All too often, outsourcing deals fail because relationships break down, resulting in costly exits for both customer and supplier. 


Peter Hutchinson, MD of Fujitsu Services’ UK Public Sector business, argues that a focus on mutual value creation in outsourcing can help avoid costly break-ups and contribute to improved business performance for both parties.
Most outsourcing arrangements, he says, involve major mutual dependency but not all customers realise or accept this. Value can only be created and maximised if both parties deliver, not just the supplier.
Hutchinson believes that many customers blame the supplier when results are not achieved, seeing the outsourcing contract as the end of their commitment to IT management.
However, it can be just the start of a whole new way of working, and demands a shift in focus for the retained IT management team towards maximising the sources of value brought by a third party, which in fact can contribute to their own success.
The alignment of objectives between both parties is therefore crucial – understanding the sources of value in outsourcing, building trust and developing close working relationships is essential to the success of the deal.
When outsourcing, Fujitsu believes the introduction of external stimulus and expertise are important. These include benefits of scale, re-use of solutions, and access to flexible skills and cheaper labour markets.
The delivered value of an outsourced project should include reduced costs, lower risk, improved quality and increased innovation.
Some costs are unavoidable but must be minimised. These include the costs of tendering, external advisors, the cost of bidding, transition costs and ongoing project management costs.
Costs that are avoidable include inappropriate service level demands, retaining too large an in-house team, pushing additional risk onto suppliers that they cannot manage, expensive insurance coverage, raising finance from the supplier when the business can borrow cheaper itself and being aware of what genuinely creates and destroys value.
Traditional procurement-oriented processes can focus on pressuring value out of the supplier. Suppliers want to win and are tempted to say “yes” even though they are unsure of their ability to deliver.
This can work but has the potential to generate negative consequences. It can inhibit growth of trust and teamwork. It could make the supplier defensive and focus too much attention on contract detail. It is also certain that suppliers will look for other ways to rebuild their margin.
The focus should be on creating real value, openly and fairly shared, and building a sustainable and trusting relationship which will improve value over the life of the project.
Both supplier and customer should create aligned objectives with mutual win-win outcomes in pre-preparation for the project.
It is important to put quality people in place to manage the contract from the customer’s side. Management should be made aware that they are totally accountable for the success of the project and that any excuses that the supplier let them down will not be accepted.
Customers should acknowledge that it will also take skill and determination on their side to ensure the success of the project and insist that the supplier escalate hard if the customer organisation is jeopardising its success.
Management therefore need to take the attitude that they will blame themselves if the project fails. They need to think “how can I ensure success?” rather than “how can I avoid being to blame?”.
The need to engage with suppliers who can truly create value implies a multi-sourcing approach. Deep relationships can only be created with a few suppliers – possibly three to five.
It is therefore important to use primary contractors/integrators to manage secondary suppliers. But it is important for management keep an eye on the secondary contractors as well.
These three to five suppliers will be used as primary contractors to access and manage the broader supplier base. Suppliers speak the same language in technical terms and it is important for suppliers to coordinate between themselves.