Friday, September 24, 2010

Putting some Relationship into Relationship Management

Most Outsourcing Agreements now include a complete article dealing with Governance that focuses on managing the relationship between the customer and the service provider. The article typically defines working groups and committees with responsibilities for managing different aspects of the relationship. There may well be a planning committee for the transition, a joint governance committee to manage the relationship going forward and an escalation committee to deal with issues that cannot be resolved at a lower level. The Governance article will likely include sections, maybe even diagrams and flowcharts, dealing with the responsibilities and authority of each committee, their membership, quorum and meeting frequency, escalation of issues and much much more. Given the importance of effective governance to a successful outsourcing arrangement, this detail and the specificity around governance is all for the good.

What there does not seem to be a great deal of, in all the relationship management, is relationship. The mandates, structures and responsibilities of the governance committees are defined in great detail, setting out how the customer and service provider will manage the contract and their relationship. But in most Outsourcing Agreements and regardless of how detailed the Governance provisions are, there is unlikely to be any mention of joint social or educational activities or of any events with a non-business purpose. The only parties are likely to be the Parties to the agreement.

There are many possible reasons for not referring, in an Outsourcing Agreement, to any form of social or educational interaction between the customer and the service provider. In some cases, the absence of such provisions may be attributable to a modern day commercial manifestation of the “no fraternizing with the enemy” rule. In other cases, the agreement may be silent on these matters out of a concern that, if one party or the other were to pay for purely social or educational events, such payment could be considered a form of improper inducement. (This could be an especially serious issue for government outsourcings.) It might be from a sense that the non-commercial aspects of the relationship should not be referred to in what is fundamentally a business agreement. Or it could be that the social and educational interaction between the customer and service provider teams is not mentioned because of the parties’ expectation that this is something that will happen naturally and, if it won’t happen naturally, then it cannot and should not be forced.

In my view, this is unfortunate. The governance provisions of current outsourcing agreements should provide for some social or educational interaction between the customer and service provider personnel. The interaction could take the form of seminars on current technological or business issues, advisory committee meetings in which the customer and service provider teams are invited to share ideas, lunch and learn programs, joint fundraising events, holiday parties or even bowling parties, golf tournaments or family days. The point of these activities is that: (i) they are concerned with developing a relationship between the customer and service provider teams; and (ii) they are not focussed on dealing with or solving specific types of business issues or even with establishing procedures to do so.

This type of social or educational interaction between the customer and the service provider benefits both parties: it allows for empathy and understanding to develop between the teams that can be the basis for the collaborative and cooperative relationship so important to successful outsourcings. Teams are more likely to approach the myriad issues that arise in a cooperative, problem-solving spirit, to the benefit of the outsourcing arrangement, when they know their counterparts as individuals rather than just as anonymous representatives of the other party. In effect, it is easier for the teams to work together because they have played together.

The interaction between the customer and the service provider can happen spontaneously during the term of an Outsourcing Agreement. However there are benefits to addressing the issue specifically in the agreement. First, if the Outsourcing Agreement does deal with the issue, then the social and educational activities are more likely to happen and not depend solely on serendipity. Moreover, it is possible that they will continue to happen even at times of relationship stress when they could have an especially important impact. Second, dealing with the issue in the Outsourcing Agreement allows the parties to define the activities that are appropriate in an organized and systematic way that can encourage the growth of a healthy relationship and maximize their impact. The customer and service provider can also, in the process, establish codes of conduct as to what is acceptable and exclude the events that may be only disguised marketing activities. Finally, the parties can deal specifically with the costs of these arrangements, deciding whether they are to be the responsibility of one or the other of the parties, shared between them or funded in some other way.

Having said all that, there does not seem to be any groundswell of support for including as part of an Outsourcing Agreement provisions concerned with the non-business aspects of the outsourcing relationship. Requests For Proposal in connection with outsourcing arrangements are not asking bidders to identify the social or educational activities they are recommending to nurture a healthy relationship between the customer and service provider teams. Nor do these sorts of provisions seem to be a part of any of the precedent outsourcing contracts I have seen. Perhaps however, if good relationships between the customer and the service provider do actually increase the likelihood of a successful outsourcing, it is time to rethink the issue.

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