Vendor Management and Learning Curves

Outsourcing vendor management is not any easy discipline to learn. In fact, as compared to project management, vendor management is terribly difficult to understand and learn. Immature certifying bodies, generally limited outsourcing experience, dissimilar outsourced operations, internal personalities, and the social politics of outsourcing all create an environment ripe for limited vendor management standardization. What should you expect when you are climbing the steep learning curve?

In a prior article, we discussed five major myths and realities of outsourcing. As you can tell, outsourcing is a very complex subject, requiring deal making expertise, vendor management skills, operational knowledge, and strong negotiation skills. Phil Fersht recently provided his opinion of the worse mistakes companies make when evaluating outsourcing. In general, we agree that these mistakes are challenging, but we feel a few others are worth higher rankings.

For example, we strongly believe that failure to fully document and understand current-state operations is essential to developing a statement of work suitable for including in an RFP. Furthermore, failure to fully understand the core operation management best practices a vendor should have in order to successfully manage an operation could result in failure…and possibly termination.

So, here’s what you should expect when learning outsourcing vendor management:

Know the Precise Difference Between What You Have and What You Want – If you’re running an operation, you think you know your transaction volumes, process flows, training materials and measurements. The truth is, your probably don’t and you definitely don’t at the level of detail necessary to evaluate outsourcing. The uninitiated are stunned by the effort it takes to document everything. Count every server, every call, every piece of mail – and know the last 2-3 years of this data by customer, by transaction type, by month/week/hour, and by different system. Document every process flow, including returns, exchanges, error reporting/resolution, etc. Know exactly what reports you have and cannot produce. Measure how long every transaction takes at every step of the process. Document every business rule. Evaluate your training materials and quality processes. Even with a great advisor, you probably took short cuts. I guarantee you wont take short cuts the second time after the vendor uses every possible “it wasn’t documented” excuse to exercise change control and alter your ROI/SVA modeling – the type of stuff that makes you look bad.

Outsourcing Isn’t Abdication – Initially, you’re either of one of two mindsets: hands-off monitoring or micromanagement. If you think you can manage a major operation and a very savvy vendor who doesn’t really know much about your operations with a hands-off style, you’re in for a cruel awakening as SLAs go unmet. It won’t happen initially because you probably had a very effective transition to the vendor. However, about 9-12 months after the hand-off, the vendor will begin to demonstrate quality and timeliness problems. The principal reason is likely due to vendor employee turnover for which the vendor and you probably didn’t plan. Anyone who has run an operation knows how long it takes to hire, train, and coach new employees…and that’s precisely how long it will take you to dig yourself out of your backlog, which will probably have everyone second guess the rationale behind outsourcing. You’ll do this once or twice before you realize that you have to sink your soul into managing an outsourcing vendor to really drive results. Micromanagers, on the other hand, will experience either ruthless resistance from the vendor, who likely isn’t used to a hands-on approach to vendor management, or complete reliance on the vendor manager – so much reliance that the vendor doesn’t develop the skills to run an operation successfully. In the former case, they’ll escalate up the food chain, suggest you leave this to the vendor to run alone, or just pretend not to have data. In the latter case, you’ll soon grow frustrated and very tired when you’re doing all the work instead of the vendor. Expect to go through a learning curve as you develop the right balance of monitoring vs. micromanagement.

Be Inclusive, But Don’t Govern By Committee – Outsourcing requires an enterprise-wide support team. This includes operations and IT, but it also includes legal, HR, public affairs, corporate communications, and, sometimes, board of directors communications. Outsourcing has enormous effects on employment and is a major social and political debate. New vendor managers don’t realize how broad the team really should be to effectively change a “they gave my job to an Indian” mentality to “we can count on the vendor to make things better” mentality. Finally, a new vendor will only forget to ask for government officials and regulators’ approval once…because agitated regulators will make your business a nightmare. With all this said, know who is in charge and how to make decisions that balance all stakeholders’ needs.

What do you think the biggest learning curves are with vendor management? Let us know by commenting below!

Related posts:

1. Outsourcing Vendor Management: Myths and Reality
2. Onsite Vendor Management in a Global Outsourcing Environment
3. In the Absence of Outsoucing Governance or Vendor Management
4. Another Tale from “When You Don’t Have Vendor Management Governance”
5. Vendor Management: Quarterly Review Methodology