A lawyer, a deal advisor, and a deeply experienced enduser stepped up to the lectern to deliver their key insights and share knowledge – and ended up agreeing a whole lot. Which is a sure sign that NOA Masterclasses are the home of best practice!
First up was the lawyer – Paul O’Hare, Head of Outsourcing Practice at Kemp Little LLP, and NOA Board member….
Paul talked about getting the precontract phase of the outsourcing right. He explained how often, when a business case for outsourcing is signed off, it is handed over to lawyers to get the deal done. This isn’t the way to do it – to get a contract right, you must have all stakeholders represented right the way through the deal. It is especially important to have strong representation from the endusers
i.e. the people who will have to live with the vendor day in day out.
He went on to describe current trends in outsourcing – how multisourcing appears to be on the rise, as large organisations look to spread risk as thinly as possible. Paul slipped into outsourcing parlance as he described the other side of the coin how ‘having a single throat to choke’ can be the best way to manage complex, businesscritical operations.
Paul also spoke about developments in contracts – how contract lengths are getting shorter, particularly renewals, but length of contract will always correlate to level of investment by the vendor. So to bring about genuine business change, longer contracts, where the supplier stands to make good margins are usually best. Shorter deals are good for standardised services, such as data centres and cloud.
Paul rounded off his presentation with some words of wisdom on the all important exit strategy. If you don’t get your exit clauses built in at the beginning, you’ll end up paying at the end, when the suppliers take their “last chance make a bit of money, when there’s no incentive to give good service.” He emphasised the importance of taking up supplier exit references, from excustomers
who have been through exit, to understand reasons for leaving, and how the supplier acted during the transitional phase.
Dr. Bharat Vagadia is a director of Op2i, a business improvement firm specialising in outsourcing. His presentation dealt with balancing the differing, often conflicting needs of various stakeholder groups. “You cannot assume everyone is purely cost driven,” he said. Bharat went into great detail about role of service level agreements. “SLA is key to the success of the outsourcing ongoing
relationship – consider it living document, to be amended as the situation changes. SLA sets expectation of both parties, rather than rely on legal terms – it should define what success is. This will make us happy. This will be failure. Hone in on this, get the detail right.” He then went onto describe a “less is more policy” for metricising an outsourcing deal. “It should clearly define
success and failure, but should not be overburdened with excessive metrics.
Some outsourcing contracts have about 80 metrics. Truly optimised contracts have less than 10. Less is definitely more; there is a tendency, under a deluge of information, not to use it wisely.”
He went on to detail a profusion of pitfalls that an inexperienced outsourcer can fall foul offar too many to list here. You’ll just have to catch him at another masterclass to find out!
Bharat concluded that good outsourcing is about creating a relationship that works. It’s all about joint team building – combining skills, experience and proficiency.
The day’s final presentation was the hotly anticipated Ian Bolger, a vastly experienced outsourcing practitioner who was been making make/buy decisions his whole career. Currently Head of Supply Chain at Thames Water; before that he spent over 20 years transforming the supply chains of CEMEX, DIAGEO/ Guinness and Exxon Mobil.
He began “outsourcing is a key driven of business change you go through the business like a dose of salts, looking at make/buy decisions. What is your core business? What can the market do better?”
Before you can start outsourcing, you should “start with the end in mind.” Stick to your vision, and test your outsourcing objectives against your existing business strategy. After all, Ian says “you cannot outsource a mess, you just get an even bigger mess back – challenge yourself internally a lot, be honest about where it’s going wrong…”
“Decide what success looks like and really incentivise it,” said Ian, before going onto detail how some vendors will “sandbag output”, rather than outperform the agreed year on year improvements. Ian is more than happy to overpay, for over performance “If you incentivise properly, the supplier will keep driving efficiency constantly."
Ian went onto reprise the earlier points of developing a multitalented, multidisciplinary team to liaise with the vendor – adding that maybe they shouldn’t be too close to the existing business process. He paraphrased Alfred Hitchcock to describe the situation as staff “slaughtering their own children.”
Ian sang the praises of complete commercial transparency, and a spirit of partnership, without actually calling it that: “we don’t partner, we are buyers. But we do it the right way, the collaborative way. Your suppliers shouldn’t be treated as outsiders.”
Event Chairman Paul O’Hare invited questions from the floor, and Ian Bolger was instantly inundated with questions from people wanting to tap into his vast experience. Paul and Bharat joined in, and a lively debate ensued – for the next half hour, opinions flew back and forth, not just from the three strong panel, but from many of the delegates too.
Next masterclass is in November, on Strategic Leadership.