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A Town Called Hope

Back in the day, in a town called Hope. Two young executives met for coffee in an upmarket hotel lobby.
They were busy, bright and enthusiastic. On neutral territory they talked about opportunities and possibilities. She was a leading light in customer service for a major telecommunications company. He was a rising star at a tier one service provider.
The conversation ranged far and wide: Technology; competitive advantage; costs; people; geography; time and innovation.

From that first meeting sprang an idea and that idea became a proposal. There were long days and nights. There were lawyers and meetings. There were setbacks and breakthroughs.

And one morning, in a town called Hope, there was a deal. The deal was a 'win-win.' We knew this because both the client and service provider told us so.
The service provider committed to bring the very best service at a competitive price. In parallel a major change program would revolutionize the way the client interacted with its customers.
The word 'transcendental' gained currency.
The telecommunicationss company committed to a long-term relationship. This deal was about transforming the way they did business: Gaining a real edge in the market. The focus was on the strategy not just the cost to serve.

Both parties were enthused but not naive. They had done big deals before. Outsourcing on this scale had been around for a generation. They were savvy. They knew the pitfalls. They were prepared for a few bumps in the road.

To secure the deal they agreed and implemented a world-class governance process. A formal hierarchy of meetings and calls would ensure that issues were handled at the right level and in the right way. Escalation would be defined and managed.
The service management framework was not overly complex and the number of SLAs was manageable. The service provider had to step up and deliver to earn a margin, and the fulfillment of the transformation program was pivotal to executing the solution, delivering the new service, and driving down costs.

Key executives and managers from both sides attended workshops and governance events. Our two bright young things worked tirelessly to make the deal a success and their careers blossomed as the solution began to deliver results and the service clicked into gear.
They even found time to co-author an article on the contract in a leading industry magazine. In fact, they won an award.

But the last time we saw them, they had been reassigned and any mention of 'that deal' was greeted with a wry smile. Hope seemed a long time ago.

So what went wrong?

The answer is everything and nothing.

The client's business changed in ways not anticipated at the time the deal was signed. Acquisitions and divestments introduced new products and markets and a bewildering level of variety and complexity to service delivery.
Worse, the economies of scale, standardization and offshoring on which the deal was predicated were jeopardized.

Key client executives who sponsored the deal were reassigned and the relationships with the service provider were delegated. As the deal principals stepped back, their deputies quietly began a more transactional approach.

A new senior client director, eager to make an impact, switched his focus to a new and ambitious project. With another service provider.

The service provider's client executive had leveraged his success in signing the deal to head up large swathes of his company's business. He was too busy to make any governance calls and in any event, he made it known that this deal was 'a peach' that was practically in silent running mode.
It did emerge that one or two promises made during the sales cycle never made it into print. Of course, the good intentions were there. It was just that there was no contractual commitment..

Procurement was assigned primary responsibility for contract management with a relentless focus on cost to serve, SLAs and penalties. But contract simply did not provide for the level of business change being experienced.
Over time there was an erosion of trust and governance meetings were events of blame, so best avoided.

After a while, the service provider - previously known as a strategic partner became referred to as the vendor. The deal had depreciated from being transcendental to an impediment to progress in less than two years.

What we witnessed was deal fatigue.
In outsourcing, the natural tendency of deals is entropy. Contracts that are uncared for and unresponsive to change simply decay. Contracts need to be owned and managed. They do not automatically stay relevant.

When business circumstances change, the contract may have to change to reflect the new reality.
With active contract management and the full engagement of senior executives from both client and service provider major deals can flourish.

Hope is a town in Arkansas, USA. It is not a strategy.

******

About the author

Peter Colley FCMA is a leading quality assurance expert for outsourcing. As the Quality Managing Director for Accenture's $9 billion global outsourcing business he was responsible for client satisfaction, risk management and the resolution of many of the most difficult outsourcing contracts.
Peter now heads Colley Enterprises Ltd, (http://colleyenterprisesltd.co.uk) an advisory company providing expertise to outsourcing clients and vendors. He specialises in quality assurance and risk management, improving commercial processes and troubleshooting problematic contracts.


It Will Be Alright On The Night

Older readers may fondly recall Denis Norden hosting the hit TV series 'It Will Be Alright On The Night.' Clipboard in hand he treated us to bloopers and outtakes, falling scenery, actors messing up their lines and newsreaders collapsing in hysterics. At one time the British audiences topped 19 million. We were attracted to the misadventures and mishaps of others.
The factor that united the stars of the show was that they expected that everything would work out OK:
  • In real time.
  • On live TV.
  • That somehow the multiple variables and dependencies would align and the show would not just be fine, it would be outstanding!
Often it looks to me that many outsourcers and their clients watched this TV series and decided that they too would like to make fools of themselves in front of a large audience. Only in their case, the audience is comprised of shareholders and executives.

Last month Andy Palfrey marvelously discussed The Optimism Illusion on these pages. Optimists really do believe it will be alright on the night. But experience teaches us otherwise.
Hope, as the saying goes, is not a strategy.

Conflicts of Interest

So what can you do as an outsourcer or a buyer of outsourced services to avoid becoming an outtake?

My experience is that there are three conflicts in play. The symptoms of these conflicts are underperforming contracts - however the causes are seldom complex.

First of all, clients are looking to reconcile excellence and cost. Service owners seek innovation, reliability and flexibility. Procurement and Finance seek value and cost reduction. More often than not, the personal objectives of these key players are at variance. In an ideal world these goals are compatible but usually there has to be a compromise.

Next are the vendors; they must square the drive for revenue and market share with the long-term need for profit. Usually sales executives are paid bonuses that are based on revenue whilst shareholders seek earnings growth and predictable positive outcomes.

Finally is the conflict between vendors and their clients. Despite the over use of the expression "win-win deal" the sad fact is that most contracts are signed for mutual convenience but often glaringly different reasons.

Warning Signs

How can you detect an outsourcing deal that is likely to fail? One way is to list the assumptions and dependencies - to look for the early warning signs.

Clients

  • Is the vendor listening to your specific needs and requirements?
  • Do they understand your business case?
  • Is this business case built on a single premise? E.g.
    • Divestment - Acquisition - Internal Shared Service
  • Is the vendor strongly advocating a particular solution or location - one that is driven by their priorities not yours?
    • Perhaps with yet another helping of 'acronym soup?'
  • Do you have broad executive consensus to outsource or re-let the contract for this scope?
  • Have you learnt from other contracts and change programmes?
Remember, that just because the bid was OJEU compliant does not mean it is the right deal at the right time.

Vendors

  • Has this deal be labled as 'Must Win' or 'Strategic'?
  • Are Sales proposing to sign the client's term sheet to expedite the deal?
  • Have time constraints been set that seriously limit your ability to scrutinise the contract and complete a risk assessment?
  • Has the client ruled out binding due diligence or post-signature true-ups?
  • Have you successfully operated this type of solution before?
Any indication that this contract is in some way special is invariably a leading indicator that for one party it will end in tears.

The Show Must Go On

There will never be a perfect performance, a contract without some rough edges or room for improvement. That is the nature of our business. Nonetheless a small set of measures can significantly improve the probability of success:
  • Ensure that the business principles of the client and vendor are broadly aligned - i.e: value; service; ethics and the way business is done
  • Only bank contractual commitments not promises
  • Assess risk objectively and consider the consequences of these risks materialising
  • Read the contract and understand the drivers of service, change, price and costs
  • Validate the dependencies and assumptions
  • Invest in governance and a strong relationship with the other party
I have yet to see a low quality contracting process or a poor approach to governance result in a high quality contract that meets both sides' business objectives.

But you have a choice:
You shape and manage the contract professionally or you can hope that it will be alright on the night!

******

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