Esteban Herrera: Research VP for HfS' buy-side enteprise sourcing practice
One element of sourcing which constantly baffles me, is the inability of firms to be open about why they’re doing it.
If I have a dollar for every outsourcing engagement which was decided purely on price, with a “nod and a wink” for the innovation that was going to be achieved in the future, I would be, well, about a grand better off! Our new enterprise sourcing dynamo, Esteban Herrera, expands further…
The expression barrier in outsourcing
Almost a decade ago, I had the honor of doing some research with MIT Sloan’s Peter Weill, one of the most influential voices in IT management in the world. Over the course of that project, I became exposed to many of Peter’s concepts, and I remember one in particular, which he called the expression barrier. I could never do it justice, but what I recall is that IT customers aren’t particularly good at telling their IT organizations what they need; and even when they do, IT organizations aren’t particularly well equipped to interpret it.
This should ring a bell for anyone who has ever tried to build, manage, or repair an outsourcing relationship. I think the expression barrier in outsourcing is a) even more prevalent than in IT and b) even more serious, as any breakdown occurs across enterprise boundaries rather than within them.
It starts during the sales cycle: If I had a dollar for every past client who declared that “price cannot or will not be the deciding factor” and then proceeded to make their decision almost entirely on price, I would have many, many more dollars. Providers, of course, have figured this out, and greet such statements with great skepticism borne from real and painful experience. The result, then, is that often when a client legitimately will pay more for a higher standard, they still don’t get it because their deal was built on price out of fear that anything different was a losing proposition.
When establishing the new relationship, the parties tend to be careful and courteous with each other. This is the wrong time for manners. In my first year of marriage, my wife was extraordinarily forceful in the correction of some of my bad habits. Alas, the ones I successfully hid during that period have proven far more challenging for her to rectify. Outsourcing “marriages” aren’t very different: yes, you will hurt someone’s feelings even if all you are criticizing is their work, but better early than late. Providers tend to want to protect the relationship and say “yes” to a whole lot of things that they weren’t expecting to have to do. Soon, this behavior becomes economically unsustainable and as it begins to change the client’s frustration tends to build.
Even in established relationships with a good track record one can see evidence of the expression barrier. I remember being close to some mature F&A deals as Sarbanes-Oxley became law. Clients got together in conference rooms and interpreted the requirements. Meanwhile, in a similar conference room but in another part of the world, their providers did the same. The work was performed, and client’s routinely sent it back as “non-compliant.” Not surprising, and the two groups had never agreed on what “compliant” meant.
The expression barrier shows up in every relationship almost every day—and it is actually fairly easy to diagnose. An outsider will typically see it within minutes of observation. The cure, however, is elusive. If we could solve it, we could make a world of difference in this industry. It seems like it should be as simple as “Say what you mean!” but after ten years of trying that, I’m ready for a new approach. How about we start the discussion right here, on the Horses for Sources blog?
Posted in : Business Process Outsourcing (BPO), IT Outsourcing / IT Services
Great piece, Esteban – you’re definitely correct that the parties need to iron out the “bad habits” early on and cut out the facade of courtesy 🙂
Sally
Totally agree Esteban; continually dancing around the issues just wears out the dancers (and the orchestra!)
Spot on analysis – This can further worsen if IT customer and the IT provider are from different cultures and both try to be over-courteous to each other’s culture. In trying to be sensitive to each other’s cultural differences (and as you said to show manners) both parties neither question nor try to understand each other’s expressions.
It’s surprising that a word as simple as “Yes” might mean different things in an American and Asian cultures e.g. an Asian developer while listening to the customer requirements might nod his head or say “Yes” just to imply that he’s listening to what the customer has asked – while the American customer would be led to believe that he’s agreed on delivering the requirements.
What we’ve found to be a good solution is during key meetings, for each party to be able to repeat some key decisions/questions in each other’s “cultural style” to make sure the message is through.
Having said that, similar issues remain in case of similar cultures too – So it’s all about doing a cost-benefit analysis of being able to work with each other’s culture and cross-train each other to avail economic benefits OR go for a local slightly more expensive option – Nevertheless, going for cross-cultural engagements help mature you and your company as a global player.
You are right on target, Esteban. Speaking from the provider perspective, there is also another dimension to this issue that frequently exists within the client environment.
In addition to cost the c-level executive buyer is genuinely interested in the value-adds a provider can bring to the table, e.g., innovation, process improvement, standardization, etc., and will question at length how those value-adds will be implemented. These discussions are usually attended by the c-level’s direct reports responsible for the tactical execution aspects of the engagement. Once the contract has been signed however, the direct reports show little further interest, if any, in the value-added components. They are primarily interested in getting the daily work done and see any effort outside that daily work as unnecessary and a waste of capital, both human and financial. This can put the provider in an awkward position, especially if there are no metrics, whether included in the SLA or not, that reflect results associated with implementation of the desired value-add components.
The governance structure and communication plan for the engagement can also be used to mitigate the effects of this situation but it is incumbent on the provider to have these mechanisms in place at the beginning of the engagement so that if this situation arises it can be exposed as a matter of course (progress reporting) rather than being viewed as the provider escalating an issue above the direct reports.
Thanks, Esteban, for sharing your learning and insights.
Excellent points, Esteban! Another aspect of Weill’s ‘Expression Barrier’ is the typical gap between ‘espoused strategy’ and ‘strategy in practice’. We may say that our sourcing strategy is to outsource things we consider to be commodity/non-differentiating so we can focus management attention on our core competencies and activities, but if in practice we are doing nothing to improve those core competencies, then we are deceiving everyone – ourselves as a leadership team, our outsource partner(s), our employees and our stockholders.
You taught me years ago the importance of clarity of purpose in formulating sourcing strategies. I often see two distinct purposes – one that is espoused (through words and sourcing agreements) and one that is practiced (through actions and day-to-day decisions). As these two purposes increasingly diverge over time, it is typically the sourcing arrangement that takes both the hit and the blame.
It seems like we (the commenters and I) are all on the same page. I rather like Vaughan’s articulation of the matter, as a divergence between the strategy we talk about and the strategy we follow. Jon points out that the teams executing often don’t understand or are not sufficiently motivated by the sponsoring executive’s agenda–another breakdown in the sourcing strategy. Mike and Sally offer confirmation of the issue and its destructiveness. Ali offers one practical technique to overcome the expression barrier during meetings. I am hoping for even more suggestions, especially those that might beat the expression barrier in the overall relationship. In other words, what can be done to get both parties to say what they mean?
And finally, @ Vaughan, the notion that I taught you anything is quite flattering! You were part of the research I mentioned and my IT clients are so much better off for the things I learned from you!
Esteban, you raise an interesting point that I have seen on numerous occasions as an outsource provider. I was fortunate to have spent some time with Peter Weill way back and the point raised by Vaughan on espoused vs in-practice strategy rings true.
A couple of observations; firstly, the extent to which there is a pre-outsourcing divergence between espoused and in-practice strategy is a strong indicator of challenges ahead. Secondly, the alignment of pre-outsourcing performance metrics (balanced scorecard ?) to either espoused or in-practice strategy suggests an aspect of organisational readiness to outsource, in particular to establish a set of meaningful KPI’s or SL’s as suggested by Jon. Metrics, espoused or in-practice, will also provide an indicator as whether innovation is explicity valued by the organisation. Thirdly is behavioural alignment; is there a culture the encourages and support individual behaviour that is aligned to espoused strategy. The classic example is ‘customer first’; when it comes to tough decisions does the customer really come first ?
If these elements are not in place pre-outsourcing (ie within the organisation) then they need to be established through the outsourcing sales process, or at the very least in the early period of outsourcing. Critical to addressing your expression barrier is establishing, early, a shared view of respective strategies and objectives, metrics, and behaviours.
Further, my experience has been that it is never set and forget. As in your marriage analogy both parties are learning to live with each, understand each others espoused and in-practice strategies and behaviours. This needs continual monitoring and, when required, re-invigoration and re-alignment. Both client and provider organisations and individuals change over time so this re-alignment (strategy, metrics, behaviours) needs to be considered and factored into the governance framework.
Thanks for the thought provoking commentary.
Esteban,
While the expression barrier certainly exists, one might want to add that it does not exist in all cases. Reason being that we have seen numerous clients (mostly large ones) who are meticulous in stating their requirements in fine detail from the get-go; and of course we, as providers, have been equally thorough in setting out what we will deliver.
As for cross-cultural misunderstandings, perhaps clients should insist on the outsourcing exercise being supervised at the provider end by a senior functionary who has lived in both cultures.
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