While an external service provider may arguably have a ‘core competency’ that exceeds your ability in any particular area, there is one single risk factor that explains most of the disappointments in outsourcing:
- Your supplier’s priorities are not the same as yours.
Purity of motivation and purpose thing sounds great, until you try to craft a set of service level descriptions that would encompass not just reasonably anticipatable problems, but unexpected ones.
Much of the skill in vendor management comes from finding ways to financially motivate providers such that they suffer if you suffer, and they prosper when you do. Contracts align providers with customers such that the provider has incentive to do those things that the customer wants them to do. Carefully crafted SLAs can quickly become the performance ceiling for service providers experienced at following the letter of contractual law. IT isn’t the only domain in which contracting is painful and frustrating.
The core problem is that no matter what technical or legal mechanisms are in place, providers just do NOT have the same agenda as their customers. Don’t expect the same level of transparency or loyalty that you would get from your own people. Your company will usually do whatever it needs to do to survive—so will your supplier. They are not marching to your music, they are not heading towards the same goal line, they are not thinking your thoughts, and their ultimate loyalty is to themselves, not to you. This lack of common purpose is a fundamental weakness of all forms of outsourcing and external service provision. We work in a culture that wastes a great deal of effort, vainly searching for that final contract clause that will eliminate all risk, while maintaining anticipated economic benefits. There are lots of good reasons to contract out for services that could be done in house, and there are a lot of reliable and ethical suppliers, but it remains the inescapable fact that nothing can be done to totally align a provider and their customer.
An extreme example of how supplier-dependency can kill a business took place in the UK during the 2008 Christmas buying season. The music retailer, Zavvi, formerly known as Virgin (with the , was forced out of business because they were using Woolworths as their distributor, and Woolworths went out of business. As their core business melted down, how motivated was Woolworths to accommodate the needs of Zavvi? At what point did the management of Woolworths phone up the management of Zavvi and explain that while they valued their custom, they would be better off making other arrangements?