The research found that well managed outsourcing arrangements based on mutual trust rather than punitive service level agreements can create a 20%–40% difference on service, quality, cost and other performance indicators.
“Power-based relationships are poor substitutes for trust-based partnerships given the high transaction costs of monitoring and imposing sanctions and the limited goals that can be pursued by both parties,” warned Andrew de Cleyn, senior vice president, global service delivery at LogicaCMG.
“Significantly, none of the organisations in the study cited a good contract as the key factor. Good relationship management techniques, such as flexible working arrangements, willingness to change, and frequent and effective communication, were however regularly highlighted,” he added.
The report, The Power of Relationships, suggests that companies should agree a relationship charter with their outsourcing partner that sets a benchmark for behaviour, and that regular health checks, balanced scorecards and senior executive dashboards for the customer are introduced as mechanisms for monitoring success.
Professor Leslie Willcocks from Warwick Business School, co-author of the report, described ignoring the value of properly managed outsourcing relationships as “tantamount to corporate negligence.”
“Real trust is not naïve,” he said. “It comes from planning, is steered by the right people, structures, processes and measurement, and is earned from performance. It is clear that relationships are now themselves strategic assets and demand on-going senior executive investment and attention commensurate with their importance.”
The key point is that successful relationships do not happen by accident, said Professor Willcocks. Overall strategic business intention must determine the nature of the relationship and the contract. A detailed design is essential to build effective relationships throughout the lifecycle of the deal. This determines the key underlying drivers of behaviour and whether power-based or trust-based relationships emerge.
An important element of successful outsourcing relationships is to ensure that the right people are in place to make them work, finds the study. It identifies a series of personality types on the client and supplier side, who can make or break a contract.
Professor Willcocks said his study found a number of outsourcing contracts where adversarial behaviour, inexperience or lack of confidence led to the demise of a relationship. "Again, it is the responsibility of the client senior management team to ensure that the right people are managing the relationship," he said. "It is also vital that pre-planning work outlines the scope of engagement and that everyone is clear on roles, responsibilities and ownership of tasks.”
