Do you wonder if contractual performance incentives work? These are the “bonuses” vendors get for exceeding service level agreement (SLA) performance targets or achieving certain milestones earlier than expected.
We do, too. Take the poll survey, view the results, and read our nine suggestions on how to make the best use of contract incentives.
Jamaican hurricanes, Costa Rican volcanoes, Philippine political coups, Indian taxi strikes, Chinese government-operated firewalls, Canadian blizzards, and the legendary American backhoe operating behind your data center are dangers to your business when you outsource to offshore locations.
Realistically speaking, geologic, social, political and weather-related disasters his every city of every country. Granted, some events are more or less likely in certain locations, but the unexpected can strike you when you least expect it. What would you do? Do you have a business continuity plan or a disaster recovery plan?
As related to us by a reader.
Picture this: Your company has outsourced customer service for some products, but not all products. You have a single vendor with over 1,000 seats dedicated to your operation. These seats are located in several centers located in the USA (for reasons not important to this story).
Your vendor management team is made-up of a single person. This person coordinates five different programs, handles contractual issues, reviews invoices, schedules training, manages quality, and sets the direction of the five programs. Needless to say, this person is very busy and, quite honestly, overwhelmed. No single person could perform this job.
One day, an internal customer service group who did not outsource their operations planned a team lunch to celebrate February birthdays. However, 12pm-1pm is also the time when customer service team receives the highest call volumes. As the team all wanted to celebrate together, they needed someone to cover the phones while they ate cake and ice cream. Driven by hunger or the love of a celebration, the team made a fatal decision.
A few minutes before noon, after the cake and ice cream were set-up in a nearby conference room, the team’s workforce manager flipped a switch that redirected the calls to the vendor. The phones went silent and the team rushed into conference room. They sang happy birthday so loudly that other people in the building could hear them. They took the time to also observed a company tradition of sharing what they liked about each of their February birthday team members. It was a great party.
Meanwhile, someplace else in the country, the vendors’ call center was completely inundated. Service levels fell to 4%, abandonment reach 85%, and the workforce team was struggling to understand the reason for the high call volumes. Worse yet, these weren’t their calls. They had no training on these calls. So, following standard procedure, once they recognized that a caller was in the wrong queue, the vendor’s agents would cold transfer the call into the right queue…which promptly routed the call back into the vendor’s queue. Customers were irate. The team director tried to call the vendor manager, but the vendor manager was in meetings and was unreachable.
Back at the client’s center, the happy agents returned to their desks and once everyone was ready, the workforce manager flipped the switch back.
Do you have a story to tell about vendor management gone bad? Let us know.
A funny story told to us by an employee of a major US company (which we’ll call XYZ) with thousands of outsourced call center seats (domestic and international):
XYZ has two call center programs. One is a major inbound customer service program and the other is a small (about 45 agents) complex inbound/outbound marketing programs that focus on driving customer loyalty and create a significant revenue lift.
XYZ’s marketing and customer service organizations feud regularly about vendor management. Customer service insists on “owning” the vendor relationships and requires the marketing organization to liaise with the vendors through customer service’s vendor management team, which was insufficiently staffed and generally lacks vendor management experience. This inadequacy led the marketing team to circumvent the customer service vendor management team and they began to manage the vendors directly. The vendor management team became irate and the resulting seething rift between the two organizations was/is palpable.
Then came Christmas, the busiest 60 days of the year for XYZ. The customer service vendor management team made a significant forecasting error and found themselves delivering a 3% service level over several weeks. Yes, that meant that they answered 3% of calls in 45 seconds, which is terrible. XYZ is a major company. This was a nightmare.
Meanwhile, the marketing program was hitting on all cylinders. It was creating a record ROI and the vendor and the vendor agents were ecstatic. Attrition was a minuscule 10% annually.
This is when things got personal. Jealous by the success of the marketing program, the customer service team ordered the vendor to immediately put all of the marketing program’s’ agents in the customer service queues. They didn’t notify the marketing program.
We should point out for those less knowledgeable on the subject that a program that has thousands of seats is not going to create a meaningful lift in service level by adding a mere 45 agents. This decision was almost entirely political, and was also poorly calculated.
In this case, XYZ sacrificed a successful marketing program and gained nothing, as all but 9 of the agents left within two weeks of joining the customer service queues. Furthermore, XYZ squandered the returns they were creating in the marketing program - about $1M.
Funnier yet, the marketing program didn’t notice that their program had stopped until one week later…their success had less to do with their own vendor management capabilities than the vendor’s awesome execution. Dumb luck?
Can’t we all get along?
Vendor management is not a traditional discipline, like project management, software development, or operations management.
Take a moment to share how you learned to be an effective vendor manager in this poll:
Before outsourcing, internal operations teams usually spend significant effort appeasing senior management by explaining every reason why deviations from performance were outside their control.
Marketing launched a new campaign. IT’s servers were slow. The telecommunication vendor’s T1 was hit by a backhoe. The competitor launched a misleading campaign. The weather shutdown deliveries in Chicago.
Well, have you noticed the change in tone after the call center or backoffice team was outsourced?
Customers don’t like foreign accents. The vendor cannot manage attrition. Prices are more expensive than they are [insert nearby city]. Quality is bad. The contract is the problem.
In a classic Dr. Jekyll/Mr. Hyde transformation, internal stakeholders apparently have no qualms with scorching the earth with “it’s the vendor’s fault” or “outsourcing was a bad idea” type comments. Frankly, its disingenuous and doesn’t contribute to the success that is so necessary for today’s competitive environment.
Believe it or not, vendor managers can satisfy internal stakeholders. They can create a productive, opportunity-seeking environment. Use best practices to paint accurate, compelling pictures of your vendor-managed operations.
Here’s how.
Dealing with under-performing or culturally incompatible vendor personnel is one of the most delicate matters facing vendor managers. Certain vendor personnel are critical to operational success. When they don’t deliver, performance deteriorates. When friction or distrust develops, relationships go sour and communication doesn’t freely flow. Frankly, it’s an awkward situation.
The problem is that you’ve outsourced your operation and, while you’re still responsible for ensuring the vendor delivers, you did abdicate certain recruiting and hiring choices.
With that said, if you negotiated your contract thoughtfully, you have retained the right to remove certain vendor personnel from your account. And isn’t that great…you can simply send a letter and the person of your ire will disappear forever. In fact, it’s easier than terminating your own employee. It’s also far more devastating.
Keep in mind that you should never have arrived at this point. Here’s an ounce of prevention:
Despite preventative actions, sometimes things don’t work out. However, clients should be careful about the use of formal removal procedures, except in clearly dire situations triggered by ethical issues or significant performance problems. Rather, vendor managers should informally communicate concerns to senior vendor leaders and give these leaders opportunities to resolve issues behind the scenes. Often times, problematic situations can be resolved through a vendor reorganization that shift roles or moves certain people onto other accounts. In addition, it gives the vendor time to find qualified replacements.
When the time does to give formal notice, after multiple warnings have not been heeded, vendor managers should be firm and expect immediate removal. The communication should be done discreetly to key senior resources in order to avoid impacts on vendor morale and performance. The vendor may ask for more time and the client should listen to this feedback carefully. Also, timing should be considered - do not remove certain resources at critical junctures, as the impacts could be devastating. However, the client has every right allowable within the contract, and there are times when formal action needs to be taken.
Finally, the removal needs to be done tactfully. No matter the situation, the client is impacting a person and his or her team members…and empathy is important. How you handle the situation reflects on you and your company. If your goal is to become a strategic client with your vendor, managing this situation carefully is an important step toward remaining in good favor with vendor agents and leaders.
Here’s another article on the same topic was written by Carter Santos
Have you removed key vendor resources? How have you prevented this from occurring? When the time came, how was the situation handled? Share your stories with the ever growing readership here at 360 Degree Vendor Management.
One of the principle concerns of any vendor manager is monitoring your outsourcing vendor’s financial instability. Witness the recent failure of Axium, Hollywood’s payroll vendor and owner of Ensemble Chimes Global, previously one of the leading managed services providers of contract labor. When Axium filed Chapter 7 bankruptcy, Hollywood clients and a wide variety of their vendor management system clients (which included Fortune #3 General Motors, Fortune #7 Ford, Fortune #21 UnitedHealth, unranked Toyota, and other companies such as Morgan Stanley, Kaiser Permanente, AT&T, and BellSouth) were left with significant vendor management problems that crippled their IT and operations teams. In some cases, such as several Hollywood production teams, writers, and, believe it or not, swimsuit models, received paychecks that bounced. It is a classic story of a vendor meltdown that impacts customers.
It wouldn’t be concerning if there wasn’t so much consolidation in the outsourcing industry. It also wouldn’t be bad if so many of the vendors weren’t private and therefore not subject to external audit and public disclosure scrutiny. Finally, it wouldn’t be so critical if companies weren’t outsourcing key business processes - processes and technology support teams that take months or years to climb learning curves and stabilize.
However, the industry is consolidating, the vendors are private (or based in countries with accounting rules that are not as strict as US or European standards), and clients are outsourcing major business processes. Imagine if you lost your entire application development or call center team overnight? Scary, right?
The pundits of the total meltdown concept will point to business continuity planning or multi-vendor sourcing strategies. No doubt, both of these items will ease the pain. If you haven’t built a business continuity planning or considered a multi-vendor strategy, do it. Now.
However, the ramp-up curve following a vendor meltdown takes time and customers will feel the impact. Here are a few items that vendor managers should focus on:
Once failure has occurred or has been predicted, vendor managers must act quickly.
Have you walked down lovers’ lane to discover financial instability rocking the foundation of your relationship? How did you handle it? Leave a comment and share your thoughts with others.
Earlier this week we posted an article describing vendor management job descriptions. Yesterday day, Tim Minaham’s article on the Supply Management Talent Crunch led us to reflect on the “talent crunch” also facing vendor management. Let’s face it - good vendor managers are hard to find. Why?
Sounds like a tough job, right? It is.
That’s why most vendor managers lack all the skills necessary to perform their jobs exceptionally well. More importantly, there are few training courses available to them. Organizations like IAOP sometimes appear to be more focused on developing vendor and advisor sales channels than developing the skills of vendor managers. The COPC offers good courses, but they aren’t hands-on. Companies like ICN offer negotiation, selection, and contract courses, but they are tuned for IT procurement/vendor management teams. All these organizations lack training in the operations or technology that vendors managers typically manage.
Simply put, vendor managers must be developed by building performance management processes that guide activities and gradually increasing the responsibility of vendor managers. Standardized vendor management processes result in regular, predictable performance. Increasing responsibilities of vendor managers allows vendor managers to build experience with more complex issues - experience that vendor managers can leverage with delving into root cause analyses, relationship development, and negotiations.
If you lack an experienced vendor manager to develop our processes and resources, it is usually better to hire an external resource or hire an advisory firm tasked with developing vendor management processes, templates, and stakeholders. Forward thinking executives hire these resources before or during vendor selection, which gives them a leader for transition management and the time to develop the necessary processes in advance of implementation.
Do you have a methodology for hiring or developing vendor managers? Share our thoughts!
The valley of despair in an outsourcing relationship is when vendor managers consult with their legal counsels. Disputes that go “contractual” (the vendor management version of “nuclear”) can irreparably damage a relationship. Your job as a vendor manager or vendor account manager is to ensure the client-vendor relationship never sours. However, what do you do when it does?
Today, we take a deeper look at dispute resolution.
