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The “Crying Game” — Ending the Tears in Outsourcing Relationships

by Dianne Smock

Tolstoy wrote that all unhappy families are unhappy in their own way. Similarly, the dynamics of dysfunctional outsourcing relationships run the gamut from heated and confrontational to stony and passive/aggressive. But while the symptoms of discontent may vary, the underlying source of unhappiness can typically be traced to one essential root cause: ineffective governance.

ISG has identified the Top 5 signs of rocky outsourcing relationships. By recognizing these symptoms and how they relate to governance issues, clients and service providers can begin to take steps to repair the damage and end the crying game.

1.  “Watermelon” metrics.  ISG has observed numerous instances where a client is unhappy and frustrated with the provider, and the relationship is characterized by constant bickering, frequent escalation of issues and “border skirmishes” between different operational levels within the organization. Despite these problems, all key service level targets are consistently being met, and the provider points to this as evidence of success. Hence, the watermelon analogy – “green” level metrics at a superficial level conceal the “red” danger signs of what’s actually happening.

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Here, effective governance is needed to align metrics with what actually matters to the client.  For example, typical ISG contracts allow for the client to review their service levels quarterly, promote key measures to critical, and adjust targets; but we find that many clients don’t use this contract lever as a regular practice.

2.  Everybody carries a copy of the contract. In an effective relationship, a foundation of trust enables issue resolution and encourages flexibility. If both parties constantly refer to specific terms of the agreement, it signals that the trust is lacking and that the governance mechanisms designed to facilitate communication aren’t doing the job – and that the parties aren’t keeping their contract current with an effective contract change process, which we recommend.

3.  Inertia. In many difficult relationships, client/provider meetings hash over the same issues that never seem to get resolved. Eventually, both parties simply give up and stop talking to one another. Governance can ensure that issues reach the appropriate levels within the respective organizations and get resolved. Using metrics such as issue aging helps to make the stalemates visible to management and prompt action to be taken.

4. Lack of communication. Business strategies invariably evolve in response to market or competitive pressures or new opportunities. However, in many instances these changes aren’t communicated to the service provider, or, more specifically, aren’t communicated down to the operational levels needed to ensure appropriate adjustments in service delivery. Conversely, service providers often make unilateral staffing or process changes to respond to their internal requirements. Forums for these types of communication are built into the ISG standard governance framework to facilitate openness and partnering.

5.  Lack of innovation. Clients often complain that providers aren’t sufficiently innovative.  Sometimes those complaints are justified, as providers can become complacent. Often, however, the client fails to effectively engage in an innovation process or to put incentives in place to encourage innovation. Often they can’t articulate exactly what they mean by “innovation.” Effective governance can clarify objectives, build a more trusting relationship, and encourage innovative behavior. Here, clients must remember that innovation is inherently risky and must demonstrate a willingness to tolerate a creative process that has some inherent risk.

For more information on how good governance can end the crying game of outsourcing relationships, download the ISG white papers Strategic Governance: Achieving Next-Generation Benefits with Sourcing and Building World-Class Outsourcing Governance: Accepting, Managing and Surfing on Waves of Change.

Contact the author at dianne.smock@isg-one.com or +1 248 227 8304.

About the author

Dianne Smock brings more than 30 years of experience in information technology outsourcing (ITO), systems development, operations, strategic planning and organization change to her role as partner in charge of ISG's Organization & Operations practice in the Americas. She is one of ISG's leading experts in the design and implementation of Service Integration solutions, with experience in designing both insourced and outsourced service integration functions. Dianne has proven expertise in leading sourcing engagements from both supplier and client perspectives, with particular experience in implementing governance organization designs and practices for complex multi-supplier environments. Dianne has helped more than 20 ISG clients develop or improve their ability to govern outsourced providers, and is a frequent speaker at global conferences on the subject of service provider governance.