March/April 2009 www.FAOToday.com

Department
Compliance
Beyond Governance
Investing in Relationship Management up front can mean the difference between outsourcing success and failure.
By David Borowski
It is common for an organization entering into an FAO relationship
to have completed a financial justification for the
initiative, and to have a stellar business case to prove the
value of outsourcing. However, actual results do not always meet
expectations. As an example, according to a contract management
benchmark report by the Aberdeen Group, surveyed CFOs
believe that only 35 percent of negotiated savings are actually
realized. While such failures have varied causes, poor Relationship
Management practices are a common culprit.
FAO contracts often adequately describe governance practices
and considerations, such as risk and issue management, vendor
performance management, and change control, but the parties
subsequently fail to implement such practices effectively. Instead,
they end up reacting to the issue du jour, neglecting to follow the
protocols conceived and captured among the contract schedules.
A complementary approach to governance is prioritizing the relationship
practices outside the strictures of the contract.
Best Practices
Often, focusing on the following relationship management best
practices leads to a more beneficial partnership with an FAO vendor
and makes realization of business case projections more likely:
1. Align on approach: Every client-vendor relationship is
unique, not only in the traditional sense of size, scale, and geographical
span, but also in terms of personalities, styles, cultures,
and preferred interaction approach. It is important to establish each
party’s interaction expectations early in the relationship—some
clients are very hands-on and prefer to manage processes at a very
detailed level, while others prefer to manage exceptions only and
leave day-to-day operations to their outsourcer. While both approaches
can be successful, if the approach is not discussed up front
and there is resulting misalignment (e.g., client assumes hands-off
and vendor assumes hands-on), significant effort is required to overcome
the resulting issues and also to recalibrate the approach.
2. Prioritize the relationship: Process owners, subject matter
experts, and relationship managers have busy schedules. It’s
easy to miss an occasional operations meeting as other responsibilities
become more important. It is also easy for this behavior
to become the norm once a precedent is set, often resulting in
risks not being identified and addressed before they become issues.
It is important to make the relationship a priority—establish
and maintain an interaction cadence, which demonstrates a
mutual commitment to dialogue and improvement.
3. Solve problems together: It is common to hear the
phrase “That’s not my problem,” uttered by client personnel involved
in supporting outsourced business processes. Often, this
stems from the notion of a “black box” solution, when client resources
believe that the recipe for success involves “throwing an
issue over the wall” and requiring the outsourcer to resolve the
issue independently. Effective problem solving in an outsourced
environment requires both parties to put blame on hold, work
collaboratively to identify the true root-cause of an issue, and
take responsibility for resolving the components that each is best
positioned to address.
4. React to data, not innuendo: Trust is established over
time and only with demonstrated success. Until an FAO provider
has earned that trust, client personnel—especially those with
previously bad outsourcing experiences—are often naturally resistant
to the process. During the initial trust-building stage of
the partnership, client relationship management advocates must
vigilantly separate perception from reality. A proven way to combat
unwarranted reluctance is through the use of data. Through
proper utilization of data and facts to substantiate a recommendation
or decision, objectivity supersedes subjectivity, and emotion
is removed from the equation.
5. Be accountable for outsourcing success: Many clients
take a hands-off approach to a vendor partnership, preferring to
think of the vendor delivery of services as a spin-off. It is more
meaningful and critical, especially during the beginning of the relationship,
to treat it as a joint venture, or extension of the organization.
While this type of approach has been a challenge for
many clients to institutionalize, success begins with recognizing
that the relationship depends equally on contributions from both
the outsourcer and the client. By acknowledging accountability
up front, a client embraces the role of facilitator and acknowledges
that success is improbable without the appropriate level of
relationship support.
Integrating these practices into an outsourcing client’s Relationship
Management approach will help reduce the chance of
retrospective qualifiers such as “we didn’t communicate well
enough” or “expectations weren’t aligned.” Instead, they proudly
serve as vendor references in support of their outsourcing partner’s
latest business opportunity. FAO
David Borowski is a senior associate with Pace Harmon and has extensive
experience in business process and IT outsourcing, contract
manufacturing, global operations and sourcing process improvement,
and complex project execution. Pace Harmon is an outsourcing advisory
services firm providing proven guidance to Fortune 500 and high-growth
middle-market organizations on outsourcing and strategic sourcing
transactions, process optimization, and vendor program governance.
10 FAO Today March/April 2009 www.faotoday.com