Amit’s e-world

The outsourcing advisory industry has come into existence primarily because of asymmetry of information between buyers & sellers. While many buyers use the consultants solely as their outsourced bid management function, others genuinely use them right from sourcing strategy assessment, vendor evaluation to contract negotiations & transition governance. Finally, there are buyers who do use TPAs to benchmark their current relationships.

The procurement director of a large engineering firm spoke to us in the MBA about how he tactically engages with outsourcing consultants to issue & manage spoof-RFPs. This is a cheaper alternative to benchmarking & according to the procurement director; it was an exercise where they spent thousands to save millions when they renegotiated the commercials with incumbent suppliers. For me, all of the above are ways in which buyers can engage with outsourcing advisors (I am not sure how ethical the last approach is).

Having researched the industry quite a lot when I was exploring an outsourcing advisory career some time back, I realized that there are primarily two types of players here: the smaller group are those that are process-driven (based on research, methodology), while there are others with high-flying consultants on the roll & are clearly individual-driven. A quick look at the research reports of the major consultancies will vindicate what I am claiming.. while some reports are based on primary research, there are others that reach conclusions by their consultants’ views / past experiences. My outside-ring observation tells me that there are more of the latter types, though they tend to be smaller in size.

Some of the pressures faced by outsourcing consultants are
1. Managing utilization of consultants: Perennial challenge especially for the smaller players.
2. Maintaining long-term accounts: Unlike outsourcing suppliers, outsourcing consultants will find it difficult to keep generating value for their clients, as after a few bids, the client’s governance team gains a better understanding of outsourcing to handle things themselves. Outsourcing experience closes the information gap between the buyer & supplier.
3. Finding leads: Almost every company outsources, but not all feel the need to employ consultants. Hence finding leads in this business is not as easy as finding leads in the IT / BPO services business.
4. Credible suppliers: It can be argued that the top suppliers are very conscious of their reputation in the marketplace & wouldn’t take clients for a ride, as references are valued. This fact to a certain extent negates the disadvantages of the asymmetry of information.

Some of the best practices in managing TPAs are the following:
1. Set SLAs for bid management. Do you have metrics on how long it took you to close an outsourcing deal the last time you did it yourself? Your consultants must do it in quicker time, to justify the higher billing rates.
2. Guard against over-engineering. There may be a tendency for outsourcing consultants to unnecessarily complicate a relatively simple sourcing decision (possibly in a bid to lengthen engagement). This is perhaps the only case where I think a 2 hour meeting with the £1500 / hr consultant is better than employing a process-oriented consultancy.
3. Financial & operational analysis: Benchmarking of current processes / activities & projected cost savings post outsourcing is an important exercise that must be handled through consultancies. I am not sure how non-process oriented consultancies can do this well.

If I were a buyer looking at a first time outsourcing, I would engage a “blue-skied” consultant to narrow down my options & then engage with a more process-oriented consulancy to quantify the project benefits & work through the detailed vendor evaluation & contract agreement phases.

A lot is mentioned about the need to build & manage relationships at work in order to be effective. More so, in an Asian context, where work groups and social groups tend to intermingle. Relationship building definitely has its own unique benefits especially in getting a colleague to do something for you at a ‘personal’ level even if it means bypassing the accepted way of getting things done at the workplace. It also alerts you to opportunities and threats that may benefit or impact you in the future through your confidants. In a client-supplier relationship, it becomes even more critical to have a relationship as the obligation to exchange information is far lesser in such an context, however the need to collaborate is high.

However, how much do you actually care about the cost of forming a relationship. Is it better off to follow a ‘transactional’ approach rather than one that centres on relationship? Can you communicate tough news if you are into a strong and positive relationship? Do you mind giving away a few of your less critical needs in return for having support for your most prized ones? If these questions lead you to ponder, you may be in the same dilemma, I am. Is building a relationship at the workplace worth its true cost?
Like all other million-dollar questions that may be floating around the world, the answer to this one as well is "IT DEPENDS!!!" Of course, next logical follow-up to this would be "on what". Let me use a structured approach to arrive at a reasonable answer.

Breaking the relationship ‘myth’: So you have always believed that loyalty pays. Fair enough… every position / stand can be supported by evidence & facts, especially when the news-spreader is a rich corporate who wants you to believe something that is in his interest. Let me attempt to challenge your values and beliefs with an analogy. In the UK, there are mortgage advisors who help their clients through the housing loan tenure. One of the biggest savings they make for their clients is by encouraging them to remortgage to the cheapest available mortgage in the market, every two years. At least, this is one area where loyalty does not pay. And there is a good reason for that. Remember, the marketing matrix. When you are a new customer with high future potential business, incentives are doled out for you to come on board. Once you are locked in, theory suggests that you should be milked for more revenues. Once you are completely secured & unable to exit with ease, you must be fed with high-vale high-margin stuff, to make up for the all the invested goodwill that you accrued over the past. If you conduct a closed-door survey of Tesco’s suppliers, they would perhaps empathise with this position as well.

When does it suffocate you: The fact that people are different has been the top learning for quite a few of us in the MBA. Some are low-maintenance i.e. not too cranky, not too unapproachable, not too difficult to talk to, not someone who would put you in a tight spot too often. Others are high-maintenance i.e. irritable, egoistic, pessimists, unapproachable, etc. Forging a relationship with someone of type L-M is quite easy. To be honest, even not forming a relationship with them would be ok. They will be more than happy to work with you on a transactional basis. The latter types are tough nuts to crack. You want to be in their good books, but it’s so easy to get in their bad books. We have always believed (and is probably true) that it takes many more days to build a relationship & one error to break it. With the H-M category of people, you will always be averse to making that one error, else it spoils all the hard work. This would mean that you give in to a lot more of their demands that get more in your favour. And, it is still likely, despite all your precautions, that given their inborne ability to climb the ‘ladder of inference’, they might misread one of your ‘harmless’ gestures into something conniving. Having been through this exercise before, I can personally endorse that it is quite painful & frustrating.

How to get around it: A million dollar question, ain’t it? Here’s my analysis on a two-by-two.

Of course, life’s not so simple to have just a two dimensional representation. But, pointers are always helpful.