A relationship manager has a full-time or near-full-time role
As noted, the pricing and contractual phase of the relationship can create an adversarial environment. Providers are sometimes uncertain that they can even recover their costs, much less make margins. In these cases, the provider will need to concentrate disproportionately on recovering costs, under pressure from senior managers, a situation that results in trade-offs not ultimately beneficial to the client. Concern over cost containment can lead to inflexibility in interpreting the letter and spirit of the contract, which, in turn, can lead to an adversarial relationship.
The solution for one troubled IT outsourcing arrangement we studied was the appointment by the client of a full-time relationship manager. Part of that manager’s job was aligning the provider’s organizational structure with the client’s. The client simply had taken the structure of the incumbent supplier and moved it over to the new supplier—a situation that did not succeed at all. Consequently, the client formalized its management reporting processes, outlining senior management meetings at which supplier performance would be monitored and reviewed. That would then determine when payments and bonuses got paid.
The partners are transparent
Collaborative approaches to resolving issues or conflicts require high levels of trust and honesty. From a practical perspective, that means being transparent about a range of issues from general goals to specific pricing concerns.
Transparency was one of the top three things interviewees cited when asked about the secrets to great collaboration. In the words of a delivery manager at a provider for a global technology conglomerate, “We know exactly what the client is looking for because they are open with us about the key performance indicators they’re being measured on. That way, we can then say, ‘Let’s figure out a way we can work together on hitting those metrics.’ ”
The partners care about and protect each other’s commercial interests
In collaborative approaches to conflict resolution, each side cares about the other’s commercial interests. This is not mere altruism; it is actually in the client’s best interest to care about and protect the provider’s commercial interests, and vice versa, because service performance is tied to financial performance.
The need to be concerned with each other’s financial viability was confirmed by earlier research we conducted into IT outsourcing. In that research, for example, we investigated what happened to outsourcing performance when providers failed to meet their margins. In 15 cases of missed provider margins, 80 percent reported poor outsourcing performance. In 70 cases when the provider met its target margins, only 27 percent reported poor outsourcing performance.
Since the aim was to create a new commercial deal that benefited both parties, partners were willing to renegotiate when one party was financially disadvantaged. In one IT outsourcing arrangement we studied, the provider had made a number of naïve assumptions about the work involved and the resources that would be necessary. The provider had no choice but to alert the client and request an early contract renegotiation. The client responded favorably. Although the renegotiation phase was stressful for both parties, the ultimate outcome was, in fact, a positive experience for the long-term relationship.
On one account, the initial contract was priced using different rate cards for different types of work. After the transition, the client came to the provider and explained that its business case was not being met because it had underestimated the complexity of the pricing mechanism and the range of skills needed. The client asked to renegotiate the pricing mechanism. The provider agreed to a flat rate card in exchange for a longer contract and an increased scope of work. Both parties negotiated a better deal, and the relationship is now a high-performing one.