outsourcing_opt
Blog | 12.20.2019

Not Just Tracking, But Optimizing: How Outsourcing Governance Benefits Both You And Your Providers

No matter the size of your business, the statistics say outsourcing is here to stay: 

  • Almost 54 percent of all companies use third-party support teams to connect with customers. 
  • The market size for global outsourcing reached $85.6 billion in 2018. 
  • About 24 percent of even small businesses outsource to improve efficiency. 

For all the benefits it provides, however, outsourcing still presents its own set of challenges that are minimized only when both the client and the provider get what they expect out of the relationship. And the only way to effectively quantify these gains is by producing a strong service level agreement (SLA) up front and then monitoring results over the course of the contract through effective outsourcing governance.  

These are difficult things to achieve, which is why the failure rate of outsourcing relationships is estimated at anywhere from 40-70 percent. So how can you set up your outsourcing relationships so they clearly benefit both you and your providers? 

Building the SLA 

Your service level agreement should detail what each party expects to get out of the relationship and set the benchmarks that will be used to monitor performance. The problem is the theoretical nature of an agreement over future work – no one can guarantee what output can or should be or predict what problems will be encountered.  

 In addition, no client wants to be in the business of punitively enforcing the SLA, and no provider wants to be on the receiving end of whatever corrective action the SLA spells out. Therefore, the best plan is to proactively monitor the benchmarks from the very first deadline. If issues or deficiencies are detected, then both parties can work immediately to identify the problem and set things right.

The Proactive Governance Report 

According to studies by the Corporate Executive Board, up to 90 percent of the value of an outsourcing deal can be eroded because of poor relationship governance. And it’s often up to the client to address; according to a Deloitte 2016 Global Outsourcing Survey, 46 percent of companies found providers to be reactive rather than proactive in solving problems.

However, today’s technology can absolutely deliver straightforward, automated outsourcing governance. Sapience Analytics’ outsourcing governance software can help identify problems before they get out of hand by  

  • Providing real-time visibility into activities and establishing a fair and data-driven approach to team performance and productivity. 
  • Enabling every stakeholder to have the right level of data to manage relationships and proactively predict outcomes. 
  • Preventing or immediately addressing headaches and instilling new levels of appreciation and value among team members and partners.  
  • Supporting the creation of updated SLAs and metrics. 

For example, teams can use analytics to decipher how time is being spent by individual employees, groups or business units. This identification of unproductive areas may uncover issues relating to management oversight, team morale, slow or incomplete flow of information from the client sidemisunderstood requirements, etc. At the most basic level, it can reveal how much time is being spent (or not spent) on core activities, since an unexpected amount of time is often consumed in non-core or even unproductive work activities such as emails or meetings. Using this information to reset the focus within your SLAs can result in productivity gains of 10-15 percent a day. 

Getting Transparent 

Sapience also benefits both you and your providers by increasing transparency, which is critical to good relationship building and accountability (particularly in remote relationships). This increased transparency encourages a co-management approach based on continuous communication, where both parties can clearly see their vested interest in the direction and success of the program, both strategically and operationally. And your tech tools can support this by automating the governance function through 

  • Accurate and automated data, which provides operational visibility. 
  • Real-time visibility into activities to help predict outcomes and deliverables. 
  • Linking data back to current metrics and SLAs. 
  • Freeing up your governance team to focus on relationship-building and other value-added activities. 
  • Increased responsiveness and accountability, which helps drive continuous improvements. 

Case Study 

One of Sapience’s clients is a global financial services company that provides services and expertise in private bankingwealth management services and investment banking services. And with $20+ billion in global revenue, iwas outsourcing most of its application development maintenance work to four prominent vendors – all on large multi-year contracts and overseeing an average of 1,000 contractors. Lack of visibility into the provider team operations was creating the following concerns:  

  • Lack of predictability regarding outcomes, which led to increased costs for the same resources, teams and engagement. 
  • Lack of standard data created difficulty in building benchmarks to compare different vendors. 
  • Vendor management teams were not proactively planning sufficiently to ensure quality, on-time deliverables. 
  • Too many resources were required to review and validate manual reports from the large vendor management team. 

The goal was to move from manual self-reporting to automated, more accurate reporting. Within weeks of deployment, Sapience enabled the client’s vendor management team to capture real-time data across multiple vendor teams and across multiple systems, applications, and processes to measure and improve productivity. This meant the client’s vendor management team got accurate data about how the outsourced teams were being used and could assess if effort was aligned with the goals outlined in the SLA.  

Among other important findings, the client learned that the top 20 percent of provider teams were contributing the most work and were therefore at risk of overutilization and attrition. There was a significant capacity loss in the mid 60 percent and last 20 percent groups. This allowed everyone involved to address this personnel-based inequity, recognizing and smoothing out the efforts of top teams while working with underperforming teams to remove obstacles to their success. In this way, Sapience truly benefited not only the client but also their providers.  

And the big payoff? $10 million saved within the first six months of Sapience’s deployment 

If your feel your company could benefit from real-time, proactive and transparent outsourcing governancecontact us to see what Sapience can do for you.