Bad deals and 6 lessons
There are now, and will continue to be 'bad deals' done in the
outsourcing space. These will happen for no other reason than the
client outsources a 'problem' with a view to only saving costs. In
numerous studies, failure of outsourcing deals has come down to a
small number of factors on both sides. But if the problems are
simple the remedies are equally simple:
1. Set and constantly refer to your primary objectives. Be it
anything from efficiency, operational flexibility or risk transfer,
be clear about the negotiating areas.
2. For a client, only agree to sign a deal that is close to meeting
your needs. You won't have all the answers and you want the
supplier to innovate. But if you do not have a good sense of where
you want to end up, you will get solutions that meets suppliers'
needs, not yours.
3. BPO is not a IT deal. Neither is it pure financial engineering.
The best deals are likely to be hybrid transactions that link
operations to the direction of your business. The proper dealing
with People, Process and Technology is vital.
4. Remember that suppliers will always be smarter than clients
because they bid all the time. You don't. And neither do the
majority of investment banks, lawyers and other professional
advisors. Have your advisors done such deals before? Do the terms
on which they are engaged make for objective financial advice
informed by a thorough understanding of your business strategy?
Selection of the advisory team is critical to executing the right
deal.
5. Most suppliers are efficient at pricing risk, not uncertainty.
Do the Homework. Price the services you may require of your
'partner', and make sure that the suppliers are in a position to
price your business process and its liabilities aggressively. They
are unlikely to pay a premium for the unknown, and you may end up
retaining risk.
6. Set a realistic timetable for the disclosure of information, the
warranties you are prepared to give, the commitments you need to
make and sort out the setting of enforceable SLAs.
Outsourcing can reduce debt burdens or revitalise corporate
performance. But you won't impress the City by doing a bad deal or
failing to make one at all. The key is to try to ensure through all
the preparatory steps, that the suppliers are clear about what you
want, clear about how they are going to do it, and clear about what
happens to them if they fall down on their commitment. As usual,
communication is key to all aspects of good deal making and is
often the first casualty when things start to go bad.