What the $^^@#$ is supplier performance management?

Procurement?  Operations?  That’s exactly the discussion Tim Cummins relates in his latest discussion on relationships and vendors.  Evidently, at the close of International Association for Contract & Commercial Management (IACCM), the final executive roundtable debated this issue.  As Tim says, they “questioned whether it is a role that Procurement groups are equipped to perform.”  Clearly, it’s a hot topic, as Forrester’s Sourcing and Vendor Management analysts have put governance on their 2010 agenda.  In my opinion, vendor management organizations are a bad design, but what about Supplier Performance Management?

First, what is Supplier Performance Management, also known as Supplier Relationship Management?  Is it tracking contractual commitments?  Is it driving greater value and innovation from vendor relationships?  Is it hosting quarterly meetings with vendors?  We don’t have the foggiest clue because the definition is broadly different from organization to organization.  In fact, one could argue that SPM and SRM is nothing more than consulting babble or analyst hype because it clearly is not a well defined process, like inbound customer service or accounts payable.  What is the day to day life of a SPM/SRM leader?  Why did the organization even create a SPM/SRM team?  Was it failure of one team to track the contractual commitments of a vendor?  Or was it the need to find greater value in existing relationships through broader, more strategic dialogue?

Who knows.  And I’ve read the literature available from analysts and consulting firms.  Outsourcing advisors call the function governance.  Manufacturing companies call it supplier relationship management.  IT organizations call it vendor management.  Procurement teams call it supplier performance management.  No one is in agreement on the name or the responsibilities.

What is clear is that there is a real need for companies who rely on strategic vendor relationships to manage these relationships from a perspective of value.  However, how do you do that?  What do you do in January?  In August?  In December?  The third week of the month? How often to do you talk with vendors?  What are the topics of discussion?  What is the benchmark of a strongly performing SPM/SRM team?

Given the complete gap of substantive literature, I would like to invite your comments on what goals a SPM process has and how it should achieve its goals.  I will consolidate your feedback and, for those who contribute in a meaningful way (meaning more than a sentence or two), I will provide the analysis.  For a simple of investment of 10-15 minutes of your time, you’ll get a free consolidated perspective.  And, if you’ve been reading the blog for a while, you know this will be a high quality perspective.

Providing me you thoughts is easy: either leave a substantive comment below or email me at tony (at) 360vendormanagement (dot) com

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Related posts:

1. Offshore Outsourcing Vendor Governance Organizations
2. Outsourcing Metrics: Key Performance Indicators
3. Desperate Measures Include Outsourcing?

Tim’s article on the complexity of contracting exactly relates to what I’ve seen in outsourcing: a basic legal framework with innumerable details memorialized in hundreds of pages of schedules.  The schedules are drafted by technical experts who generally lack any understanding of contracting.  Consequently, Tim argues,

In IT, outsourcers often bid low initially in the belief that they will later be able to improve margins by exploiting the contract’s or customer’s deficiencies. The obvious point to make is that once the contract is signed, it’s set in stone unless both parties agree its variation. So, if contract development or negotiation is rushed, it’s guaranteed that many unpleasant and costly issues will arise after the paperwork has been signed.

Tim is dead-on accurate.  Many schedules, like service level and pricing schedules, are drafted by authors with very limited contracting experience and very often rushed.  These areas then turn into change orders (aka “death by a thousand cuts).

Tim’s article is a very worthy read.

Related posts:

1. Another Tale from “When You Don’t Have Vendor Management Governance”
2. Offshore Outsourcing Vendors, Customers, and Advisors: They Should Know Better
3. The Black Book of Outsourcing – Invaluable Resource or Red Herring?

Does Your Offshore Outsourcing Governance Organization Design Support Your Organizational Objectives?

So, I’ve definitely been stirring the pot over the last few weeks.  I’ve exposed the errors in the much celebrated Black Book of Outsourcing, shown that the business of outsourcing certification is big business, and explained why vendor management organizations are a bad idea.  This much skepticism could be a bit karmically unhealthy, so let’s turn the attention onto something you actually really need: a vendor governance organization.

Simply put, you need a vendor governance organization to centralize the biggest decisions confronting companies that chose to outsource.  The type of decisions that you shouldn’t decentralize.  For example, aligning outsourcing with corporate strategy, identifying outsourcing opportunities, sourcing vendors and negotiating ensuring outsourcing projects deliver their intended value, mitigating outsourcing risks, and driving innovation.  All the local, day-to-day decisions should be made by resources tasked with vendor management in operations and IT departments (not VMOs, for these reasons).  Here is a table that compares the responsibilities of a VGO and vendor management resources based on Bain’s RAPID decision making model, published in the Harvard Business Review:

Vendor Governance Roles and Responsibilities

As you can see, a vendor governance organization should be fairly small, as the activities it manages are relatively small.  In larger organizations, where there are numerous vendors and regular RFPs, the VGO could be moderate in size.  Still, the operations teams should take the primary responsibility for a wide variety of activities.

Thoughts on the Vendor Governance Organization

• Leadership – Despite the small size, the vendor governance organization should be run by a very experienced, very senior leader.  At minimum, this is a senior director role, but should more properly be a vice president role.  The seniority is necessary due to the interface with senior leaders, interface with operations leaders who are often directors and vice presidents themselves, external perception of the vendors, and external communications/networking organizations.
• Structure – The team should be also fairly flat, filled with senior level individual contributors, except where multiple sourcing functions exist (ITO, BPO, F&A, HRO), where leads may represent governance of each of these functions.
• Organization Size – Generally speaking, a single senior individual contributor can manage 1 large vendor’s single outsourcing function or 2 moderately-sized vendors (if the vendors have been established for a reasonable period of time).  If there are multiple outsourcing functions with a single large vendor, one FTE should be assigned for each function.  If there are numerous small vendors, consider limiting span of governance to 1 FTE  to 3-4 vendors, assuming there is little effort required to govern the vendors and the vendors are of inconsequential importance to the company and have longer tenure.  Newer vendors require more attention.
• Organization Reporting Structure – A vendor governance organization should report to a direct report of the CEO.  In other words, it should report to a COO, CFO, or other CxO, except in very large organizations which have regional or product line structures without matrix support (e.g., North American Operations is self contained with its own finance, HR, and legal function and directly reports to the CEO).
• When Other Organizations Lack Skills – In situations where the internal organizations lack certain skills, it makes sense for a governance organization to temporarily provide the necessary talent.  This can be done using outside resources (advisory firms, outside law firms, consulting companies) or by hiring talent with the right skills.  If using outside resources, be sure to obtain buy-in from partner organizations you are supplementing.  For example, if your procurement team lacks the skills to run an outsourcing RFP, check with them first – it may be that the talent is there, but you’re not aware of it.  If you’re hiring talent, be sure there is a long term career objective that the resource and the company agree upon.  For example, hiring a skilled resource that wants to run RFPs, but there are no RFPs in the future, it doesn’t make sense to bring that resource onboard.

Do you have feedback or thoughts?  Share them with the thousands of other vendor managers and outsourcing governance professionals that visit our site by leaving a comment below.

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Related posts:

1. Another Tale from “When You Don’t Have Vendor Management Governance”
2. In the Absence of Outsoucing Governance or Vendor Management
3. Vendor Management Organizations Are a Bad Design

Right from the horse’s mouth, as one would say.

Related posts:

1. A Cozy Stable for Outsourcing Vendor Management Professionals
2. How Relevant Is Forrester’s 2010 Sourcing and Vendor Management Roadmap?
3. Vendors or Partners?

Does Your Vendor Management Organization's Design Serve the Enterprise?

For some, vendor management organizations are a silver bullet that solve all problems.  For others, vendor management organizations are the source of internal strife.  Bottom line, for many organizations, they are a terrible solution.  They hoard decision-making ability, distance ownership of execution and delivery from stakeholders, and focus on narrow contractual goals instead of broader strategic objectives.

An Artifact of Historical Scarcity

There was a time, a long time ago, when the challenges of outsourcing required a specialized vendor management organization.  Your procurement organization lacked the skills to source outsourcing suppliers, and they rarely displayed the ability to partner with suppliers to achieve long term organizational objectives.  Your operations team had sufficient conflicts of interest that a team with the incentive to make outsourcing succeed was needed.  Your IT and operations team didn’t know how to work with outsourcing vendors.  The complexity and effort required to transition operations required dedicated staff, lest you not achieve your other business objectives.  Your leadership team wanted closer line of sight to management decisions.  You didn’t have sufficient vendor management process or skills.  Maybe there was organizational conflict where the CIO and the CPO didn’t agree.

So, vendor management organizations were an artifact of experience and knowledge scarcity and the need to control decision-making.  Born was an organization that needed it’s own sourcing, contracting, project management, vendor management, strategy, financial analysis, and operational management skills.  It’s objectives could be defined by vendor achievement of contractual service level agreements and, more strategically, the achievement of corporate EBITA and innovation objectives.  It managed a broad group of internal stakeholders, including human resources, IT, procurement, legal, operations, public affairs, corporate communication, sales, and finance.  All groups leveraged the centralized VMO to facilitate decision-making and execution of outsourcing decisions.

Listen to Forrester Research’s Vice President John McCarthy’s comments on “best practice case studies for vendor management” durin the 2007 Services And Sourcing Forum in Orlando:

Wow, these are complex jobs.  Listen to John list all the reasons for VMOs and the stakeholders they serve.  And that was before politicking began…

Let Internal Warfare Begin

How aligned are your stakeholders with your VMO organizational design?

Where the VMO resided was a subject of major corporate politicking.  Initially, it was easy.  CIOs wanted to own IT VMOs.  COOs wanted to own BPO and supply chain VMOs.  CFOs wanted to own F&A and indirect procurement VMOs.  HR leaders wanted to own HRO VMOs.  At a more lower level, call center executives, application development and maintenance, IT infrastructure, and every sub-organization created their own VMOs.  The politicking began when the COO or CIO had more than one VMO.  Who would own it?  The app dev VP or the infrastructure VP?  Or would they create a standalone VMO to “rule them all”?  Or  one governing VMO to manage the sub VMOs?

It became more complex when the COO and CIO shared the same vendors.  Companies, like Accenture, with their strong back-door selling (you’ve seen this excellent back-door selling training company, right?) ran circles around CIOs and COOs whose teams couldn’t get organizationally on the same page regarding strategic initiatives.  They had better information than their competitors and limited companies’ decisions by plying this information with internal stakeholders to influence outcomes.  Companies realized this was going on, and sought enterprise VMOs to centralized decision-making.

And then organizations that shared the same functional sub-responsibilities clamored for centralization.  Procurement asked to source and contract outsourcing vendors.  Legal asked to own the outside counsel relationships that supported outsourcing contacts.  Global workforce management teams asked for management of vendor call center personnel.  Contingent labor vendor management organizations wanted to leverage offshore IT labor, too.  Project management offices asked to lead the outsourcing transitions.  Operations leaders, on the line for service levels, performance, innovation, and customer service, asked for greater control over vendor management decisions related to their organizations.

At this point, the VMO was in an impossible position.  It’s once strategic role was being challenged by operations and IT executives who were directly responsible for execution – the problems outsourcing vendors were experiencing, in part due to the internal communication challenges of independently operated VMOs, were causing operations and IT executives to miss goals.  Functional organizations had evolved, bringing more outsourcing experience to HR, Legal, Finance, and Procurement – and these groups wanted to own their functional responsibilities for the entire enterprise, without exceptions for VMOs.

Applying Organizational Design Theory

First, it’s important to realize that organization structure is made-up of 4 key elements (John Child, Organization: A Guide to Problems and Practice, 1994):

1. Assignment of tasks and responsibilities that define jobs
2. Clustering of positions into groups and groups into departments and departments into the broader organizational structure
3. Mechanisms to facilitate top-down and bottom-up communication
4. Mechanisms to facilitate cross-functional coordination

One can quickly see that compromises in clustering (step 2) require more cross-functional coordination.  Structurally, this coordination is created by matrix organization structures.  These matrix organizations go through several structural stages (Richard Hackman and Greg Oldham, Work Redesign, 1980):

1. Traditional structure (the starting point)
2. Temporary overlay, which managerial roles are created to run particular projects, like transitions and implementations
3. Permanent overlay, in which the managerial roles created in the 2nd step become permanent
4. Mature matrix, in which the roles permanently created in step 3 have equal power to the traditional structure

The organizational problems arise in step #3 when the VMO becomes permanent and then shift to a mature model, which requires power sharing.  Traditional structure leaders are challenged to share power, which takes the eye off the strategic objectives of the company.  Also, as outsourcing becomes more pervasive in an organization, matrix designs become more widely adopted by an organization.

This is exactly where the largest strategic problem lies.  Danny Miller matched strategies similar to Porter’s strategies with the best organizational structure:

Matching Vendor Management Organization Structure with Organization Strategy

As few organizations have innovation as their primary corporate strategy, they aren’t structured into a matrix organization.  Pervasive use of outsourcing using VMOs arranged in matrix organizations create significant problems because they cause the company to inadvertently change  structures, taking away focus from corporate strategy.

What You Should Do

The bottom line is that vendor management organizations should only be created when the skills and experience don’t exist in a company at the beginning of an outsourcing initiative.  It should be temporary, designed to develop the skills and experience necessary to implement outsourcing projects and manage vendors.  At some point, the day-to-day line responsibilities of the VMO should be shifted back into line organizations, where line managers take responsibility for delivery of objectives by managing vendors to achieve the goals.  Since the service level agreements in the contracts should meet the needs of these organizations, there should be little concern – these organizations should be managing performance and reporting on results already.  The staff responsibilities should be shifted back to the staff functions (procurement, legal, HR, and finance).

The only responsibility that should remain centralized is outsourcing governance.  This governance function, as described in the IAOP OPBOK, should focus on rules of engagement, encouraging cross-functional communication, project prioritization, initial project implementation tracking, high level interdependent planning among divisions/departments and vendors, evaluating enterprise-wide vendor performance, and the sharing of outsourcing best practices.  That means the other 9 categories of responsibilities defined by the IAOP should be temporary or distributed through other organizations.

Counter Arguments

Outsourcing advisors and experienced clients may disagree with the recommendation above.

There may be situations where outsourcing for cost reduction reasons is an imperative and such should be centrally managed to ensure EBITA objectives are achieved.  I wouldn’t argue against this, except to suggest that even this should be temporary and that, at some future point, the organization work toward developing the vendor management competency in all parts of its organization in order to deliver on its new reality – outsourcing isn’t just a project, it is a long term manner of delivering, and decentralizing the management of its delivery mechanism outside of the delivery leadership makes little long term sense for the reasons listed above.

There may be situations where the focus of outsourcing is sufficiently large such that few internal operations remain.  For example, I worked for a west coast savings and loan bank fifteen years ago that had exactly six IT employees – the CIO, his admin, his VP of strategy, and some assorted junior staff members.  The rest, including most leaders, were entirely outsourced.  In this case, staff functions should still be allocated to procurement, HR, and legal organizations, but the day-to-day line vendor management responsibilities should be centralized.

Some people may argue that managing a matrix organization is the role of an outsourcing VMO.  That’s great, but see all the problems listed above.  Why go through that if you don’t need to?

Finally, some people would simply argue that outsourcing management and vendor management skills are insufficiently available within an organization to distribute the responsibilities.  Well, it is absolutely the responsibility of any organization undergoing an outsourcing transformation to take this internal development opportunity seriously.  Upgrade talent, use training organizations to build skills, and seek professional development at major organizations to develop your staff.  Simply housing the talent in a single organization is destined to failure in the long run.

Related posts:

1. Offshore Outsourcing Vendor Governance Organizations
2. Outsourcing Vendor Management Organizations
3. Outsourcing Governance and “Who Owns Supplier Performance Management?”

Outsourcing Education is a Big Business

It is highly likely that you’ve sought professional development to improve your vendor management and outsourcing management skills. There are very, very few resources available to vendor management and outsourcing professionals.  As a result, you’ve probably encountered a few companies out there that specialize in training for vendor management professions.  Have you noticed the pricing?  Developing certifications for outsourcing professionals is definitely a big business.  Is it worth the investment?  If so, which should you select?  Let’s delve into what’s available and whether it is worth the money.

There are a two primary professional outsourcing certifications available: the International Association of Outsourcing Professionals’ (IAOP) Certified Outsourcing Professional (COP) and the Customer Operations Performance Center’s (COPC) Vendor Management Vendor Management Organization Coordinator (referred to as the VMO coordinator).

IAOP Certified Outsourcing Professional

The IAOP touts itself as the leading outsourcing certification organization.  Indeed, they are the only organization with significant reach within the advisor, client, and vendor community (over 40,000 members).  The organization is young, founded in 2005, and is run by a single chairman, Michael Corbett, and a strategic advisory board made up of a who’s who of advisors, vendors, and clients, including Booz, CB Richard Ellis, American Express, Accenture, Liberty Mutual Insurance, PWC, and Accenture. There are also a wide variety of official committees devoted to developing the IAOP’s reach and goals with a similar footprint of big name firms.  These networking opportunities provide outstanding value.

The COP certification requires a professional experience, education/training, and completion of an exam – 150 points must be earned.  In terms of professional experience, the application requires the candidate detail experience in 10 end-to-end aspects of managing and outsourcing engagement.  In each of these 10 categories, the candidate earns 5, 10, or 15 points based on the number of projects and companies at which the category’s experience has been earned (5 for one project, 10 for two projects, and 15 for 3 projects and two companies).  Earning the 50 minimum required points is relatively easy if you have worked in the vendor management or outsourcing space for a year or two.  The requirement to demonstrate experience gained at more than one company to earn the 15 point award in each category means that most people who have earned their experience at a single company will be limited to 100 points.

Earning education points (up to 100) is far more difficult.  A post-graduated degree in a business-related field is worth 25 points.  Completing the “COP Master Class” is worth 75 points.  Passing the COP exam is with 25 points – something you’ll need to do anyway if you want the certification.  In short, many people will be required to take the COP Master Class unless your outsourcing experience is broad and deep.  It is important to note that vendors, advisors, and clients all take the same exam and master class.

The COP Master class is offered in two formats: a four day $3,500 ($3,000 for members and less for member’s with corporate status) in-person training class or an online $2,995 training class requiring 35-40 hours of work.  No doubt, the “budget” online training class is more popular because of the lower cost, especially given the cost of travel expenses.  Of course, those who forgo the in-person class lose the greatest value of the class: networking.

The COP exam is a 200-question, 3.5 hour online exam requiring that you get 70% of the questions correct.  Material is taken directly from the Outsourcing Professional Body of Knowledge (OPBOK), a 321 page PDF available to members that covers end-to-end outsourcing from client, vendor, and advisor perspectives.  Th OPBOK was last published in January 2008 and is on version 8.

The COP certification is costly to earn.  Here is a rundown of costs

1. $395 – Membership in IAOP
2. $600 – Application and Exam
3. $3,000 – COP Master Class (in the USA, prices vary in other countries) – required if you don’t earn sufficient points in other areas
4. $800 – Governance Workshop (optional), provides 15 more points to toward the COP certification
5. $250 – Online Exam Prep Workshop

(Note: the IAOP offers a bundle of the Master Class, Governance Workshop, and Online Exam Prep Workshop for $4,300)

So, here’s how it breaks down assuming all candidates take the Online Exam Prep Workshop and a post graduate degree:

If you can earn 100 points through a combination of experience, you will not take any additional classes and will pay $395 + $600 + $250 = $1,245.

If you can earn 85-99 points through a combination of experience, you will take the governance workshop and pay $395 + $600 + $250 + $800 = $2,045.  You could take the master class instead, for an additional $2,200.

If you can earn 50-84 points through a combination of experience, you will take the master class and pay $395 + $600 + $250 + $3,000 = $4,245.

If you have experience worth less than 50 points, you can’t qualify for certification because the combination of post graduate experience, classwork, and the exam cannot exceed 100 points.

If you do not have a graduate degree, here’s how it looks:

If you can earn 125 points through a combination of experience, you will not take any additional classes and will pay $395 + $600 + $250 = $1,245.

If you can earn 110-124 points through a combination of experience, you will take the governance workshop and pay $395 + $600 + $250 + $800 = $2,045

If you can earn 50-109 points through a combination of experience, you will take the master class and pay $395 + $600 + $250 + $3,000 = $4,245

If you earn less than 50 points, you can’t qualify for certification because the combination of post graduate experience, classwork, and the exam cannot exceed 100 points.

Of course, the IAOP has certified other organizations to provide training through it’s Bridge Program.  Colleges, companies, and private trainers pay the IAOP to first assess their classes for $1,500 for the first 3 courses and $250 for each course thereafter.  Courses must be recertified every 3 years.  So far, Duke offers 2 courses (only one provides 25 COP designation points), the University of St. Thomas in Houston offers 1 class worth 25 COP designation points, and Open Source Development LTD offers 3 classes, none of which count toward COP certification.  Luckily, the IAOP provides points if you attend one of their conferences.  The World  Summit ($1,400 in 2010) is worth 8 points and the Asia-Pacific ($1,200 in 2009) and Europeans ($? in 2009) summits are worth 6 points each.  The Global Human Capital Forum ($700 in 2009) provides 3 points.

Once a member, 20 continuing education credits are required each year.  You can do so by taking the classes (why you would retake classes, I don’t know) or attending the conferences above, as well as attending IAOP chapter meetings.  So, unless you can also speak or teach classes, which is worth 2x the normal 1 credit per hour rate, you’re going to need to take a class or two each year to keep your COP certification.

Phew.  That’s complex.

The IAOP COP certification all quickly adds up to a pretty spendy proposition if your company isn’t sponsoring.  Essentially, count on spending $395/year + continuing education credits you need + certification and, ever two years, recertification for another $50.  Throw-in some travel to attend conferences and classes, and you’re talking a pretty significant investment.

If your company is sponsoring you and not taking a corporate sponsorship, it adds up if a number of people need certification – after all, how many people manage outsourcing vendors at your company?  If you work for a reasonably large company too stingy to take out corporate membership (price is negotiable), then you could easily be talking $60,000+ for the first year for 15-20 people, and another $20,000-$30,000/year thereafter.  And then, what do you have?  A group of people who understand outsourcing 101?

Have no doubt this: The business of outsourcing certification is big business.  Take 40,000 members (the current stats are “100,000+ members and affiliates”) spending $2,000/year annually, and you’re talking about IAOP being a $80M business.  And, that’s just the member dues, fees, and classes.  Add to that master COP training (for train the trainer) and, as any impartial observer would note, vendor sponsorship fees.

That’s right, vendor sponsorship fees.  Look at the 2010 World Summit Agenda and note that the opening is sponsored by Accenture, numerous networking events are included (where vendors, at least at other events, pay for the opportunity to mingle), and the event itself is prominently sponsored by Accenture, CBRE, Colliers International, and Booz in the literature.  Browse the IAOP website, and you’ll find advertisements from a number of vendors.  On my screen right now, there’s NCS, Insigma, DataPipe, North Dakota Chamber of Commerce, Infosys, and DNL Global.  Each time I browse another page, another group of vendors’ ads revolve.  The IAOP takes the most bizarre move in actually rating the top 100 vendors.  Why bizarre?  They are supposed to support the industry, so why do they only rate vendors and not their other constituents?  Why not customers or advisors?  Oddly, comparing the Black Book’s top 50 in 2009 (which, as we’ve analyzed, is fairly unbiased, although a poor example of a good analysis) to the IAOP’s top 50 in 2008, 30 of the Black Book’s vendors are not in the top 50.  Why are the ratings so different?  I don’t know, but could it be that a leadership partially made-up of vendors has some biases that cannot be removed?

COPC’s VMO Coordinator

The COPC takes a completely different tack and a more narrow niche.  The COPC focuses on customer transaction processing, including call center and backoffice processing.  It would not be appropriate to apply to IT outsourcing categories.  The focus is actually on certifying an organization to one of two standards: the Customer Service Provider (CSP, for vendors and internally run operations) or Vendor Management Organization (VMO, for vendor managers).

The COPC was founded in 1996 and built it initial CSP standards in collaboration with a number of companies who saw a mutual need for a performance standard.  They are based on the United States’ Malcolm Baldrige National Quality Award.  It is an independent, privately run company that does consulting-type work.  In 2001, when outsourcing began to influence how operations were managed, the COPC developed the VMO standard.  The standards address the specific processes that CSPs and VMOs must use to meet the expectations of internal stakeholders, vendors, and customers.  So, unlike the IAOP COP, which focuses on high-level outsourcing “what’s”, the COPC’s CSP and VMO standards address the detailed “how’s”.  For example, the COPC addresses how to audit vendor quality, how to forecast transaction volumes, and how to handle business continuity events.  In short, the COPC focuses on operation process excellence and the activities that clients and vendors must take to be successful.  The list of clients is impressive, although not as broad as the IAOP.

In terms of individual “membership”, it is not a professional development model, like the IAOP, the PMI, or other organization.  There are no annual dues, no complex certification calculations, or continuing education obligations.  Instead, you simply need to attend a COPC VMO or CSP Coordinator training class ($3,800), which is a five day class that concludes with a lengthy exam.

The COPC doesn’t hold conferences, so the networking opportunities are fairly limited.  There are also no vendor sponsorships.

The COPC also tends to push it’s auditing services, which ensure your organization meets the the COPC standards.  Many companies achieve the certification and some take the learning and don’t bother with the certification (and probably don’t get the same results, either).  The auditing process takes more than a year for most companies, which begins with an initial analysis of the company’s/vendor’s performance against the standard, and then continues with improvements that are necessary until the organization passes an audit.

The cost of certifying an organization?  It probably runs north of $100,000, plus the need to train most vendor managers or vendor resources. That excludes internal efforts to reengineer processes to meet the standard.  However, that small amount of money pales against the cost of a large BPO operation and operational benefits it can gain.

Other Options

Carnegie Mellon University’s IT Services Qualification Center (ITSqc) recently released a standard that is akin to the legendary CMM models for which it is famous.  The development of the new standard is likely due to the increased nature of outsourcing in the IT area, which has eliminated the need for clients to seek CMM certification, but also challenged vendors who deal in a many-to-one model with clients, who frequently have little desire for CMM restrictions The new standards are the eSCM-SP (for vendors) and the eSCM-CL (for clients).  The list of certified vendors isn’t very long, and there are no CL certifications.  It is also an organizational certification, not an individual certification.

Frankly, given the apparent complexity of graphics like the one below, it is hard to believe client organizations will be clamoring for it:

Can certification models get more complex?

Final Analysis

To some, this is an apples and oranges comparison.

The IAOP’s individual membership focused on outsourcing basics, along with its broad networking opportunities definitely creates some advantages.  The COP master class teaches something taught nowhere else (except the school of hard knocks), but focus on the client-advisor-vendor more than the operations.  Modeled after PMI, ISM, or CPA organizations, it’s high initial cost and recurring costs are hard to digest ($2,995 for an online class?).  Also, the IAOP’s decision to dip into vendor sponsorships indicates some bias.  I am currently a member without the COP certification, and I can say that without little doubt, most chapter meetings are vendor presentations, not client discussions.  It’s terribly difficult to have a balanced discussion with so much vendor marketing surrounding you – something the IAOP is finally realizing as the create customer-only networking events during the conferences.  However, there is no resource like the IAOP.

The COPC’s VMO and CSP coordinator certifications are focused on how to manage operations effectively and efficiently.  They create results, but only if the organization embraces the broader certification, which is far from cheap and can require extensive reengineering, something the some clients or internal stakeholders may have little appetite for.  I am a registered COPC VMO Coordinator and think extremely highly of the COPC and the standards.  I believe the COPC standards should be adopted by any medium-to-large operation focused on BPO activities because they create processes for vendor management, something that most VMO’s completely lack.  However, the lack of networking opportunities and the COPC’s self-interest in auditing against standards can be a turn-off to some.

Either way, there is no doubt that individuals working in the outsourcing space need development opportunities.  Both organizations bring tremendous value to their members and the industry.

So, here’s my recommendation:

1. If you’re part of an organization of any size with IT outsourcing responsibilities with sufficient budget, require your VMO and vendor account personnel to obtain IAOP COP certification.  Best yet, host a class and have your vendor managers and vendor account teams take the classes together!  That’s a meaningful investment.
2. If you’re part of an organization of substantial size with BPO responsibilities and sufficient budget, implement the COPC VMO standard and require your vendors to achieve the CSP standard as part of the RFP/negotiation process. Also, require key personnel to obtain their CPO certification.  Not all at once, clearly.  Your governance resources should take the IAOP governance workshop and the IAOP CPO certification, while your vendor managers should focus on the COPC VMO, and later cross-train everyone.
3. If you’re part of an organization of moderate size with BPO responsibilities and moderate budget availability, require your VMO and vendors to take the COPC training classes, but don’t bother with the certification unless you really want to excel and have the budget/time.  Again, require personnel to obtain their CPO certification.
4. If you’re part of an organization of small size with BPO responsibilities, or simple an individual looking for outsourcing skill development without company financial support, the IAOP courses are ideal.  Get membership and look for ways to take the COP Master Class.
5. If you’re an individual looking for vendor management skill development, the COPC’s VMO class is the one for you.

What are your thoughts?  Leave your comments below and share your knowledge with others.

Also, I encourage you subscribe to this blog to receive updates in your inbox.

Related posts:

1. Offshore Outsourcing Vendor Governance Organizations
2. Outsourcing DIY: Less Expensive, Less Scary, More Effective
3. Vendor Management Organizations Are a Bad Design

Nick Krym of Pragmatic Outsourcing Provides a Great Example of IT Service Levels

In the world of Service Level Agreements and IT outsourcing, contractual metrics are difficult to conjure because the work is intangible, with the exception of uptime, help desk/desk side services, and application development milestones. However, metrics are the dashboard by which effective vendor managers can effectively manage outsourcing vendors.  Today, Nick Krym posted a great blog article on metrics that’s worth a look.

What makes his approach to IT outsourcing metrics noteworthy?

It begins with the clear segregation of the outsourcing vendors’ maintenance service levels from development service levels.  He recognizes up front that the internal stakeholders have different objectives and the contractual pricing is based on different outcomes.  Hence, he has two categories of service levels, not one lengthy set of service levels that measure everything or a short set of service levels that apply the same vendor management approach to each service type.  BPO vendor managers can use the same approach, as different transaction types require different service levels, but, by breaking the into clear categories, vendor performance of each transaction type can be evaluated.  For example, call center inbound customer service and call center inbound customer written correspondence.

The second sound aspect of Nick’s approach is his approach of leveraging a simple few metrics to measure the outsourcing vendors’ effectiveness.  Between 4-8 contract service levels is all that most organizations need, and he uses 4-5 in each category.  I know of one situation where the client measured 350+ metrics for an IT outsourcing engagement.  Not only was it incredibly time consuming to manage and calculate (and rebut!), but the effect of missing a single service level was essentially meaningless to the vendor.  Think about it: if you have 10% of your monthly contract value at risk, missing any of the 350 service levels on a $10M/month contract is worth exactly $2,857.14.  That’s not exactly going to get people motivated to fix things, right?  Having fewer metrics makes each metric more meaningful.

Finally, Nick uses control limits to communicate acceptable service level performance. In each chart, he uses high and low limits.  The majority of vendor managers I’ve met use a single line – the service level.  However, what most folks don’t understand is that by using high and low control limits, you can:

• Clearly communicate a range of acceptable performance.
• Understand if the vendor is over performing in some areas to offset performance in other areas.
• Display trends within the acceptable performance range to proactively manage impending failure before the vendor misses the SLA.
• Moderate expensive overperformance that the vendor need not do.  Remember – you pay for the extra quality, which may not be tangible.

Of course, I will note that Nick’s vendor is performing pretty horribly, but, as he says, he inherited the vendor through M&A activity.  This means the vendor needs an opportunity to meet expectations before terminating the relationship.  Besides this, here are some opportunities for improvement:

1. Never average daily turnaround time metrics to create a monthly metric (top left graph).  Averages distort performance.  Rather, create a monthly turnaround time based on all transactions and show daily/weekly trending using a month-to-date trend.  Then, bin items based on TAT and do root cause analysis on items that fall below TAT.  And then histogram based on counts of root cause analysis.
2. There are a few glitches.  First, the top left graph uses decimal places in the Y-axis, but the others don’t.  Second, the top right graph indicates a NEGATIVE response time between Oct 14 and Oct 21, probably because the line is formatted to be curved, a no-no in the data visualization world.  Third, consider rounding to a single decimal place, unless contract metrics require a 2nd decimal place.  Lastly, it appears that there are lots of zeros, which is probably due to volumes, so it may be important to indicate volumes using a secondary Y-axis to make this clearer.

Great job, Nick!

If you’re interested in 360° Vendor Management’s perspective on metrics, please visit our articles on Top Ten Service Level Agreement Considerations, Outsourcing Vendor Metrics, Operational Metrics, Key Performance Indicators, and Transformation Metrics.

A quick reminder: if you find this content interesting, please subscribe via Google’s automated delivery service to receive updates using the “Subscribe” field on the right side of the page or by clicking here.

Related posts:

1. Outsourcing Metrics: Key Performance Indicators
2. Transformational Metrics: Governing Outsourcing’s Lure
3. More on Outsourcing Vendor Metrics: Operational Metrics

How useful is Datamonitor's 2009 Black Book of Outsourcing Report?

About the Publisher

In 2005, Brown-Wilson penned the Black Book of Outsourcing, which served as a solid introduction to outsourcing for buyers.  At the time, it was one of the few published resources that touched on a wide variety of issues, including outsourcing strategy, vendor selection, contract negotiation, and vendor management.  It offered no vendor rankings, but they were made available online.  Douglas Brown and Scott Wilson know what they are talking about, so the book was well written, although it offered few resources for buyers to leverage, such as templates.

Then, in 2006 Brown-Wilson issued their first rankings. It was a bewildering group of 90+ sub lists of “Top 10 Vendors” in categories ranging from Identity Management and Access Controls to Investor Relations and Outplacement Services to Mining Engineering Firms.  All made publicly available.  Besides it appearing like a high school reunion-like method to find an award for every vendor, it became a vendor list for RFPs, used by analysts, advisors, consults, and buyers. However, it was difficult to use because of the number of sublists and the clear issue that not all subcategories made good sense.  For example, there was a bias towards India and no inclusion of Canada, the Philippines or Costa Rica – all very hot outsourcing locations at the time of publication.

Brown-Wilson must have seen the usability problem because in 2007 they simplified things when they published their first “Top 50″ vendor list.  They also included 11 clearly understandable categories that helped organize a baffling 100+ sub “Top 10″ categories of outsourcing vendors which included Agribusiness, Process Consulting, pay-as-you-go call centers, and Outsourcing and Offshoring Research Vendors (which did not include Brown-Wilson).  In an even more bizarre move, Brown-Wilson also rated outsourcing advisors and consultants by creating 15 different categories of “Top 10″ lists (as if this niche needed sub-niches).  Finally, Brown-Wilson named the top 50 green outsourcing companies.  As if non-performance, governance, and proper requirements definition wasn’t enough, Brown-Wilson suggested that companies were actually “dumping” outsourcing vendors based on their efforts to clean up the environment.  (I won’t go into the seemingly strange combination of carbon credits and emissions trading where companies really outsourced their environmental requirements and then terminated vendors for failing to meet environmental standards.)

In 2008, Brown-Wilson kept the format the same.  An overall Top 50 vendor list, and two subcategories, advisors and vendors, that were broken into seven (instead of 15) and 90+ (instead of 100+) subcategories, respectively.  The same “Green” top 50 category was reported, too.

Then, in April 2009, Brown-Wilson sold their business to Datamonitor (which had acquired a whole host of other companies, as reported by SageCircle).  In the 2009 results, the same Top 50 Vendor list was published, along with a single category of “top 10″ advisors, and just 50 subcategories of vendors were published.  Of course, now Datamonitor sells specific reports
based on the data collected for thousands of dollars per report.  So, it better be worth something, right?

Analysis of the Results of The Black Book of Outsourcing

Now, let’s look at how the results changed from year to year to see if the results are reliable.

A quick look at a few intra-categories’ differences between 2006 and 2007 results shows some really big changes:

• Health insurance/payors outsourcing vendors:  Only four vendors appeared in both Top 10 lists.  EDS remained last, despite six new vendors entering the list.  TriZetto dropped from first to ninth.  ACS, who didn’t even appear on the 2006 list, beat out all comers and took the top ranking.
• Overall BPO: Only three vendors appeared in both Top 10 Lists.  Accenture moved from first to last.  Cap Gemini moved from ninth to third.  WNS Global, who also didn’t appear in the 2006 list, beat out all comers and took the top ranking.
• Enterprise Application Solutions Vendors: Only 5 vendors appeared on both lists.  Satyam took the top spot in both years, but #2 and #3 in 2007 were new vendors to the list and the 2006 #9 (HP) and #10 (EDS) moved into 4th and 5th, respectively.

Those are some pretty major changes.  It’s like the New England Patriots dropping from super bowl contention to middle-of-the-pack performers.  However, unlike in American football, outsourcing vendors sign clients for multiple year contracts.  Why is there such variation?

The Top 50 Lists between 2007-2009 show significant variation:

• Just 16 vendors were rated in top 50 all three years (17 if you include EDS after HP’s acquisition).
• The 2009 top 20 vendors includes just nine vendors in the 2008 top 20.  Only seven of the 2009 top 20 vendors were in the 2007 top 20.  Only three 2009 top 20 vendors were listed in the top 20 in all three years.
• Not a single vendor in the 2009 top 5 vendors had previously been in the top 5.  Only one had previously been in the top  10.
• Xerox, ranked #3 in 2009, had never been previously ranked.

Why is there such variation?

The Problem

Nothing Brown and Wilson do in their survey methodology cause some vendors to appear high while other vendors to appear low – it’s really the customers who cause the ratings to be high or low.

However, Brown and Wilson’s presentation of the data is awkward.  Some examples:

1. The Top 50 Compares Apples to Oranges – How can Accenture, IBM, and Genpact be compared to Xerox?  Xerox is a one-dimensional vendor focused on managing printers and outsourced print.  While one could certainly try to make arguments about the best athlete and compare across different sports, how could you compare Michael Phelps, Tiger Woods, and Michael Jordan?  Their stats are hard to compare across categories.  This causes great variation in interpretation.
2. Non-Standard Scoring Methodology Skews Results – Brown and Wilson made a poor choice when they decided to use an 11-point scale.  Likert and semantic differential questions always use an odd number, and very, very rarely use numbers like 0 and 10 (because of their emotional value) and seldom exceed a scale of 9.  The reason is that respondents have a hard time differentiating between the numbers.  For example, Strongly Agree, Agree, Neutral, Disagree, Strongly Disagree or Strongly Agree, Agree, Somewhat Agree, Neutral, Somewhat Disagree, Disagree, and Strongly Disagree.  Could someone please attach some verbal definitions between a 7 and 8 on Brown and Wilson’s 11-point scale?  Actually, the did it for you, and this is the shocking part: Satisfactory Performance is defined as a 7 AND a 8 on their scale.  So, they provide seven levels of dissatisfaction (0-6), two levels of satisfaction (7-8), and two levels of overwhelming satisfaction (9-10).  Then they average the scores, which makes the differences among vendors harder to differentiate.  As a result, one should expect the results at the top 50 vendors to be very tightly bunched together as a result, as they represent just 1% of the total vendors evaluated!  As a result, there are probably very, very small differences among the top 50 scores, making them highly susceptible to margin of error.
3. All Factors are Treated Equally – Brown and Wilson measure 31 different factors (they call them KPIs) in the most recent survey.  These factors are all treated equally in calculations, but few respondents likely feel they are equal.  For example, “Community Obligations and Stewardship” is weighted equally with “Results-Oriented Performance Culture.”  Furthermore, some of the factors are tablestakes, like “Lawful Conduct and Company Culture” and “Ethical Financial Leadership.”  If a company doesn’t do these things well, they are shut down by the government, regulators, or the courts.  These are “yes” and “no” type questions, but Brown and Wilson force them to be scored of a 11-point scale, too.  The net result here that truly important and differentiating factors are muted by less important or tablestakes questions.  Again, this causes respondents’ scores to be less valid and reliable.
4. How Much Do Vendor Managers Really Know – In certain total-outsource industries (like Payroll and AP), how much do the vendor managers really know?  For example, do you know how involved your payroll vendor is in the community or how much diversity they create?  With over 715,000  invitations to participate, how many of those vendor managers know the vendor well enough to differentiate across a 11-point scale on rarely encountered factors, including “Value, Mission, and Message Communication” and “Ethical Human Resources Leadership.”  How reliable are respondent’s scores in these areas?

Conclusion and Recommendations

Brown and Wilson have admirably attempted a nearly impossible task: asking vendor managers with different seniority, experience, and industries to compare almost 5,000 vendors who belong to one or more different outsourcing niches.  Kudos for the attempt.  However, their survey design methodology is deeply flawed and results in reliability and validity errors.  The result is that potential and current customers’ perspectives are deeply affected by these types of lists, as they generally form the starting point for vendor selection lists.  They also create false perspectives among the vendors.

However, here are my recommendations regarding the use of the top vendor lists:

1. Don’t believe the vendor hype regarding position in the results.  Scoring is not reliable or valid.
2. Don’t rely solely on the top vendors in each category – go deeper into the list to find the gems that may be 10 places below, but have a margin of difference among scores of less than 2%.
3. Use the factors Brown and Wilson ask respondents to evaluate to drive vendor selection, alignment and governance activities

Finally, here’s the recommendations for Datamonitor to consider:

1. Get scientific and use solid, proven survey design to drive value in the Black Book of Outsourcing
2. Consider using the Analytical Hierarchy Process to compare vendors’ performance.
3. Consider using an “importance” and “effectiveness” methodology, that asks respondents to rate both for each factor.  That would provide valuable feedback to customers and vendors, as well as create a basis for weighting factors differently.
4. Don’t allow multiple responses from one company.  In other words, don’t let Kraft submit 50 responses for one vendor.  Ask them to consolidate their responses as a corporate response to get better feedback from all levels in the organization.
5. Reevaluate some of the factors scored and remove tablestake factors, like lawful and ethical HR actions.

The book is great, and should be required reading for any outsourcing professional, buy it here:

Related posts:

1. The Business of Outsourcing Certifications
2. Offshore Outsourcing RFPs: Are They Encouraging Copy and Paste?
3. Offshore Outsourcing Vendor Governance Organizations

Manage Your Own Outsourcing Project

Stephanie Overby’s CIO/Computerworld article is certainly thought-provoking.  Essentially, Overby eschews spendy consultants for analysts and independent consultants, pumps up the smart employees already working for a company, recommends companies take advantage of less expensive templates available online, and finally suggests companies start with smaller projects where vendors get the opportunity to prove their worth and internal resources learn the ropes.  What’s not to like about that?

In fact, Phil Fersht, the top outsourcing industry analyst, has blogged this year (here and here) about the troubles facing advisory firms.

Undoubtedly, Companies can be smarter and, despite scare tactics to the contrary, they can do this themselves.  Here’s why:

1. Have Confidence – Whether you’re outsourcing a call center or an application development function, know that if you have a strong grounding in the operational aspects of the outsourcing engagement, you are 70% on your way to doing a fine deal.
2. Know What You Don’t Know – Use analysts and independent consultants to review progress and provide specifics, but do not use them to manage a project.  Many advisory firms can benchmark your contract and pricing for a relatively small amount, which may be worth the piece of mind. Outside legal counsel can also be helpful at times.
3. Negotiate Flexibility – Vendors will lure you into long term contracts that make termination and change very, very expensive.  Shorten contracts to 3-4 years, give yourself as many outs as possible, and stick to your guns on the costs of change, while anticipating potential change and building that into the contract.
4. Network, Network, Network – There are an overwhelming number of people with experience.  Read the resources available online, ask colleagues at other companies, and seek out professional organizations.  Learn the pitfalls, be curious, and apply what you learn to your company’s culture and objectives.
5. Go Slow – Budgets may be budgets, but many a person has lost his or her job for rushing into an outsourcing engagement without first confirming the targeted areas can transitioned to an outsourcing vendor and sustained thereafter.

Related posts:

1. Desperate Measures Include Outsourcing?
2. Vendor Management Differentiates in a Commoditized Offshore Outsourcing Industry
3. Offshore Outsourcing Vendor Governance Organizations

Do Budgets Cause You to Outsource for the Wrong Reasons?

The Wall Street Journal ran an interesting article this morning in which Infosys’ COO says, ”Past patterns suggest that when budgets are under pressure, clients do all kinds of things to get more with less, like outsourcing and offshoring.”

Ah, Shibu, we love your honesty and we are certain you are right.  Sadly, “budgets” do more to drive outsourcing than they should.  They pervert typically rational minds, generating terrible decisions.  Here are some examples:

1. The SVP of HR at a large domestic company asks his team to outsource HR, but behind closed doors he admits, “I need an outsourcing contract with fixed fees, that way the CEO and CFO cannot cut my budget any further.  They’re hurting the company with budget cuts.”  Exactly who is hurting the company?
2. A VP of operations at a medium midwest firm insists that a cost per transaction payment model is bad because, “I can use the fixed fee offshore vendor resources to perform a wide range of projects not included in the scope of the contract and no one can count those FTEs.”  Off contract services?  What better way to create problems with your vendor…
3. A director of operations at small US firm refuses to terminate an offshore outsourcing provider consistently performing terrible services  because he “budgeted monthly service credits for failure to achieve SLAs and a [performing] vendor would be more expensive.”  You get what you pay for.
4. A VP of call center operations for a west coast firm states proudly on an outsourcing governance call, “We are pleased to say we did not have any severance costs when we outsourced the 350 FTEs.  We were able to find other work for them to do.”  Maybe a few FTEs, but all 350 FTEs?  Sounds like a terrible ROI.
5. A finance director preparing an IT outsourcing benefits summary for management, when challenged about the absence of IT FTE cuts but the inclusion of additional costs for outsourcing governance, says, “The work is performed across the USA and is just a small part of the 80 FTEs currently doing the work.  No point in laying people off.”  Does that mean the vendor fees and the new “governance” team are incremental to the budget?

Shibu is right.  If your company doesn’t have formal outsourcing governance, budgets will pervert you.

Related posts:

1. Outsourcing DIY: Less Expensive, Less Scary, More Effective
2. Outsourcing Governance and “Who Owns Supplier Performance Management?”
3. Offshore Outsourcing Management – What’s the Problem?