Getting good performance from a service provider

It will be obvious, though, that to get the sort of performance from a service provider that BP Exploration claimed, the following factors must be in place:

• the provider should be an established specialist in the function;

• the provider should be a ’Mecca’ for top quality staff;

• careful consideration must be given to the location of the service facility and to the treatment of all staff;

• the client will need to be an important customer;

• the provider must be highly motivated to make continuous improvements.

If the provider is also a consultancy or even associated with a consultancy, or has other clients, the motivation will have to be strong enough to limit the degree to which key personnel are moved to other projects. Some movement of the provider’s staff around the client base will be desirable but even a slight fall off in motivation, such as might happen if the provider strikes an even better deal with another client, could be very damaging.

Motivating the provider

In order to motivate a specialist service provider there will need to be some inducement that runs until the end of the contract. In addition there will need to be a firm indication that a further contract, at least as lucrative as the first one, is available for a job well done. At a minimum this will involve a risk/reward sharing arrangement whereby, beyond a certain level, the two parties share further savings or losses in some pre-agreed way. These partnership or value-added arrangements make up the bulk of the so-called win/win deals. Increasingly, the emphasis will be more concerned with continuous improvements to the service rather than just cost savings. A good example of this is the deal by which Rolls Royce Aero-Engines outsourced virtually all of its IT department to EDS. The key factor in this arrangement being the EDS pledge to keep Rolls Royce ahead of its competitors in the IT function.

It has often been relatively easy for the client organization to set out its terms. Typically, a minimum service is laid down, which will naturally be superior to what they are experiencing at the time. Then the maximum price is stipulated. Where a partnership arrangement is in prospect it would be normal for the client to look for a stable price over a four or five year contract that was no more and very likely less than their current costs. Once these two issues have been mulled over by the client organization’s management, they will, initially at least, claim to be happy to share any further savings the service provider might achieve on a 50/50 basis.

It is certainly true that most current outsourcing success stories are based on risk/reward sharing deals between client and service provider. It would be equally true to say that the enormous growth of modern outsourcing is largely based on such arrangements. However, a number of the providers credited with producing top quality performances for their clients have apparently performed badly for other risk/reward sharing clients of roughly the same size and importance. I hope some of the reasons for this situation will become clear in the later stages of this book.