Thousands of U.S. companies now receive services from offshore vendors. Many companies that began global outsourcing to reduce labor costs by augmenting staff now source project-based services from multiple vendors in multiple countries. Many also have offshore captive (subsidiary) centers that provide competitive and/or complimentary services. As companies increase their usage of outsourcing providers, it becomes increasingly important to manage these portfolios of global services relationships in a deliberate, organized way, not just the engagements. One tool to help manage the global services portfolio is a periodic evaluation using three relationship aspects: (1) global services buyer management practices, (2) the individual buyer and provider relationships, and (3) provider service capabilities.
By comparing the evaluation of each relationship aspect to a scorecard that shows best practices across a spectrum of offshore operating maturities for that relationship aspect, the evaluation can help buyers optimize costs and service quality while minimizing risk. The “best” provider for a given service may not be the biggest, lowest cost, or even the most sophisticated provider, if its services fill a particular niche. Conversely, a great provider can provide little value if the relationship is not well managed or not aligned with the buyer’s overall strategic objectives. In the remainder of this post I describe the characteristics of these three relationship aspects as they mature along a spectrum from limited use of outsourcing to strategically planned and implemented to dynamic optimization of global services.
Buyer Management Practices
In evaluating global services buyer management practices, the major aspects to consider are (1) the company’s approach to managing global engagements, (2) the level of leadership involved in the relationships, and (3) the measure of value on which managers focus. The maturity of contractual management approaches generally spans from managing contracts at the project or engagement level, to coordinated master services agreements across the enterprise, to global controls to manage services across internal shared services and external vendors. Correspondingly, the direct involvement of senior leadership in global services will range from mid- or business-unit-level management of offshore vendors to C-level executives with direct and overall responsibility for both internal and external global suppliers. The value focus of buy-side global services management of can be measured by simple labor rates or more sophisticated measures of productivity, scalability and risk mitigation. Broadening the perspective of global services contracts and their associated measure of value, particularly when managed by an executive with an enterprise purview, can result in dramatically more strategic value from the global services portfolio.
Individual Buyer and Provider Relationships
In evaluating buyer and provider relationships, companies typically assess some combination of engagements types along with the management of contracts, service levels, communications and governance. The way in which knowledge, change and risk management are allocated among the parties also reflects the maturity of the services relationship. Engagement types range from pure staff augmentation to a mix of staff augmentation, long-term T&M projects, and SLA engagements, to creative deal structures that include risk sharing or collaborative services. Mature contract management techniques incorporate standardized terms in accordance with enterprise level master services agreements as compared to contracts managed at engagement level or individual engagement SOWs. Early offshore contracts included no Service Level Agreements (SLAs), but most now incorporate quality and efficiency measures, and mature relationships report SLAs across engagements and incorporate the buyer’s strategic goals and continuous improvement targets.
Communication management and governance has also evolved from non-existent to operational and management reporting (e.g., dashboards and performance reports), and mature relationships now include enterprise-wide communication plans, regular C-level exec visits, and full visibility into key relationship attributes. Knowledge Management, was also not traditionally included in immature relationships, now includes integrated, shared, structured knowledge repositories and training that are enhanced continuously. Change management, once an informal part of relationship management, has now evolved to formal enterprise programs with incentives, business process re-engineering, training, cultural alignment and shared responsibilities among companies and providers. Risk management has matured from a focus on vendor BCP to specific global shared services risk management programs that not only coordinate multi-provider/multi-location coordinated BCP, but also monitor a host of global operating risks including economic, political, and concentration risks. Focusing on the maturities of these aspects of global services relationships will help manage a portfolio of service providers, but true optimization will require buyers and providers to jointly manage these aspects of their relationships.
Provider Service Capabilities
Buyers should also use a wide range of factors to evaluate global services provider capabilities, including engagement leadership, skills and vendor value offerings. Other factors that illustrate the maturity of vendors are their abilities with regard to process, knowledge management, and risk management. Commodity vendors provide the requisite skills, but as providers become strategic partners to their clients they are more likely to also supply domain skills, a skilled bench, and centers of excellence. Process capabilities span a similar trajectory with less strategic vendors providing little formal methodology and strategic partners providing the maturity of multiple options (CMM assessed level 5, or Six Sigma) to optimize client integration. Knowledge management has evolved substantially in recent years, and sophisticated providers now often provide client-specific training in technologies, domains and cultural knowledge using integrated CBT, libraries, and robust KM repositories/tools. Similarly vendor risk management capabilities have evolved from basic DR and BCP plans to formal engagement risk management approaches that include attrition, concentration, and financial risk sharing and/or analysis both at the relationship and engagement level. Vendor maturity with regard to value management has evolved from simple labor cost management to incorporate productivity, quality, talent pyramid management and innovation. The maturities of global services providers are an indication of where along a spectrum from commodity vendors to strategic partners the buyer supplier relationship can be managed.
Evaluating buyer-supplier relationships across a portfolio of service providers that includes captives can maintain competition among the captive(s) and providers thereby helping to assure that captives maintain cost competitiveness and outside providers provide sufficient resources and attention to buyers. Buyers should recognize that not all suppliers need be at the same maturity levels, and that other factors such as skills availability and portfolio concentration can also optimize a buyer’s overall optimal portfolio.