How can organizations increase the odds of a harmonious outsourcing or off-shoring relationship three, five or more years down the line? The ‘restructuring’ (renegotiation, and potential re-letting to another supplier) rate of first generation IT deals alone is currently estimated at around 40%. In a global market worth $118 billion, it makes sense for suppliers and customers to look at ways to stay friends.

Judging by the typical press representation of outsourcing and off-shoring deals, they have a lot in common with celebrity marriages.

First of all we have the fanfare at the start, with photo opportunities and an awed account of the sums involved. Then everyone’s attention drifts away to the next big thing until somewhere down the line the split is announced, both sides air their grievances, and commentators, wise after the event, explain how it was never going to work in the first place.

Meanwhile, the costs of the split rack up, whether the functions are brought back in-house or on-shore, or outsourced to an alternative service provider. These costs include setting up a project or program, deploying internal experts, possibly hiring additional skills including external advisors, the paraphernalia of field trips and site visits, and the investment in knowledge transfer. And that’s not counting the hidden cost of the inevitable disruption to business as usual.

What the headlines don’t tell us is that more than half of all sourcing relationships do, in fact, run their course, and are renewed with the same service provider. And this figure doesn’t include the in-house “captive” centers set up by organizations, the majority of which, despite changes to scope and focus, are still there years down the line. This suggests that a lot of people are quietly working in both the supplier and end user community to make these relationships work.

Looking at organizations with a track record of sustained outsourcing or off-shoring relationships over the longer term, there are a number of recurrent themes.

1 The Business Drivers Change

One global organization domiciled in the UK and with a long-standing and successful IT operation in India describes it as “We came for cost and stayed for quality”. Although the organization has seen the cost advantage of India erode over the years since it set up there, and despite the increasing challenge of staff retention, the quality of the work done in India means that the operation there has continued to expand rapidly, taking on activities never envisaged in the original feasibility analysis.

This example reflects the not-uncommon experience that the pure labor arbitrage cost savings promised by the original business case often prove elusive, and it is only by shifting to a productivity-enhancement view of the outsourced or off-shored functions that real strategic value is derived from the investment.

2 The Roles of the Partners Evolve

This usually reflects the growing maturity of the outsourced or off-shored function, but strikingly, it seems to take some outsourcing or off-shoring organizations by surprise.

In particular, the increasing confidence and ambition of the outsourced function can be seen as threatening the control exercised by the retained function. On the other side of the fence, the unwillingness of the retained organization to entrust more control to the outsourced or off-shored teams can breed frustration and resentment. This can be particularly destructive in the case of off-shoring, where language and cultural differences can exacerbate perceptions of negative attitudes and inflame grievances.

In cases where the issue is recognized and addressed constructively, the retained or outsourcing organization generally pursues a policy of challenging and stretching the management of the outsourced or off-shored function, while at the same time providing the access and support that the remote teams need to respond effectively to the challenges posed. The ‘customer’ reaps the reward of enhanced strategic benefit from the outsourced function, and the people providing the service have room to grow and realize their own and their organization’s potential.

3 Investment Continues

This brings us to the next point, which is that outsourcing organizations can never assume that things will be fine if left to take their course.

A comment frequently heard is the ongoing costs of an outsourced or off-shored relationship are much higher than the initiating organization anticipated. Typical of this unforeseen spend are the costs of travel by staff and managers from the retained organization to the service provider location (which can be significant in the case of off-shoring), costs of training for off-shored staff in the case of captive operations, and generally the cost of management time in making sure the relationship runs smoothly and that issues are either pre-empted or dealt with in a timely and effective manner.

Successful governance approaches often include appointing a manager or managers with good people skills and a high degree of cross-cultural awareness to act both as champions for the relationship within the retained organization and as a facilitating interface between their own colleagues and the outsourced or off-shored organization. Clearly these individuals need to have a counterpart in the outsourced or off-shored organization, and it is the interactions, ideally daily, between these people which makes it less likely that issues will arise, and more likely that they will be resolved to the satisfaction of both parties when they do.

4 Expectations are Kept - or Become - Realistic

Early adopters of off-shoring sometimes got burned by off-shoring the wrong (for them) things, especially in the area of customer contact and call centers. These days the trend is much more to off-shore functions where contact with the end-customer is low or non-existent, or where shared subject matter expertise (eg specialist web expertise) is more important than language or cultural differences.

Similarly in outsourcing, ensuring cultural alignment between customer and service provider is an increasingly prominent element of the supplier selection process, and in both cases, service level agreements and schedules attempt to articulate the expectations of all parties in the hope of avoiding misunderstandings and disagreements further down the line.

In addition to these things, successful sourcing partners use their close day to day working relationships to communicate and explore the constantly shifting patterns of influence and opportunity on both sides of the relationship, with a view to identifying ways to work together more effectively.

It looks very much as if the recipe for lasting sourcing happiness can be summed up as

• Expect the reasons for being together to change.
• Expect the roles of the partners to change.
• Expect to keep working at the relationship, including investing time and money in it.
• Be realistic about what the relationship can deliver.