team doing the work, to accomplishing those results by managing a relationship with the provider. For many, this transition is complicated by the fact that the individuals who accomplished critical results on a day-to-day basis are former colleagues who now work for the provider. And service providers often have the mentality that outsourcing arrangements are more about results than process, so the customer should only care about the results, not how they happened. But they often find that simply telling their customer's staff they shouldn't care about something doesn't often work.

[More]

The transition into an outsourcing arrangement requires individuals to acquire new skills, exhibit new behaviors, and make some significant changes in mindset and assumptions. This is the first of a four-part series that will focus on the skills and behaviors necessary for outsourcing success, as well as point out a few key organizational levers (e.g., communications plan and incentive plans) that an effective change management program for these new skills and behaviors would utilize.

Outsourcing on a significant scale -- anything more than selectively contracting out specific tasks or narrowly defined functions -- requires effective governance and relationship management. Without it, buyers fail to achieve the value they sought, and providers cannot be profitable. Experienced managers of outsourcing deals will tell you: there's a great deal of real money at stake in how the relationship is managed (See Figure 1). Estimates of the value at stake vary, but the picture that emerges is clear: there's very little else in an outsourcing arrangement that buyers can assert some control over that matters more.

[More]

See previous posts in this series here: Part 1, Part 2, Part 3 and Part 4.

As we have shared in the previous parts of this five-part series, in order for an outsourcing arrangement to reach its potential value, you, as the buyer, must enable the provider to execute on their plan to deliver. For each method by which a provider plans to deliver, there are common ways that buyers inhibit successful execution and a number of steps that can be taken to mitigate these challenges.

[More]

In continuing with this series, we offer some suggestions on how buyers can enable, rather than inhibit, the achievement of several other outsourcing goals.

Accessing Needed Skills
Many organizations outsource because they are unable to attract the talent they need. Some small- and medium-sized enterprises, for example, have difficulty attracting and maintaining top IT talent because they are unable to provide room for career growth or they aren't able to pay the salaries that other ?rms can pay. Other organizations need specialized resources for a speci?c set of activities but conclude it doesn't make sense to have that expertise in-house. Either way, outsourcing can be an attractive option to gain access to skills an organization wouldn't otherwise be able to tap into.

[More]

Buyers can enable providers to help them reach their goals in a number of ways. In this third part, we explore two additional outsourcing goals -- allowing the buyer to focus on core capabilities and moving more items from fixed to variable costs -- and how the buyer can help the provider enable them to achieve these goals.

Focusing on Core Capabilities
We often hear buyers say that they have outsourced certain "non-core" functions so that they can focus their attention and efforts on more important or strategic activities. When you charge functional experts with managing the service provider relationship, the result is often micromanagement. Rather than focusing on core activities, retained managers end up putting even more time and energy into the very work they said they outsourced.

[More]

A lot has been written about the death of the billable hour and the rise of new alternative billing arrangements (AFAs), with a recent survey reporting that 95% of all firms, and 100% of firms with over 250 lawyers, are using AFAs in some way, shape or form. But the percentage of revenue accounted for by AFAs remains low and two-thirds of the firms using AFAs acknowledge that they are doing so only reactively. And when they were not talking with clients about AFAs, many large firms have instead been offering clients discounts on their hourly rates, often substantial ones.

[More]