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Outsourcing Is a Balancing Act
What’s in a name? As outsourcing has increased, the term “partnering” has entered the lexicon. But some facility executives are concerned that the term could obscure keys to effective management of contract services, which requires a careful balance of risks and rewards.
Consider shared risk. That generally means a portion of a provider’s fee is tied to performance. But is risk really shared? The corporation is potentially putting its business at risk, while a provider’s risk is limited to its fee.
Is that fair? Here’s the test, says Lawrence Vanderburgh, senior industry and academic adviser at BOMI Institute: “Would each company suffer a loss as significant to its business as the other would?”
Another hallmark of partnering is aligning goals. No facility executive will dispute the value of that. But how far alignment can go is an open question.
Facility executives and providers often differ about the role of cost control in performance measurements. Providers point out that an easy way to cut costs is to reduce services. They say benchmarking can show if a provider is competitive.
Facility executives are concerned that costs may get out of control. “There’s a risk of not reviewing rates and scope of work, not going out for RFPs, not watching reimbursable costs,” says Donald Sposato, director, corporate engineering and technical services, Becton Dickinson.
That’s not to say costs have to be the only criterion. “There should be an incentive to maintain service levels while driving costs down,” says Art Elman, vice president of corporate real estate and facilities, ADP.
To some extent, talk about partnering is simply semantics. On key points there is agreement. One is the need for common objectives.
“I don’t like the term ‘partner,’” says Philip Meyers, executive director, enterprise infrastructure, Morgan Stanley. “But I do prefer dealing with vendors that share our goals.”
Another quality of a partner is flexibility to adjust to changes in a corporation’s business environment, says Alan Abrahamson, real estate operations director, AT&T. A contract that aligns provider goals with those of the corporation is crucial.
“We structure agreements so providers have the same measures of success we do,” Abrahamson says. A provider that can keep goals in alignment, even if a corporation’s needs change, can fairly be called a service partner, he says.
No matter how a relationship is labeled, facility executives and service providers have common interests.
“There ultimately has to be trust — perhaps cautious trust, but trust nonetheless,” Elman says. “Otherwise, I’m not sure you should be doing business with those people.”