In today’s global and highly competitive world, businesses and companies are striving to achieve efficiency and productivity through maximum results and minimum costs. For this very reason, a lot of work is being outsourced by companies to external contractors so that their costs are saved in producing a quality end product. Before proceeding to discuss the outsourcing relationship between the client (company) and the contractor, it is important to study what outsourcing essentially means. Basically outsourcing means to hand over a particular project or a business function to a third-party who will take the responsibility to finish the task and complete the project within the specified time (Girst and Schleyer 2005). It is like the transfer of a certain business process or function to the vendor/supplier/contractor. Outsourcing is mainly done to lower costs as the outsourced function is taking much of the resources of the firm and it can cost lesser if transferred to a third party.
It is also done to produce quality goods and services which the client company is not able to achieve. Also because the contractor might take less time to achieve the result or they have more knowledge pertaining to the subject. Examples of outsourced functions include information technology, human resources, accounting, manufacturing, auditing etc. Through outsourcing a business makes more efficient use of the natural and capital resources of the firm. The transfer is done through a proper contractual agreement between the client company and the contractor firm underlying all terms and condition, legal proceedings and liabilities both have towards each other (Cornford 2007).
Outsourcing is not easy as it may seem from the above discussion. In the real world the picture is entirely different. It involves many complex issues and problems which should be dealt with for success of the business. For the success of the outsourced business, it is important to manage the outsourcing relationships between the client and the contractor. Nearly all the businesses today have some sort of agreement with the contractor for supplying raw materials or completion of a business project. It is critical for the efficient performance of the business to develop and maximize this relationship since extensive work is involved with them. There is considerable research on the issue and all the reports have indicated that client-contractor dissatisfaction is growing with time. Both are unable to realize the importance of time and money saving which will lead to the efficient completion of their project (Walker and Hampson 2003). The dissatisfaction is not due to only one party but both the parties are accountable for it, the client and the contractor. This can be attributed to the following reasons:
· Today companies are involved in so much advertisement and sales promotion that they promise to deliver what they are unable to deliver. They do over promising in their promotions and because of this reason the customer forms unreasonable expectations from the company which are not fulfilled. The company then blames the contractor for not delivering the products and services up to the expectations and here is where dissatisfaction grows in the relationship. It is advisable for companies to frame the promotions on realistic expectations so that the customers become satisfied when using their product and services (Kumar 2007).
· Another reason is due to the different interests of the client and contractor. When both the parties have diverging interest then they are unable to align themselves on similar goals and expectations which create conflict and misunderstanding between them.
· Most of the times the client-contractor relationship is not flexible enough that it changes with the changing business needs and external environment. In the business world, companies have to adjust to changing needs, tastes and requirements of the customer but in most cases the contractor does not realize this need for change and continues to work in the same manner despite the pressure from the client which is not liked by the contractor (Cornford 2007).
· One of the most important reasons for growing dissatisfaction and issues in outsourcing relationships is the cultural differences between both the parties. Companies have a corporate culture and so too the contracting agency but both these corporate cultures are mostly different. A cultural gap exists between the client and the contractor due to which there are increasing misunderstandings and problems occurring on the floor (Samuel 2002).
· Finally, the people responsible for managing the outsourcing relationships do not consider it a serious task and when they are unable to do so then they decide to quit the job. This leads to a high turnover of those managing the outsourcing relationships.
Importance of Successful Outsourcing: The Client’s Perspective
Firms mostly treat outsourcing as a contract signed between the two parties which should not be the case. It is important to think of outsourcing as a relationship between the client and contractor which has to be managed in all circumstances even from before the contract starts. By managing outsourcing relationship, we mean that taking every possible measure to assure that the relation between both the parties is smooth and peaceful with similar goals and interests. If there are any differences due to culture or interest then they are properly worked up to ensure a peaceful relationship. An outsourcing requires a great deal of professionalism and good management for it to become successful. This means that the outsourcing decision should be a right and strategic one taken at the right time, the decision should be taken on the matching needs of both the parties that is the contractor should be able to provide what the client wants from him and finally the relationship requires proper management (Snodgrass 2003). All these three factors make a successful outsourcing relationship. Now the question remains why is a successful outsourcing relationship considered important, what benefits it will ensure and why it requires good management. The reason for all this is that a successful client-contractor relationship ensures the company that not only its investments are being done in the right direction but also they are paying off at the end. It also ensures that the customers are provided maximum satisfaction and value by delivering best products and services. For example, in software business the client outsources a particular function to the IT vendors. If the service provided by the IT contractor is superior and world-class then this will ensure the success of client’s business. Thus, the contractor plays an essential role in the success and profitability of the client’s company (Langfield-Smith, Smith and Stringer 2001).
It should be kept in mind that the relationship with the outsourcer starts much before the contract begins. It commences the day when the company starts looking out for potential vendors and suppliers. The company apprises different vendors through communication about its intentions to contract a certain project of function. All this communication between the client and the contractor is the key in forming a successful relationship between the both. Communication is done for telling the contractor about the company’s objectives and project’s requirements. It is also determined by the selection the supplier as well as by the terms and conditions of the contractual agreement. Also a careful selection should be made of people who are supposed to take the responsibility of managing the outsourcing relationship because they are the prime people who determine a smooth interaction between the client and contractor and solve out any issues pertaining to the contract. These people should have the right management skills in order to manage the relationship between both the parties. The appropriate skills for this work are negotiation skills, communication skills and business skills. Negotiation skills are important for keeping a smooth daily interaction between the provider and the supplier. Communication skills play their role in communicating the needs and requirements of the business to the vendors, and finally business skills are needed to look out for any changes in the business needs and convey those changes to the contractors (Felton 2008).
Improving Client Management Skills: The Contractor’s Perspective
Up till now we have discussed about why it is important for the client’s company to manage the outsourcing relationship for a successful business and what value it will deliver them. Now we’ll talk on the importance of managing the outsourcing relationship from the contracting agency’s point of view. Clients also need to be managed well when the contracting agency places a contractor on the site. The relationship is dependent on the needs and expectations of the client, the communication between the parties and also the nature of the work contracted. The contractor which is placed on the site by the agency needs good client management skills for achieving a balance in the relationship. Before going further into the discussion, it is necessary to understand the client management. Client management basically refers to efficient management of client’s needs and expectations by completely understanding the project details and fulfilling them within the specified time. The contractor should also be able to fulfill any additional requirement by the client so that they are able to deliver maximum value and service to the client’s company. Client management is essentially about developing a positive working attitude and relationship between the contractor, contracting agency and the internal staff and management of the client. Once this relationship developed in a positive way, then this will lead to the formation of a successful outsourcing relationship and the ultimate goal of client management is fulfilled (Barrar and Garvais 2006).
For efficient client management, the on-site contractor plays the most important role as he is the one representing his contracting agency. One thing that affects the relationship is the amount of information the client’s company is willing to provide to the contractor. The problem in client management comes when the client is not willing to offer the internal plans and critical information about the project to the contractor or the contracting agency. They are afraid that the third party might leak their plans and objectives to their competitors in order to gain business. Here the role of on-site contractor becomes extremely important who is dealing directly with the client. He needs proper client management skills for effectively dealing with the client and assuring him that “what happens on-site stays on-site” (Nellore 2001). Moreover, since the contractor is representing his agency so good relations with the contractor also benefit the agency and the client prefers the same contracting agency in the future. Once both the contractor and the contracting agency have developed positive working relationship with the client, then they gain more business from the client’s company and any other affiliated companies. They are also able to get the deadline extended and ask for some other favors if the relationship is a good one. Therefore, the role of the contractor in managing client-contractor relationship is extremely important since he is the one responsible for assessing the client’s needs and expectations, communicating any problems or issues with them and finally delivering the products and services up to the client’s expectations thus, providing maximum value to the customer (Meyer 1999).
The need for efficient client management skills is due to the fact that both parties have different cultures and interests which need to be aligned together. Client management skills enable a contractor to absorb the client’s culture and communicate their needs and interests with each other. It is obvious that the contracting agency will be able to achieve an edge over their competitors if they develop the client management skills successfully. They are able to achieve extra favors of extension and renewal from the client through their differentiated services involving effective client management (Dominguez 2005).
Tips for developing a successful client-contractor relationship
It is clear from the above discussion that building a successful outsourcing relationship is critical to the success and profitability of the business. It enables a both the client and the contractor to form a long-lasting relationship among themselves with the element of trust and comfort in working with each other. This part of the paper will discuss the common practices used by organizations and agencies in fostering a positive working relationship with each other. The foundation of a successful relationship is laid by good communication which is an essential part of all the practices to be discussed below. These are following:
1. Good Relations among the key management personnel
Both the client and the contractor’s company have management personnel which keep on interacting with each other during the completion of the project. It is necessary that the management personnel of both the parties should develop good understanding and a positive working relationship for the relationship to become successful and long-lasting. This can be done by being friends with each other and establishing work methods that are convenient and suitable to both the parties. This way the both the client and contractor will be satisfied with each other’s attitude and performance and thus, form a relationship that can last longer (Power, Desouza and Bonifazi 2006).
2. Setting Goals and Objectives
One of the most important things to do for a successful outsourcing relationship is to communicate the goals and objectives of the client’s organization to the contractor so that the latter can work accordingly in completing the assigned work. A vision should be designed which is to be shared by both the client and the contractor. It is important to ensure that the goals and objectives established are quantifiable and can be measured by establishing a performance criteria or performance standards. The client can measure the contractor’s performance according to the expectations and then suggest any changes if necessary. It should be measured on the outcomes, value and accomplishments. The client should not form unreasonable expectations of the contractor which may cause him to lose motivation to work. The performance criteria needs to be well-defined so that the accurate performance is measured and the company is able to provide quality products and services to the customers thus satisfying them. Examples of performance measurement that can be used are cost-benefit analysis, balanced scorecard, benchmarking etc. The relationship should be a flexible one so that it can accommodate any modifications resulting due to the changing business needs and environmental factors (Friedman 2006).
3. Develop a Management Team
A proper management team should be developed with the appropriate skills and qualities for the efficient management of the client-contractor relationship. These people should have the three skills discussion before: skills for negotiation, communication and business. They should have the tactical and general management skills required for effective management of the outsourcing relationship. This team of people is responsible for holding meetings between the client and contractor regarding the project assigned, planning things, communicating issues and resolving conflicts if any. The team should be able to communicate an understanding between the goals and objectives of both the parties. Therefore, managers selected for this task must be capable enough for negotiating and communicating performance metrics as well as any changing business needs and goals (Hale 2005).
4. Incentives and Penalties
The contractor must be given incentives and is also subjected to penalties depending upon their performance. When the vendor exceeds the performance expectations of the client then he must be given incentives which would make him feel happy, more committed and motivated towards the work. But in case if the vendor falls of the client’s expectations then certain penalties are imposed on him. Performance based pricing technique is used by the client so that the contractor is encouraged to perform above expectations. The incentives and penalties must be well-crafted so that the vendor might never fail to meet expectations because of the fear of the penalty and strive to give more for availing the incentives (Gottschalk and Solli-saether 2005).
5. Establishing Governance
The outsourcing contract and work should be properly governed to develop a long-lasting relationship between the two parties. By governance we mean establishing appropriate roles, rights and duties, accountabilities, procedures and processes under which the outsourcing work is to be done with respect to decision making, issue resolution and any changes in the contractual agreement. Governance is important to ensure that there are no confusions and misunderstandings related to the project. Research has proved that one of the reasons accounting for the failure of client-contractor relationship is poor governance. A cross-functional team should be established for the purpose of governance so that it is responsible for developing standard procedures, flexibility, detailed and clear description of the project. Thus, it is clear that suitable governance is important for sustaining a positive working relationship between the client and the contractor (Samuel 2002).
6. Periodic Review Meetings
In order for the outsourcing relationship to be successful one, periodic meetings should be conducted between the client and contracting parties for apprising each other of any changes or issues faced during the process. The meetings are designed to have an in-depth and comprehensive view of the goals and objectives of the client’s organization. The contractor can tell the progress of the contracted project to the client and the latter can suggest any improvements or changes in the work done. Also the meetings are done to review the project details and the end result which the contractor has promised to deliver. Periodical meetings are important for the contractor to continually update the client on the project’s progress or else this will result in miscommunication leading to frustrations among the parties. Without the formal meetings, the contractor will be able to perceive the client’s requirements and expectations in their own way which might not be want the client wants. Any initial issues will linger for a long time as they won’t be discussed in the starting and cause much difficulties and complex problems in the end. Therefore, it is highly important to conduct formal periodic review meetings for developing a successful client-contractor relationship (Snodgrass 2003).
7. Training vendor personnel
Training is an important key element for maintaining a successful outsourcing relationship. Training is required at both the ends but is of more use at the contractor’s end. The contractor is faced with the problem of differing interest plus goals and objectives. Continuous training plays an important role for aligning the vendor personnel’s goals and objectives with that of the client’s company. Any issues which are bothering the client related to the project and work contracted must be dealt by the contractor ensuring them that they will perform up to expectations and provide maximum value to them. An important area of training should be done in the client management for acquiring the necessary client management skills in order to manage the relationship with the client in a strong and positive manner. Training is also provided to vendor personnel in all those areas which could be effective in improving the client relationship (Felton 2008).
8. Bridging the Cultural Gap
It is beyond any doubt that both the parties to the contractual agreement have different cultural values and beliefs. The client’s company and contracting agency have both developed their corporate cultures which is entirely different from each other. One important way for building a strong and positive working relationship between the client and contractor is to recognize and understand these differences and then working out ways and methods for bridging the gap between the two. Bridging cultural differences is an area which requires critical attention as this is the main cause related to the growing dissatisfaction between the client and the contractor. If these differences are not removed then will hamper the progress of the project and will render the relationship unsuccessful causing sufficient loss to the business of both the parties. Different ways can be used to accounting for these cultural differences like organizing social events, participating in each other’s programs, educating the contractor on the client company’s background, not involving in over display of one’s cultural values and symbols and etc. These and many other ways can be used for bridging the cultural gap and maintaining a smooth, peaceful and strong relationship between the client and the contractor (Girst and Schleyer 2005).
Outsourcing is a business process which is long-term and will stay for years to come. In fact, with the passing time the process will continue to grow as more and more businesses will realize the importance and benefits of contracting business process in order to save cost and achieve efficiency. Today’s world is a highly competitive one where companies need to focus on their core competences and outsource other strategic businesses to the contractors. This will make them more productive, efficient and allow them to deliver maximum satisfaction to their customers. This is why managing outsourcing relationships is considered as a critical part of good business management and top management should give it due attention. Both the client and the contractor play an extremely important role in determining the success of their relationship and should always strive for achieving continuous improvement. Thus, outsourcing plays a significant role in the future success and profitability of a business.
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