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Updated by Charles Bystock on 09/06/2022

Historically, outsourcing has been considered a “my mess for less” strategy. The request for proposals (RFP) and contract processes had the client prescribing exactly what they wanted and how they wanted it. There was little effort given to ask prospective providers to bring their experience, expertise, best practices, or transformative innovation to the conversation.

Today, outsourcing involves many different twists and nuances regarding what to outsource, how to outsource, and how to ensure, measure, and incent success.

Increasing your chances of outsourcing success requires clear understanding of not only what to do, but also what NOT to do. Avoid these three critical mistakes to achieve true partnership with your chosen provider.

Mistake #1: Using the traditional RFP approach

The traditional request for proposal (RFP) process is not only slow, expensive, and resource intensive, it’s a non-collaborative, hands-off method that favors providers who excel at responding to RFPs. Traditional RFPs are prescriptive by nature, which hinders collaboration and the ability to form a truly transformational partnership.

Yet despite their limitations, these documents remain the go-to first step when engaging with new vendors. Although the use of an RFP is initiated with the best of intentions, they run the risk of lacking personalization or accurately addressing the needs of the organization due to inadequate collaboration and understanding.

Instead, opt for a more hands-on, collaborative approach with a request for solutions (RFS) that identifies what you have and the challenges that you’re seeking to address. Then, use the RFS to ask what the provider recommends for improving the situation. Take specific steps to get to know the provider, and ensure they bring their delivery team to workshops and presentations.

Lastly, make sure the relationship is open to changes.

Mistake #2: Focusing on technical measures alone

Traditional service level agreements (SLAs) measure service availability, the outage-fix cycle, provider responsiveness, and numerous other technical measures. This is a great place to start, but keep in mind most providers will ensure SLAs are green every month. The risk lies in the watermelon effect: green on the outside, but red when you cut below the surface.

watermelon effect

Be sure to evaluate every SLA with a keen eye for how it affects the business. A good example is individual server availability. If the server is in a cluster, individual server availability is meaningless to the business. Consider keeping it as an operational metric, but not an SLA.

Don’t be fooled by the impact of SLA penalties. Every provider includes them in their budget, which all but eliminates the “pain” you think you are inflicting. It is more effective to use service descoping as the threat for repeated misses on the most important measurements (e.g., critical application availability). Also, consider incentive-based rewards (e.g., bonuses) to encourage positive outcomes from the provider’s efforts.

A relatively recent trend is to implement “experience-based” measurements based on real-time data. With experience-based measurements, the goal is not to achieve a specific score, but to establish and incent gradual improvement. Experience-level agreements (XLAs) are the new SLAs. They are based on a combination of objective and subjective measurements. XLAs tend to measure all aspects of IT, so care must be taken to only measure a provider on what they control.

There are a few types of XLAs, including:

  • Customer XLAs. The customer experience interacting with the company’s systems.
  • User XLAs. Employee experience interacting with the company’s systems.
  • IT XLAs. IT perception of the provider’s quality of services.

A combination of the right business-focused SLAs and implementation of one or more XLAs will go a long way to ensure a successful partnership.

Mistake #3: Lack of cultural fit, collaboration, and governance

Failed outsourcing relationships often stem from poor collaboration and governance. To avoid this outcome, it’s important to take appropriate steps during provider selection, due diligence, and contract negotiations to ensure the right cultural fit between the client and provider.

Maintain a collaborative mindset with your providers. Make sure the governance structure identifies, communicates, escalates, and addresses issues quickly. Collaboration is a key. Make sure that appropriate escalation paths are identified and that all parties are connected. Too many outsourcing relationships are divided with a “this is my responsibility” and “this is your responsibility” mindset. Instead, focus on joint responsibility and holding each side accountable to work together toward a resolution.

The Windsor Group Sourcing Advisory serves as a consultancy for organizations to improve their third-party vendor process. If you’re considering an RFP or contracting process with an external resource, contact Windsor first to ensure your success.