Outsourcing is only as good as the relationship between the buyer and the provider
In a study on the value of outsourcing relationships, virtually all respondents agree that at least 10% of the annual contract value of outsourcing deals is at stake when it comes to effective relationship management; the majority (over 80% of buyers and 60% of providers) say that relationship management can account for 30% or more of annual contract value.
The study, conducted by Vantage Partners, indicates a growing realization that a productive outsourcing arrangement won’t pay off if the relationship is poorly managed, notes Michael Corbett, executive director of the International Association of Outsourcing Professionals (IAOP).
The Vantage study found that when leading-edge practices are implemented, effective relationship management creates value in terms of increased customer satisfaction, delivery of value-added projects on time and on budget, quick response time to requests, greater innovation and thought leadership, and resources freed internally to do other work.
“According to Fortune Magazine, U.S. companies now outsource $4 trillion each year, 50% more than four years ago, and they will outsource 15-20% annually in the years to come. Despite the growing prevalence of outsourcing, an alarming number of buyers and providers have experienced significant problems in their outsourcing relationships, which is a key driver of outsourcing success,” says Danny Ertel, a partner with Vantage Partners and one of the study’s authors.
On the flip side, respondents report that ineffective relationship management destroys the value of the outsourcing relationship as a direct result of resource waste due to inability to trust and delegate, greater need to monitor/audit, frequent conflict escalation, ineffective execution and follow-through, lack of clarity around roles and responsibilities, and decisions made based on limited information.
“The study found that buyers and providers alike realized that managing complex outsourcing relationships effectively – both between the buyer and the provider, and among myriad internal stakeholders on both sides – enhances the value to both organizations,” Ertel says. “But perhaps most importantly, good relationships don’t happen by good will alone: They require good governance structures, effective relationship management processes, skilled individuals, and more.”
