PA's comment on sourcing
Outsourcing decisions....are your ‘eyes wide shut’?
Getting the right outsourcing arrangement in place can cost millions. Organisations regularly invest significant sums to get to the point where they can sign a major outsourcing agreement. With internal project team costs, professional fees, travel, and all manner of other expense, it is no small undertaking.
With so much already invested, consider the following scenario ;
Supplier negotiations are done, you have an acceptable operational outcome, and you have worked and reworked the business case, which clearly shows that the decision to outsource makes little or no obvious financial sense. What action do you take now?
If you are the sponsor, this is not a comfortable position to be in. What are the choices? Do you explain to the executive that you need to go back to the drawing board; work harder to justify the operational benefit to offset the financial case; drive the suppliers to reduce scope or deliver the same for less; or some other equally difficult alternative? The personal consequences of doing the right thing for the organisation cannot be taken lightly.
Unfortunately, the evidence suggests that in a surprising number of cases, rather than revisit the original objectives and challenge the way forward, the answer seems to revolve around reworking the solution, regardless of whether it is appropriate for the business, resulting in an agreement that is no longer operationally sound. In addition, to negotiate unrealistic base-line financials with the suppliers which will inevitably escalate back to, and often above, the original levels, over the life of the contract. From experience, all manner of discussions and justification sessions are conducted with members of the project team, and whether it is confusion, pressure or fatigue, invariably the team buy-in to the ‘new’ answer.
Armed with this newly packaged solution and now a supportive business case, the route to sign-off is greatly eased. The actual outcome may no longer actually deliver the original requirements but in the style of film director, Stanley Kubrick, with the careful blurring of the lines between fantasy and reality, the organisation has been convinced to make a decision to move forward and outsource.; an ‘eyes wide shut’ decision which results in benefits evaporating, agreements being terminated or, at best renegotiated, and organisations left trying to examine what really happened.
Is this an extreme view, informed by a meaningful dose of cynicism? Indeed it is, but there is no room for naivety when it comes to signing multi-million pound outsourcing agreements, where an organisation’s future ambition may rely, at least in part, on the financial and operational benefits being delivered. Bottom line; by improving the scrutiny to which these outsourcing arrangements are subjected and by ensuring a firm-wide strategy or view is taken, (a task for the most senior executives), the right way forward will usually come sharply into focus.
Jonathan Cooper-Bagnall
Member of the Management Board, PA Consulting Group
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Jonathan Cooper-Bagnall is a Partner and Member of PA’s Management Group, and leads PA’s worldwide sourcing consultancy services. Working across a broad set of industries, including Pharma, Finance, Transportation, Oil & Gas, Manufacturing, and Government, as well across geographies, having been based in the US for many years, has enabled Jonathan to provide the transfer of knowledge and insights to help organisations understand and achieve best-in-class solutions. This diverse portfolio of clients also provides for comprehensive experience in the development and implementation of the right governance and service management arrangements. The range and successful delivery of his work, means that Jonathan has established a solid reputation for rapidly understanding the management challenges associated with sourcing, together with designing and implementing practical, commercially focused, and long-term working solutions.
To contact Jonathan Cooper-Bagnall please email ITmarketing@paconsulting.com.
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