Requests from Customers to Providers

The top three things customers want from providers are (1) innovation, (2) transparency and (3) better people management.

“Where is the innovation?” Customers expect providers to proactively suggest innovations because outsourced work is core to a provider’s business, but not core to the customer’s business.  Customers don’t want providers to wait for the customer to give them ideas. Customers expect to reap the benefits of a provider’s innovations in technologies and process maturity to constantly help customers achieve their business priorities.

“Why is your cost structure a secret?” Customers want providers to be more transparent about their profit margins, cost structure, subcontracting practices, risk profile, and true attrition rates. Customers also want to better understand how provider organizations allocate resources to staff client accounts.

“Establish better alignment between your sales and delivery team.” Customers voiced two major concerns about providers’ allocation of human resources. The first concern was the lack of overlap between the sales team and the delivery team. Lack of continuity between provider teams can be problematic when the delivery team was not privy to the spirit of the discussions by the sales team that resulted in a particular contractual clause. The second concern was the quality of some of the provider’s employees. Customers said that some provider’s project managers lacked sufficient project management experience and that some offshore employees lacked process and domain understanding. Provider turnover is particularly painful for customers who may suffer the costs and consequences of the “flight of customer knowledge”.

Requests from Providers to Customers

Providers requested that (1) customers treat providers like strategic partners rather than as vendors, (2) customers should be more transparent, and (3) customers should become better informed about outsourcing practices.

“’It’s all about price’ is not a productive starting point.” We have heard for a long time that providers want to be treated like strategic partners, not vendors. The main complaint comes when procurement drives the deal, focusing almost exclusively on price. When procurement is the main driver of the decision, the customer invariably later asks “Where is the innovation?”  Providers are best empowered to innovate when the deal-making meaningfully involves client senior managers to define strategy, client process managers to identify operational complexities, and procurement to ensure favorable financial outcomes. These three client stakeholders balance cost, service quality, and innovation objectives, offering a better opportunity for providers to deliver the financial and business benefits clients seek.

“Customers need to be more open to front-end discovery.” Transparency is something providers and customers both want from each other. For providers, they want customers to be more transparent about their actual average baseline service levels—not their most optimistic guesses or their most favorable performance. Providers want customers to be more forthcoming about process complexity, process exceptions, and process volumes.  Providers have a difficult time assessing these issues during due diligence, causing many surprises during the early months after transition.

“We are not insurance agents; we cannot absorb all of your risk”. Providers voiced concern that inexperienced clients are often ill informed about outsourcing practices. Clients need to understand that provider contracts do not typically place all the risk on the provider. Survey respondents indicated that clients also need to understand local and international engagement practices and in particular that offshore outsourcing is complex. Clients need to be better informed about ROI and business goals for sourcing.

Requests from Customers to Advisors

Customers requested two things from advisors: (1) tailored solutions and (2) and provide more value.

“Listen to our question before launching into a prepared response.” Customers request that advisors listen more carefully to what the customers want instead of driving the process by using their existing methodology and templates. A number of customers said that advisors have “strong egos” and presume to know what is best for the client and how to get it without understanding what the client’s real issues are in the operational world.

“Don’t try to kill the goose that laid the golden egg to get all the eggs out in one go.” A number of customers mentioned the overall value of advisors relative to costs. A customer wrote, “We’re smart too. We’ve been around the block a few times. Bring more value to the relationship.” Customers who have used advisors requested: “Don’t charge us a dollar for every piece of advice.” Some customers said they need advisors but cannot afford the expense.

Requests from Advisors to Customers

Advisors requested two things from clients: (1) approach outsourcing more strategically and (2) have realistic expectations.

“I wish customers were better at moving away from cost arbitrage to value-added relationships.” Advisors, like providers, wish that customers would approach outsourcing more strategically.  As one advisor wrote, “price is not the only thing that matters.” In order to do this, advisors, like providers, wish that customers would have more business representatives and senior executives involved the process.

“Clients want it all and take a Sherman’s march to the sea approach to contract negotiations.” Advisors wish that clients were more realistic in their expectations. The customer should not expect that providers can solve all their problems. Providers cannot do everything—excessively cut prices, radically speed delivery, and massively innovate all at the same time. If customers demand too much, they will break the provider’s business model to the detriment of the customer.

Requests from Providers to Advisors

Providers requested that advisors (1) be more transparent during the process, (2) expand the list of potential providers that are recommended to clients, and (3) help clients and providers build a relationship, not a contract, by focusing on strategic partnerships.

“Be more open to true sharing of customer communication from start to finish.” Providers want advisors to be more transparent during the entire decision process. They want to know if client senior executives truly support the outsourcing program. They want to know the client’s outsourcing objectives—do they really want to keep the incumbent provider or are they serious about switching providers? They want advisors to help customers provide realistic information, to disclose more information, and to provide more specific requirements. Providers want honest, face-to-face, detailed feedback when they are not chosen.

“Don’t just recommend the usual suspects.”  A number of small providers wrote that the top advisory firms do not consider how they might bring value to an outsourcing deal. Providers request that advisors take the time to understand what smaller providers can actually provide, rather than making broad assumptions. From an IT perspective, providers ask that advisors be more knowledgeable about hosting and cloud computing providers. Finally, domestic providers claimed that advisors immediately push clients to offshore providers.

“Relationships are not based on templates.” Providers want advisors to be less rigid and less evangelical about their template-driven processes. Instead, providers want advisors to help their clients build strategic relationships by working towards value and less towards lowering prices and shifting risks. Providers also need access to client senior managers if they are to build good partnerships.

Requests from Advisors to Providers

“What are you really investing in?” Advisors want providers to be more transparent about their capabilities and investments. Advisors want providers to tell them much more about their innovation activities and to explain what they are doing that is new and how they differentiate themselves from competitors.  They want providers to do more planned advisory outreach.

“Better integrate deal makers with implementers.” Advisors requested that providers have more overlap between the dealmakers—the sales team, contract negotiation team, and lawyers—and the implementers—the provider delivery team, service assurance team, and account managers. Advisors know providers do this so that the animosities that arise from tough negotiations do not spoil the relationship. Advisors wish providers had a better appreciation of the continuing role of deal making during the relationship; providers need to continually win the business throughout the entire relationship.

“We can help you.”  Advisors want more providers to consider hiring advisors to help them find customers, sharpen value propositions, accelerate business development, and open new geographical regions.

Fostering Strategic Partnership

What can each community do to create a better outsourcing community? A number of suggestions emerge from the survey. It is quite clear, for example, that customers are more apt to get the innovation they want if they approach outsourcing providers as strategic partners rather than as vendors. To achieve this, customers need to include more actively client executives and business process owners in the decision process, instead of letting procurement lead the process. Granted, it is not easy to convince the client’s e-suite to get actively involved in the outsourcing of non-core capabilities, but the benefit to customers might be the innovation, process improvements, and the better technologies they seek.

Each community wants the other communities to be more transparent. However—each community wants to peek inside the other community without necessarily reciprocating. More transparency will only occur if revelations benefit the revealing party. One can certainly argue that if clients are more transparent about their internal processes, service levels, and resources, they will benefit by getting more realistic bids. It is more difficult to argue that providers will benefit if they reveal their profit margins and cost structures.

For publicly held firms, overall provider profitability is available, but specific client account data is not. Providers should, however, reveal to clients if they are seriously missing their margins, as our research shows that client satisfaction significantly drops when providers fail to meet margins. Within the provider organization, top performers do not want to be assigned to “a dog account” and the account manager has trouble convincing the provider organization to allocate significant resources to a losing account. Helping clients understand this may make them more sympathetic to renegotiating since better provider margins equate to better customer service.

At next year’s IAOP world summit, we hope to take the next step by asking the question, “What is the one attitude or behavior you can change to build a better outsourcing community?”

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