This article was first published In Outsource Magazine, February 2011
Plenty has been written and said on communicating corporate strategy. Sourcing professionals who understand and implement corporate strategy add straight to the bottom line. So, given the seniority and sophistication of sourcing teams, it should be easy to translate strategy into practice, right? If you think so, try answering these three questions.
Will your outsourcing contract outlast your strategy?
Corporate strategy will evolve in response to the markets and regular review. How long a shelf-life does sourcing strategy really have? If you are responding to immediate strategic goals in your sourcing choices how well does that fit with a five or ten year contract?
Does your vendor base fit your strategy?
Most organisations rely on partnering, not just contracting, with their key vendors. Sourcing strategies therefore require corporations to cultivate a range of vendors aligned with their corporate objectives. Yet, suppliers originally selected for their strategic fit are often subjected to a procurement machine which has little regard for broader partnering principles. It’s all too easy to lose out on overall strategic alignment through narrow evaluation of a bid.
Do you assess your outsourcings against strategic objectives?
If the only realistic assessment of your sourcing programme is through management dashboards and narrow operational service measurement, the deep disappointment of lacklustre delivery may take years to dawn on you. Broad strategic assessment of outsourcing success may be less easy to reduce to measurable criteria, but all the same it should be reviewed.
If you’re still reading, perhaps you recognise that not every organisation will pass the "three question test" with flying colours.
We recently spoke at the National Outsourcing Association (NOA) on strategic leadership in sourcing. Our talk, and those of our fellow panellists from customer organisations, gained a lot of interest and sparked some great conversations. We, as lawyers, do believe that sourcing choices can reflect strategic goals. But they will only do so if the whole sourcing process is calibrated to make it so. We therefore recommend five pillars to support your strategy:
- Strategic alignment: your vendors must fit not just technical and financial requirements, but the need to innovate, support change and achieve business objectives.
- Accountability: vendors need to work together and work with you to ensure an integrated approach to delivery, measured against business objectives.
- Governance: vendors should contribute to resolve problems, transform services and meet overarching strategic requirements.
- Measurement: OLAs and SLAs should incentivise teaming and emphasise performance relevant to the overall services and not just require narrow adherence to satisfy a few dashboard requirements.
- Core team: the sourcing team must have the skills, range of disciplines, seniority and empowerment both at the relationship engagement stage and the relationship management stage.
Strategy must be articulated throughout the sourcing process. From the outset, it informs choices such as shared services versus outsourcing and single versus multi-sourcing. We like to think the best approach is right-sourcing - a strategic choice of the appropriate sourcing option taking into account the complete range of organisational requirements, not just the potential procurement in hand.
Strategic thinking must not be diluted in the procurement process. Losing the path is easy to do through setting vendor evaluation criteria which are ill at ease with corporate objectives. The issue can be made worse through poor contract engagement focussing on standard risk mechanisms and metrics, but light on governance, innovation and change.
Checkpoints in the programme must not only ensure that the deal meets key operational procurement, financial, risk and legal requirements (without which there would be no outsourcing). They must also measure the deal against broader success criteria. It is of course absolutely fine to reduce the requirements for any particular outsourcing to cost-cutting, best solution, headcount reduction or some other tactical measure. This may be a perfect strategic and operational fit for a particular function. But without setting the right strategy, an organisation may achieve cost-cutting at the expense of service quality, best solution at the expense of future flexibility or headcount reduction with the loss of organisational knowledge.
When we spoke at NOA, our best received message was the simplest. While it is true that working through complexity requires the right methodology - objectives setting, resource planning, timetabling, management processes and so on - more than that, it requires the right team. Our best projects have been those that assemble good people and the weight of experience across procurement and sales, operational delivery, finance, project management (and even legal). These teams don’t just have the best plan. They also have the wit and guile to cope with change on the ground, to communicate up and down the chain and to make the tough calls – particularly in a turbulent economic climate.
So ask yourself the three questions we posed again. If you can answer positively, you probably have a great team around you. If not, reach into your organisation, find the people and get the right team together. It will pay off, and might give your deal more than an even chance at delivering strategy.
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