Intelligent Client Capability [How to keep up with the game, if not ahead of it]
In the ideal world an outsourcing relationship would be made up of both an intelligent supplier and an intelligent client. Well as we all know we rarely end up in an ideal situation in any business scenario, let alone in an outsourcing relationship. So why is it important to aim towards this ideal position, and what risks do the parties, and in particular the clients, face when falling short of the desired state of intelligence?
In this article I am going to focus on the Intelligent Client Capability, exploring what it means in practice and what can be the consequences of not having or maintaining this capability. It is in this area that I believe that most outsourcing relationships are at risk of developing problems over time, as the natural inclination is for the client side intelligence to diminish over time more so than for the suppliers. A key, and often overlooked, element of the intelligence that I refer to is ‘emotional intelligence’, i.e. understanding an individual’s wants, needs and agendas. This has to work hand in hand with knowledge based intelligence if a fully developed Intelligent Client Capability is to exist.
On balance any outsourcing supplier requires a base level of intelligence and domain knowledge just to perform the core functionality of the day job. Failures or shortcomings in this area are very quickly exposed, become widely known in the marketplace and are unlikely to survive even the most rudimentary due diligence. Where the lack of Intelligent Supplier Capability tends to manifest itself is in frustrated clients bemoaning the lack of innovation, or at least continuous improvement, being delivered by the Supplier. But that is a another topic in its own right, and to some degree brings us back to the intelligent client capability and whether the client’s expectations were reasonable in the first place and whether there was a common understanding of the mutual wants and needs of the parties.
I will define the phrase Intelligent Client Capability as the ability of an organisation to pro-actively manage an outsourcing relationship from cradle-to-grave based on a thorough understanding of the overall end-to-end process. Typically this capability will not reside in a single person but is more likely to exist in a team, recognising that the composition of the team may well change over time in line with the lifecycle of the outsourcing relationship.
The key underlying competencies that will be required at some stage will include:
- A fundamental understanding of the relevant domain, be it HR, Procurement, IT or Finance.
- A knowledge of the external outsourcing marketplace for the relevant sector.
- Procurement and sourcing skills.
- Ongoing commercial and contract management.
- Service management skills.
- Relationship management skills.
- Change management skills.
As noted above the mix of the competencies will change throughout the lifecycle and be driven by the complexity of the outsourcing relationship, therefore it is not always a pre-requisite that all the skills are permanent, in-house resources. For example, it is not unusual for companies to engage specialist client side advisors (such as TPI, Everest or Orion Partners) to assist in areas such as supply side market knowledge and managing a sourcing process.
Fundamentally outsourcing usually results in someone else taking on and performing a role that you used to perform yourself, often in a new manner supported by new processes and/or technology. Furthermore, over time it is likely that the supplier will introduce further change that is driven by their knowledge base and not yours, which is after all one of the reasons that you outsourced in the first place!
The people who originally performed the work might have transferred to the outsource supplier or may have moved to new roles. Many companies will use a specific team to conduct the initial outsourcing engagement and then move them on to other responsibilities. If you don’t see yourself doing outsourcing deals on a regular basis that may well be a sensible and logical thing to do. Where a Company manages its outsourcing through the respective functional organisations, as opposed to a central team that might sit within a Shared Services organisation, this is likely to sustain knowledge within functional stovepipes and not foster learning from experience or the re-use of staff who have got the scars (and hopefully medals) of previous deals.
Therefore it is quite natural that, unless you take positive action, as a client you are likely to see your outsourcing intelligence be lost or dissipate over time.
The fundamental issue that arises is an imbalance in the relationship between the supplier and the client such that the equilibrium that underpins any strong relationship can be lost.
When a client loses their intelligent capability they are likely to lose sight of what good looks like. This then has the danger of leading to poor decision making, and sometimes even worse no decision making at all. The client will feel highly dependent on the supplier, even to the point of feeling out of control, with the risk that this will foster feelings of distrust.
If we think about the intelligent client capability in terms of the life cycle of an outsourcing relationship it helps to illustrate where the problems can lie.
At the very outset when an outsourcing strategy is being considered how well do you really know your existing policies, processes and technology? Are they properly documented? Are they consistent across your business? In any business change process, and that is very much how you should view outsourcing, if you do not have a thorough understanding of the “as is” position you are very unlikely to be able to plan a sensible journey to the desired “future state”. Even worse you may define a ‘future state’ that is entirely inappropriate given where you are really starting from, as opposed to where you think that you are starting from.
If your current state is poorly understood then you will find that the “your mess for less” approach to outsourcing looks very appealing, albeit recognising that this route typically gives a greater share of the value benefits to the supplier. This can, for many organisations, be the right price to pay, particularly where your own ability to effect change is limited and the use of an outside organisation, and the trigger of an event such as outsourcing, can act as the catalyst that is needed.
The other key element of an outsourcing strategy is to be clear as to why you are doing it - is it only about cost; is it about process improvement; is it about a technology upgrade; or some combination? Failure to really understand the ‘why’ question normally leads to contracting for the wrong “what” solution. This is one of the fundamental steps and sharing this, up front, with potential suppliers will help to establish the equilibrium of understanding mentioned earlier.
At this stage you should not only look for the intelligent client capability within the relevant function, e.g. HR or IT. How the processes really work and, more importantly, how change will impact the operations of the business is knowledge and experience that typically sits within the lines of business, not the function. However, time and time again outsourcing strategies are driven by the functions alone, without considering sufficient line of business input.
If a consultant is brought in during the strategy evaluation phase, then their role should be clear. They can bring learning from other clients but should not be relied upon to provide you the answer. Rather they should hold up the mirror to yourselves and ensure that you ask all the right questions and provide robust, honest answers. I am a firm believer that a business must “own” their strategy.
Your ability to be an intelligent client will also impact the range of outsourcing models that you can seriously consider. The client requirements to establish and manage a multi-vendor, best-of-breed, multi-service tower solution are materially different to those required to manage a single, transactionally focused piece of back office outsourcing. The trend in some domains to move to multi-vendor models has created a whole new role of the “service integrator”. A role that many organisations are finding they are ill equipped for, often resulting in one of the vendors assuming a lead integrator role on behalf of the client.
The go-to-market stage is often where clients feel the most vulnerable, as they are often stepping into an environment where they have little or no prior experience, to enter into negotiations with companies who do this for their day job.
So how does the client ensure that they optimise their intelligence through this process. A good starting point is to play to your strengths and break the task down into elements, recognising where the appropriate intelligence is likely to come from. Look beyond the immediate function and draw on other parts of the business. For example, managing a structured sourcing process is a key element of this stage and is something that the Procurement function should be used for, as a key part of a multi-disciplinary team.
Unless you are currently outsourcing, it is unlikely that you will be up-to-speed with the outsourcing market place, the supplier base, or their offerings. This can be an area where there is real benefit to be gained from bringing in some external support from a client side advisor. Such consultants tend to have a continuous presence in the marketplace and are often best placed to know where things are moving and who it would be best for you to talk to. But don’t lose sight of the fact that market testing and pre-qualifying suppliers is one of the best learning opportunities and chances to build your own intelligence, so make sure that you work with the advisor.
As you go through the sourcing and selection process this is where you really set the foundations for the relationship with the supplier that you eventually select. It is important to ensure that some of the key personnel who are going to be responsible for taking the relationship forward are introduced to the process at this stage. Closing out the sourcing and getting on contract is usually an intense stage of the process, where the rules and expectations that will govern the relationship are formed. Whilst the core skill set may sit with commercial or procurement teams, it can be dangerous to view this purely as a commercial negotiation. All key decisions and trade-offs should be broadly understood by the full project team and in particular by those who will have to own the consequences in the future.
Having selected a supplier you now have to go through the transition, and maybe transformation, phase. Fundamentally this is a change management process and should be treated as such. Clearly the complexity can differ enormously from an initial, transformational, end-to-end process outsourcing to the renewal of an existing relationship. However, the core issues of recognising the broader business impact of what you are doing and deploying specialist resources in support of functional domain expertise still apply.
This is also the phase when you are likely to see a group of your employees transfer, with all their inherent knowledge and experience, to the supplier. How does this fit in your strategy of maintaining client intelligence? Are there key people that you want to retain for a client side role? Has knowledge been captured and documented before people transfer? Are you relying on the supplier to capture and maintain that knowledge and make it available to you when needed? It may seem obvious, but with everything else that is going on, including the sense of relief and satisfaction with having got on contract, this period represents the major risk of loss of intelligence.
Managing the steady state period of service delivery brings its own challenges. Where is the focus of the client’s supplier management efforts, is it on managing a contract or managing a service? The natural inclination tends to be towards contract management. After all you have just engaged an expert to deliver the service, why would you man mark them or try and second guess their actions? This is fine if you really understand what good looks like from a service perspective, but this is often not the case, and have a very clear and well-articulated contract, and experience shows that contracts are never quite as clear as everyone thought they were at the point of signature.
One of the consequences of adopting a too contractual approach to managing the supplier is that you get a very well documented record of service changes, at prices that on the face of it seem very reasonable, without ever being able to tell if the changes were required in the first place or are the optimal solution to the problem in hand. On many occasions the more cost effective route is to explore the end-to-end process and make changes in part of the process that is within the clients control, that may lead to more efficient service delivery by the supplier.
Therefore an appropriate level of client intelligence is needed to ensure that an adequate service management approach can be brought to bear either alongside or instead of the dominant contract management style. It is in this area that emotional intelligence can be at its most relevant. Failure to create a balance of intelligence will, over time, create feelings of distrust that in turn can lead to an even greater dependency on a contractual approach from the client, causing a steady downward spiral in the relationship.
At the end of an outsourcing life cycle your problems are only just beginning, again! What are you now going to do;
- Renew with the same supplier, for the current or an amended scope?
- Change suppliers, for the current or an amended scope?
- Bring back in-house
The complexity of a change programme associated with an initial outsourcing move, where all the existing policies, processes and technology are your own, are compounded many fold if you contemplate a change from the incumbent supplier. What level of understanding do you have of the supplier’s activities? Can you trust that everything is neatly documented to support a transition, did you place this obligation on the supplier when you contracted with them, or did you assume that as a professional organisation they would do it anyway? What state is your data in, how easily will it transfer? Will the supplier’s activities that support your outsourcing arrangement be discrete from those that support other clients?
You don’t want to get to the end of an outsourcing relationship and find that you don’t really understand the activity undertaken by the supplier and that they have little or no incentive, contractual or otherwise, to support your transition. This can result in options being closed off, or at the least in extra time and cost being incurred. One of the most intelligent things that a client can do is plan and prepare for the end of the proposed contract before they sign it! This should not be seen as planning for failure but a recognition that all outsourcing relationships change and evolve over time.
In conclusion, the retention of an intelligent client capability is a pre-requisite for a successful outsourcing relationship. The shape and form of this capability will alter throughout the outsourcing life-cycle, and it will involve an investment in resource and cost that may seem counter-intuitive when outsourcing is so often a means to reduce costs. However, the risks of not retaining this capability have consequences that far outweigh the costs. But don’t take my word for it, any reputable outsource supplier that is seeking a sustainable relationship will tell you that it works best with an intelligent client.