Part 1: Creating a Value Plan to Derive Positive Outsourcing Relationship Change

“Be careful what you ask for” — it’s fortune cookie wisdom. We have many client situations where they want to know whether they are really getting the value out of their outsourcing relationships. They ask us to look at the situation from all kinds of angles: services, invoice and resource unit accuracy, risk, productivity and so forth. We do these types of assessments from time to time, and they almost always show that there is some value loss in the relationship.

What executives who ask for this assessment discover, however, is that simply finding out about value loss is not a road to a solution — far from it. Now that the value loss is documented, whose job is it to figure out how to “get it back?” Corporations being what they are, there will doubtless also be questions like, “Whose fault is it that we are not getting our value?” Taking an approach that has answering this question as its principal aim can put the client contract executive as well as her team at a significant disadvantage to rationally working on the problem — and has caused some of our analyses to be buried and forgotten. To effectively conduct a value assessment and act on its findings, there has to be some level of corporate awareness and planning up front.

Although the stated purpose of a client-service provider relationship is to increase value, it is inherent in the relationship that there will be value leakage. Service providers are always looking to maximize their margins and often will do so without informing the governance team of their actions or motivations. Part of developing greater maturity in your governance team is to ensure that your team is trained on what to look for and on how to respond in a structured way. But sometimes it makes sense to “stop, look, and listen” to the relationship to determine in an empirical way where you stand from a value perspective.

So do consider performing a value leakage assessment, but do your homework first to be sure that it is received and acted on in a way that is best for your governance team, your provider relationship, and your company.

The fundamental step that you can take in preparation is to do the value assessment as part of a “value plan.” If you perform an assessment without an apparent goal, the information you receive will blindside everyone. Create your value plan with several elements that are intended to improve your service quality and bottom line, and keep in mind that this is just one of several actions you will be taking. Your plan could include governance process improvement, skills improvements for your team (or the provider’s), and invoice validation improvements. It could also include more relationship-building actions such as creating conditions for innovation.

These kinds of overall relationship improvement need monitoring and management over time. Often you will discover that the elements you decide to measure look a great deal like a Balanced Scorecard for Sourcing. This approach can feed the overall governance process and bring the relationship up to a higher level of objectives and achievements. Include them in your monthly and quarterly governance meetings to ensure that all team members (of both your internal team and the provider’s team) keep focused on these goals.

In my next installment, I’ll discuss several steps you can take in conjunction with creating the value plan to help ensure that both your company and your service providers can gain from these value assessments. Should you have questions in the meantime, please feel free to e-mail me.

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About the author

Cynthia brings 25 years of experience helping clients develop their sourcing governance and service management design. Having worked with more than 50 organizations to improve business management and service management processes in both single-provider and multi-provider environments, Cynthia has become a recognized expert in sourcing governance, vendor and contract management. She currently serves as the architect for ISG’s service methodology and global integrator of its products and services. Cynthia works to leverage ISG’s accumulated intellectual property resources to help enterprises create effective transformation and governance capability, and maintains a continuing role in the Strategy and Organizational Change Enablement practice.