How Strategic Outsourcing Transforms Service Providers into Collaborative Partners
1 Sep

By Claire Ponsaran | Posted on September 1, 2017 at 7:00 AM 0 Comments

Strategic outsourcing elevates the old transactional relationship of outsourcing to a collaborative partnership. This kind of business relationship focuses on innovation, continuous improvement, and long-term goals rather than short-term objectives.

The following tips can help you can transform a traditional outsourcing relationship into a partnership that will bring you more opportunities to grow and add value to your business.

#1 Figure out at what stage you're operating in your outsourcing relationship with your service provider.

All outsourcing relationships start as transactional vendor-client arrangements. Their behaviors are governed by the terms in the outsourcing agreement. To turn your service provider or client into a strategic partner, first you'll have to figure out the level of relationship you have.

There are four levels in an outsourcing relationship, according to Gewald and Helbig (2006). Some vendor-client arrangements have overlapping elements of different levels.

Commodity (Cost-Oriented Leadership)

Some organizations regard services as commodity to be exchanged or sold. They focus more on cost reduction than anything else when outsourcing. Clients who prefer this kind of outsourcing relationship tend to use SaaS platforms to automate low-level administrative tasks. Their primary goal is to accomplish these tasks at the lowest possible cost.

Provider (Ordinary Follower)

Cost remains a major issue for organizations that view their outsourcing vendor simply as a service provider. They tend to hire offshore staff to do the work without sacrificing the quality of customer service, functionality, and performance. While the service itself is still viewed as a commodity, there is a recognition of and concern for customers.

Partner (Fast Follower)

When you and your outsourcing provider are at the partner level, the services being rendered have greater value. This value recognition within the enterprise is reflected in your outsourcing arrangement. The managers of your outsourcing partner are considered peers of your business managers.

The focus of the outsourcing partnership is the effective and efficient use of technology throughout the enterprise. There's a clear vision and mission to guide the business goals of the client. Like with any business initiative, cost remains a major concern. In a strategic partnership, however, the focus is not on cost reduction but on the non-monetary benefits derived from the outsourcing arrangement.

Advisor (Innovator)

Within the advisor level, the offshore staff has been elevated from being an extension of the onshore staff to having a consultative function in the team. The work they do is critical to the client's business strategy. They are considered as key contributors to the client's organization. However, while cost remains a concern, all expenses and gains are tracked for the purpose of evaluating the success of the project.

This hierarchy of outsourcing relationships shows that an unwillingness to sacrifice quality for lower costs is an important factor in turning around the arrangement into a partnership. As mentioned in a previous post, an overwhelming emphasis on cost reduction and savings may lead to a strenuous relationship, which affects the outcome of your outsourcing strategy.

#2 Be patient. Building a strong outsourcing relationship and nurturing it into a partnership takes time and effort.

A true outsourcing partnership does not happen overnight, not even when you have a joint venture with your vendor. The terms of the outsourcing agreement help in guiding the path of your relationship, but building trust, providing transparency at a comfortable level, and working intuitively alongside each other takes time.

That's why you have to make sure you and your service provider are on the same page regarding taking your business relationship to the next level.

Uttiya Dasgupta has a brilliant answer to how businesses can make an outsourcing relationship last:

For any long term outsourcing relationship to work, a sense of partnership holds the key. Both parties need to work on this quite pro-actively, starting at an early point of the relationship.
The provider needs to make an effort to understand the client's market and business challenges, thereby going over and beyond the daily transactions of an operational nature.
The client needs to make an effort to understand the operational and local business conditions of the provider, and provide support as necessary.

And so, the provider works with the client in planning and implementing a business process management plan. If the plan cannot be integrated with different platforms and does not complement the work of different teams across locations, then it's the responsibility of both provider and client to collaborate and create a better, more viable outsourcing strategy, and execute that as seamlessly as possible.

At the same time, the client sets aside time to evaluate the plan's implementation and find instances wherein the provider has added value to the business, and not just provided supporting work to the in-house team. This is where continuous improvement takes precedence over cost reduction measures.

#3 Strive to create a value-based relationship framework on which to build your outsourcing partnership.

Aligning your goals and values with that of your service provider paves the way towards building a strategic outsourcing partnership. Merging the best aspects of your corporate culture with that of your provider will surely make a difference. Another way is to build up your soft values with your provider. Behavior that engenders cooperation, trust, confidence, and transparency helps in building up these soft values. Moreover, your governance model should focus on joint decision making, change management, strategic planning, and collaborative problem solving.

In essence, your outsourcing efforts will likely bear fruit when you and your provider have a strategic collaborative partnership rather than a simple transactional relationship. If you wanted to build a partnership with your service provider, behave and think as if you're partners from the get-go. Your behavior in each stage of the outsourcing process from contract negotiations to the evaluation of your strategy should reflect your intention to build a long-term collaborative relationship with your service provider.


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