One of the most critical elements of a successful outsourcing project is an early focus on the relationship between the manufacturing client and the service provider. Because outsourcing involves two different companies with varied cultures, expectations, assumptions, behaviors and incentives, we have found that creating a partnered approach from the beginning enables all levels and teams involved to establish how they will work with one another. Focusing on a partnered approach after a project gets underway is often too late, because mistrust and "siloed" mindsets and behaviors may have already taken root, preventing teams from working effectively together. In this article, we'll explore why and how to get those outsourcing relationships right, and offer tips for managing the relationship over the life of the project.

In our experience, client/service provider teams grossly underestimate the role of trust and the importance of working dynamics. For example, a technology manufacturer undertook a seven-year, $200 million human resources outsourcing effort, only to find that mistrust between its retained HR team and the service provider steady-state team was the root cause of rippling implementation issues. These included resistance to information-sharing, missed deadlines, and costly penalties for failed service level agreements of upwards of $100,000 per month. These teams are so interdependent that if they do not trust one another, then blame, finger-pointing, and animosity will swell. Because outsourcing efforts are complex, communication within and between outsourcing partner teams is crucial for meeting deadlines and avoiding costly delays and service performance issues.

Lack of transparency about one another's work often lies at the root of misalignment and mistrust. We often see a tremendous amount of fear around providing transparency among the manufacturing client and service provider teams because of the us versus them mentality. One year into a finance and accounting outsourcing initiative, a food and beverage manufacturer found that lack of partnered planning with their service provider counterparts deeply divided the two sides. Without mandated shared accountabilities and regular communications, there was no transparency about team members' work and they had no mutual understanding of how one team's work impacted the other.

Risks and Benefits

What happens if problems like mistrust and lack of transparency between the outsourcing partners persist? The most critical risks associated with not establishing a solid foundational partnership at the start include missed deadlines, milestones and the actual go-live date. The ripple effects of any one missed deadline can have dramatic financial consequences, requiring extra resources or contract and/or requirements changes, creating additional costs for the client and service provider. Systemically, a cycle of animosity and costly problems can continue, further deteriorating the relationships and impacting the end customers.

Sometimes outsourcing projects are thrown far off schedule due to serious cultural misalignments. A pharmaceutical manufacturer outsourcing certain products to its specialized biotech partner found that achievement of key milestones was jeopardized by the lack of agreed-upon working relationships and process misunderstandings. The larger pharmaceutical manufacturer followed very bureaucratic procedures, while the smaller biotech partner had a less rigid and process-oriented style. As a result, project teams from the outsourcing partners worked in separate silos, creating a constant state of re-doing work due to an inability to partner and collaborate. Frustrations grew and animosity cascaded throughout the project team layers, causing costly delays and persistent, systemic fragmentations.

Another case in point was our experience with a technology services organization that was outsourcing human resources (HR) services from a major pharmaceutical manufacturer. We quickly deduced that a reinforcing loop of mistrust, animosity, and financial penalties (due to continuously delayed steady-state service projects) had created two years of deeply rooted, ineffective mindsets and behaviors. The manufacturer's employees were deeply impacted by these highly negative dynamics. For example, in a single HR department, case escalation volume was at a monthly high of 300 cases a week, demonstrating an increased level of service issues customers were experiencing. An internal customer service survey found that only 50% of the pharmaceutical manufacturer's employees were receiving call-backs regarding their HR needs from the technology service provider (a clear indication of sub-standard service levels.) Persistently negative and siloed mindsets for both the service provider and the client teams contributed to an inability to jointly address these significant service issues.

But suppose the outsourcing partners put in place a methodology and systems to measure and monitor the relationship from the beginning and throughout the project. The benefits include risk mitigation, effective and efficient working teams, on-time deliverables, manageable processes, and higher quality work experience for the outsourcing partner teams. We have seen these benefits result when a focus on relationship management within an outsourcing engagement has remained as important as measuring and monitoring service performance levels throughout the project.

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