When the claimed benefits of outsourcing are carefully scrutinized, it’s not at all clear that managing a function through lawyers is better than real engagement with staff professionals who feel part of the business and want to deliver strategic value. And yet, companies continue to buy service providers' pitches.
Why would executives fall for questionable vendor claims?
Well, in a few cases, outsourcing is, in fact, more cost effective. There are economies of scale that make it less expensive to buy products or services than to maintain an internal provider.
But, in many cases, executives pursue outsourcing with or without fundamental economic benefits. Their real reason is dissatisfaction with internal service functions. Let me spell out some of the key sources of dissatisfaction.
One reason executives might turn to outsourcing is their poor treatment by internal service providers who are not sufficiently customer focused. Clients have every right to expect internal staff to treat them as customers, with the same rights and respect they’d receive from external vendors. The question is, why doesn't staff treat its clients as well as outsourcing vendors do?
Indeed, there's no reason an internal service provider can't be just as customer focused as an external provider. The key to customer focus is culture — the common practices within an organization.
People in corporate service departments generally want to do what’s right. But, over the years, they have been taught the wrong behaviors and have developed bad habits.
For example, a behavior that’s the opposite of customer focus is captured in the sentiment, “We do what’s best for the company.” This misguided principle leads corporate staff to tell line managers that they know what’s best for them, and to attempt to force corporate decisions on their clients.
Instead, staff should practice the opposite behaviors, those that respect clients’ knowledge of their businesses. For example, they might practice the principle, “We offer customers alternatives (such as Chevrolet, Cadillac, and Rolls-Royce), and give them all the information they need to make a choice (such as life-cycle costs, risks, and pros and cons).”
Then, whatever decision clients may make, customer-focused staff do their best to help clients succeed.
Another important principle of customer focus is, “We deploy products only when a customer agrees to buy them.” Requiring a customer to make a purchase decision ensures that staff delivers value as perceived by their customers, and that they are business-driven rather than technology-driven. (The only kind of work that may be done without a customer’s agreement is overhead, such as product research and professional development.)
There are many such behaviors that, taken together, add up to an organizational culture that manifests customer focus.
An internal organization can change its culture — in a matter of months, not years. Dramatic culture change occurs fairly quickly with a behavioral approach. Instead of talking about vague values, feelings, and attitudes, leaders can define the specific behaviors that embody customer focus.
Below is an example of specific behaviors that define “how we treat customers.”
- We serve our customers; we don't control them.
- We don't presume to know our customers’ businesses better than they do. We don't do what we think is “best for the company” or “best for our customer’s customers” (second guessing our customers); we help our customers succeed with their missions as they perceive them by serving their expressed needs.
- We tailor our products to meet the unique needs of our customers, not presuming that “one size fits all.” To do so, we make every effort to understand what customers need and value.
- We offer customers alternatives representing various levels of functionality and price points (in other words, Chevrolet, Cadillac, and Rolls-Royce) for a given requirement, and give our customers the choice.
- We don't preempt our customers’ right to decide precisely what they buy, or what they do with the products they own.
- We help our customers make wise purchase decisions by providing them with an understanding of everything they need to know from us to decide, including at least the following for each proposed alternative…
- We help customers choose among our alternatives by facilitating their understanding of which alternative best matches their values; but we don't make recommendations based on our values or on our presumed understanding of their values.
Then, after teaching the new behaviors, leaders can reinforce adoption by modeling them, by using the principles to address real problems, and by measuring people’s compliance.
Metrics of performance complement cultural principles as strong drivers of customer focus. Internal providers may not be measured by their profits, but they can be measured on customer satisfaction.
To be meaningful, metrics must focus on the specific results expected of each group (rather than the means of attaining them). Metrics must be controllable, i.e., they must measure things that are within the ability of the individual or group to affect. And, of course, they must be understandable, expressed in units that people can easily relate to their behaviors.
Metrics must always be delivered to the person being measured, in time for him or her to adjust performance to improve the metric.
One of the most effective instruments for measurement is the 360-degree review, where people’s performance appraisal and compensation depend, in part, on their customers’ opinions of them.
Additionally, in a 360-degree performance review, teamwork is measured through suppliers’ input, supervisory skills are measured by including subordinates input in their boss’ performance appraisal, and business results are measured by the supervisor’s judgments.
Tying rewards to metrics amplifies the power of the metrics. But, to be fair, rewards should be based on well-defined metrics. A new reward system should only be implemented after the metrics have been implemented, tested, understood, and stabilized.
Like metrics, rewards must be meaningful to those doing the work. More money is nice, but may not be a strong enough motivator for everyone. Intangible rewards (be they recognition, freedom, or time off) may be more meaningful to some people. In fact, a reward to one person (such as a challenging assignment) may be a punishment to another. Rewards are in the eyes of the receivers.
To ensure that metrics and rewards are appropriate and relevant, a well-designed metrics program involves each group in designing its own feedback loops.
To help them, a team that includes specialists in the organization’s structure (which defines each group’s deliverables), the mechanics of measurement (for example, information systems), and reward systems (such as compensation) can be assembled. This team can consult with each group to help it define and implement a set of metrics and rewards tailored to its unique mission and people.
With clear cultural principles and metrics that include customer satisfaction, effective leaders can build highly customer-focused internal service providers.
Information on a more exhaustive database of cultural principles (ideal practices) can be found here.
More information on metrics, and their role in organizational design, can be found here.
5 Reasons Management Considers Outsourcing (And Why Those Reasons May Be Shortsighted)
How To Transform IT without Outsourcing: An Interview with N. Dean Meyer
Two Vendor Claims on Cost Savings that Deserve Major Scrutiny
Five Common Claims Vendors Make in Outsourcing Sales — and the Reasons Why You Shouldn’t Believe Them
© 2005 NDMA Inc.