'Fundamental flaws' in outsourcing straining supplier relationships

Gurjit Degun
22 January 2014

22 January 2014 | Gurjit Degun

There are “fundamental flaws” in how contracts are agreed and delivered, making it difficult for outsourcers to deliver real value to businesses.

MooD International’s State of Relations in Outsourcing report found this is also straining relations between clients and suppliers. It questioned 201 senior managers and directors.

The study highlighted issues such as transparency, understanding the business model and being trustworthy and innovative in the “large gap” between what clients want and expect and what suppliers are delivering.

The research found that on average, clients score their relationships with outsourcers as seven out of 10. This drops to six out of 10 among board members.

Some 60 per cent think outsourcing providers should have the authority to make decisions but only a third are authorised to do so. Just over 60 per cent think that relaxing controls on decision-making would increase commercial benefits.

“There is a real need to rebuild trust so that clients are prepared to empower their partners to make more decisions,” said George Davies, MooD International CEO. “There needs to be a greater transparency at all levels. Addressing the structure of the SLA (Service Level Agreement) so it reflects business outcomes is a necessity.”

Consistent information is important to almost 90 per cent of respondents but suppliers only scored six out of 10 for providing this.

Almost three quarters of those questioned said they evaluate success entirely or mainly on service levels as opposed to business impact. However, half of them also said “business transformation” or “strategic alignment” is the most critical way they use outsourcing partners.

The research also found that 29 per cent see a move towards outsourcing the management of multi-suppliers. However only 11 per cent felt extremely confident their organisation has the in-house skills to manage this effectively.

Davies said: “Getting the measurement and reporting on contracts right is fundamental to improving relations and both sides have responsibilities when it comes to running a successful outsourcing contract. Access to dynamic and up-to-the-minute information across the full range of business functions is critical in managing these complex contracts and limiting risk.

“By tying metrics to business outcomes and strategic business objectives, suppliers are able to evidence where they are adding real value to an organisation. This will help them improve their dialogue with the board and ensure outsourcing, once again, contributes to the success of business.”

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