The greater your efforts to ensure that a relationship remains true to the intent of the deal, the more satisfied you’re likely to be with outsourcing. But despite this strong correlation between overall satisfaction and the investment in Outsourcing Management/Governance (OM/G), many organizations continue to under-invest in this area.
That’s according to EquaTerra’s April 2006 study of more than 250 decision makers in North America-based organizations that are actively involved in Information Technology Outsourcing (ITO) and Business Process Outsourcing (BPO) efforts. The feedback shows that as outsourcing pervades the marketplace, deal scope broadens and future demand grows, adequate investments in OM/G will play a critical role in buyer satisfaction.
The study found that investment in OM/G drives — and results from — increased satisfaction in outsourcing. In other words, buyers that invest in OM/G tend to be more satisfied with outsourcing than buyers who don’t, and satisfied buyers, in turn, tend to invest more in governance. That’s because a key driver of outsourcing satisfaction is the level of outsourcing experience: Organizations that have realized the return on their OM/G investment have a greater appreciation for the value of governance; so much so that after outsourcing a process for two or more years, some buyers tend to invest even more in management and governance, which leads to increased satisfaction.
This finding defies a common buyer assumption: Once we get through the initial transitional phase, we can then scale back on our investment in governance. In contrast, the study suggests that as their outsourcing relationships mature, these buyers place even greater importance on ensuring that the deals continue to deliver.
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Satisfaction Snapshots
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In a recent study titled Outsourcing Management and Governance: Building a Foundation for Outsourcing Success, EquaTerra surveyed 250 North American buyers active in BPO and ITO efforts. All respondent organizations had at least 1,000 employees and at least 35% had more than $25 billion in revenue.
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Among the findings:
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Outsourcing experience leads to improved satisfaction: Respondents with two or more years in an outsourcing relationship have higher satisfaction than those in younger deals
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Satisfaction is also tied to investment in outsourcing management and governance (OM/G). As OM/G investment increases from 1%—4% to 4%— 7% of total contract value, overall outsourcing satisfaction increases
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OM/G spend levels tend to increase in organizations with two-plus years of outsourcing experience
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Organizations seeking process improvement tend to be more satisfied than those seeking mainly cost reduction
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Likewise, organizations seeking process improvement are more satisfied with OM/G and tend to invest more in it than organizations seeking cost reduction. |
Avoiding the Valley of Despair
The two-year mark proves to be a significant milestone in relationship maturity. According to our study, organizations that have outsourced a process area for two or more years are consistently more satisfied than those in the first two years of the deal. Granted, the early stages of any outsourcing effort are challenging and complex as a buyer transfers a process to a service provider, while continuing to operate its business. This phase can become a “valley of despair” for buyers that under-invest in OM/G during the transition process. But this pain needn’t be an outsourcing prerequisite. It speaks about the importance of adequate investments in management and governance — at the genesis of the relationship and throughout the life of the deal.
Too often, buyers don’t think about governance early enough in the process. At the final negotiations stage — when the parties are doing their due diligence, planning the transition, preparing the re-badging process and grappling with redefining positions in the retained organization — governance inevitably gets pushed to the back-burner because the deal is seen as most important. As a consequence, in the years and months after a process is transferred, buyers may find that the deal’s objectives aren’t being met.
