Different clients, different quality of service

I would doubt if any long-term outsourcing service provider could honestly claim that all its clients were satisfied with the service they have been receiving. But then again it would be surprising if any established supplier of products or services could make the claim – it is in the nature of commerce that you cannot satisfy everybody.

Nevertheless, some of the variations in performance by major outsourcing service providers have been most surprising when considered under normal business guidelines. Providers who have apparently produced excellent results for some clients in terms of service improvements and savings have followed this up with failures and then further successes and failures.

As the world’s leading provider of IT and BPO services, it is worth looking at some of the deals EDS have been involved with. A few years ago they contracted to develop and build a Social Security system for the southern US State of Florida. Part-way through its first year of operation the system developed faults and then got progressively worse. The State officials made the decision to stop paying EDS, who they held responsible for an unacceptable bottleneck in dealing with claims and for the system paying out over $100 million more than it should have done in benefits. EDS sued for non-payment, arguing that State officials had changed the system almost immediately it had been implemented and that as a result the amount of information that it needed to process was dramatically increased. More recently, EDS has provided more or less the same argument to explain why its outsourcing arrangement with the British Government’s Child Support Agency ran into difficulties.

Politicians normally win office by promising changes and therefore, public sector outsourcing frequently carries the risk of disruption due to U-turns in policy. Nevertheless it is almost impossible to accurately apportion blame in these disputes because some changes to the required service are inevitable almost from the day the contract starts. From that point on even the most gifted arbitrator will find it difficult to estimate the extra degree of difficulty or disruption resulting from the change. EDS has a great deal of experience in dealing with the public sector. In recent years they have won contracts with a range of central government bodies in the UK, including the Inland Revenue, the CSA, the NHS, the Driver & Vehicle Licensing Agency, the DSS and a number of local authorities. EDS also provides similar services for government departments across North America and the Far East and has a similarly impressive list of private sector clients around the world. In fact, EDS has over 9000 clients on a global basis and they are the first choice of provider for many major clients, so they must be doing something right. Nevertheless, it would be unrealistic to expect every client to get the same quality of service, however hard EDS and other major service providers might try to achieve that aim.

Getting involved in contract disputes can be a very expensive business, so it is normally true to say that few cases would end up in court if the result was a foregone conclusion, i.e. both parties must normally believe that they have a reasonable case for the dispute to get that far. Outsourcing disputes are no different from other contract disputes and decisions are sometimes in the balance until the very last minute. In fact, cynics will often argue that the decision would have different if another judge had made it, or the same judge had made it on a different day.

On balance, I think most outsourcing advisers would apportion most of the blame for the average failure with the client. The provider typically has the experience to avoid making too many mistakes but it’s often all too new to the client and it is the client who usually introduces massive changes to procedures without having allowed for them in the contract.

Clearly, though, the service provider must be to blame for failure on some occasions, even though it may have been successful at around the same time for other clients. I believe, but I cannot prove it, that failure by one of these majors is most likely to happen because they have taken too much work on.

I accept that it would be difficult to know when a provider who already has thousands of clients is taking on too much work. Nevertheless, over the years I have noticed that when major consultancy firms first adopt a service provider role they tend to underestimate the amount of work that is involved. In addition they are always trying to come to terms with the fact that far more non-fee earning time is necessary in obtaining an outsourcing deal than is ever likely to happen in a conventional consultancy assignment.

This uncertainty has certainly led to some new service providers underestimating the time taken to pitch for new work in a competitive situation. In addition, of course, without previous experience they can sometimes only guess at the time and effort needed to bring about the transition, and if they get this horribly wrong there is a good chance it will never be put right. However, it goes much further than that. Even an experienced service provider can never be really certain how long the transition will take, as each new transition will not only contain unique elements but will be subject to varying degrees of helpfulness from the staff being transferred. The experienced service providers will probably be 10–15 per cent better in making such estimates but they can all get it wrong. Even the most experienced providers have known times when a major new client has been taken on just when problems have arisen unexpectedly with other existing clients’ work. As a result there will be a great deal of stressful travelling around by key staff to correct the problem, but such a situation will not bode well for the new client’s chance of getting good service at the first time of asking.

I think some service providers are never quite sure why one outsourcing project is an out and out success and another is a complete failure. Whilst I am sure that taking on too much work is a major reason and that a sudden increase in problems across existing clients is another, the human element must also be a major factor. Transferring IT, finance or any large function to a service provider is a major act of faith. So much of it depends on the management skills available to the project. The programme manager and other key members of the provider’s staff may be experienced or inexperienced. They could be on the top of their form or suffering from depression or other illnesses. Similarly, the client’s staff may be depressed or ill or just bloody-minded. In short, the difference between a very successful and an unsuccessful transition may simply be the atmosphere permeating around the management team or the fact that a key executive is ill.

If I were contemplating outsourcing a major function, I would pay special attention to the people the provider was putting forward to run the project. Are they experienced in the roles they will be playing? If so, what success have they had? If not, can we afford to take the risk on this occasion? I would also examine the attitude of my own senior staff – those being transferred and those being retained. If these people were really negative it would be risky to let them play a key part in the transition.

On a regular basis throughout the transition I would make it my business to study the atmosphere being created by the interaction of the managers and at the first sign of problems I would demand changes.