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Three Reasons Outsourcing Runs Into Problems

January 9, 2013 - Outsourcing

Today's tip on outsourcing comes from Vince Elliot, president of Elliott Affiliates, Ltd. Here are three reasons that relationships with outsourced service providers run into problems.

1. Buyer specifies the work process. In many outsourcing contracts, the facility manager specifies how the work is to be done versus what result the work is to produce. These are "process" specifications that list the variety of tasks to be performed, at a required frequency. This means that the facility manager selects the contractor based on its performance and achievements, then tells them "don't do any of your best practices; I've written it all down for you, so do it my way." And, if following the facility manager's tasks/frequencies delivers a dirty facility and customer complaints, which party is at fault, the contractor or the facility manager? After all, it's the facility manager's process that the contractor is legally required to follow. Buying time, tasks, processes, labor hours, systems, etc., has little value if they do not produce an advantage for the buyer. An expensive trap can be created when facility managers are specifying the work process around what people do, versus what resulting benefit the company gets. What's more, the more the facility manager requires and manages its own process for doing the work, the more likely a co-employment relationship will exist.

2. It's a WIIFM-L (What's In It For Me-Lately) relationship. Many facility service outsourcing problems can be traced a situation where the two parties really don't have common interest. Where everyone is looking out for their own best interest, the more one party is successful, the less the other party is successful. This negotiation is a classic win-lose dilemma. There is no contractual focus on the buyer's mission and their competitive goals. And there is no mutuality of consequences linking buyer success to contractor success or failure. Remember to pay attention to WIIFM-L (What's In It For Me-Lately)? What does each party want to achieve? The buyer wants a "quality" product or service, no customer complaints, responsiveness and below-market pricing as a strategy for maintaining or increasing their market share. The contractor wants healthier profit margins, increased revenues and long term relationships as a strategy for maintaining or increasing their market share. Despite all the talk about partnering, the traditional buying strategy is an everyone-for-themselves-relationship, where success is measured by how much compromise is accepted by each party.

3. Contractor selection is price-driven. In this sort of every-person-for-themselves environment, the facility manager often says that price is not the main criteria for awarding a service contract. Facility managers talk about partnering, they talk about performance, they talk about alliances, etc. Yet in the end, the three things that drive buyer selection of contractors are price, price and price. Sometimes the facility manager (or the facility manager's agent) is too motivated by the goal of dramatic cost reduction. When the facility manager participates in a "savings bonus" program, short-term greed can cloud long term outsourcing success. This is most likely to occur when the company is unclear about the balance of value it expects at any savings level. Contractors understand when price is the driver; and they low-bid (usually under-bid) the job in response. Downstream prices increases are a natural consequence of this strategy.


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