With no offense to the famous movie by an almost similar name, “Eat, Pray and Outsource” is the symptomatic problem facing many, if not all, F&A (Finance & Accounting) outsourcing arrangements and I would venture to guess other non-F&A deals as well. As I have seen from my F&A experience on the buy side of such deals, during the “Eat” phase of the deal, buyers (corporations) and sellers (outsourcers) mutually woo each other to get the deal; the buyer wants quick cost reduction and the seller wants revenue growth.
An army of sellers descend upon the offices of the buyers to review, often limited, data during the famed “yellow pad sessions”. The buyer expects a ridiculous cost saving to justify the deal and the seller is ready willing and able to make all kinds of promises. Also, the buyer does not want to share all the data for reasons of security and confidentiality. During this honeymoon phase, there is a lot of eating and drinking that goes on in the guise ofteam building. People work for hours on end to somehow “make things work”. Some of the sellers, generally the small boutique firms, get eliminated in the first few rounds as they just do not have the competencies that the buyer is looking for. Or the buyer is seeking big name players so that it becomes easy to sell the deal to the corporate higher ups or is ignorant of the capabilities of the niche players. Often by spending a little more time with the boutique firms or by taking a gradual steady approach versus a big bang approach, it is conceivable that the outcome could be different.
So once the “Eat” phase of the courtship comes to an end, the deal is inked and then begins the “Pray” phase. This is where the rubber meets the road. This is where it is going to become evident whether the due diligence done by both the parties is going to pay off. This is where it is going to be evident whether the seller has what it takes to successfully transition the buyer’s services at the committed cost, quality, delivery and customer satisfaction goals established during the “Eat” phase of the journey. This is where it is going to become evident whether the buyer chose the right outsourcer and whether the right protections, service levels, governance model and other expectations such as process improvement were baked into the agreement. Failure to perform adequate due diligence or incorporate the appropriate processes in the agreement and working relationship, means both parties will only be praying their way to a desirable outcome. No amount of praying will lead to high customer satisfaction.
So as both parties “Pray” their way out of the arrangement, service levels deteriorate, the seller starts getting hit with service level credits or penalties, the seller’s business / financial model falls apart as their cost structure gets out of control, business processes do not get executed as they used to before the outsourcing, the associates on both the teams get stressed, and the ultimate customer gets significantly dissatisfied with the new arrangement. The outsourcer pleads that the service level credits be held off to stabilize the arrangement until perhaps a “new agreement” is executed with the proper service level, financial and governance design and then begins the true “Outsource” phase.
The lesson I have learnt is: do your due diligence thoroughly, talk to as many people and companies as possible not only about the seller but about outsourcing in general, think outside the box and look at niche players, have a well defined long term strategic plan on outsourcing, have a realistic time line, build a very effective governance function, make sure knowledge is appropriately transferred and most importantly take the ultimate customer in confidence in everything that is done.
And when things do not work out, do not “Pray” or dig in your heels but work together as oneteam because at the end of the day, both the buyer’s governance team and the seller’s operations’ team have one common goal – to make the ultimate customer happy. You may also read my presentation on Risk Mitigation Strategies in Outsourcing by clicking here.
An army of sellers descend upon the offices of the buyers to review, often limited, data during the famed “yellow pad sessions”. The buyer expects a ridiculous cost saving to justify the deal and the seller is ready willing and able to make all kinds of promises. Also, the buyer does not want to share all the data for reasons of security and confidentiality. During this honeymoon phase, there is a lot of eating and drinking that goes on in the guise of
So once the “Eat” phase of the courtship comes to an end, the deal is inked and then begins the “Pray” phase. This is where the rubber meets the road. This is where it is going to become evident whether the due diligence done by both the parties is going to pay off. This is where it is going to be evident whether the seller has what it takes to successfully transition the buyer’s services at the committed cost, quality, delivery and customer satisfaction goals established during the “Eat” phase of the journey. This is where it is going to become evident whether the buyer chose the right outsourcer and whether the right protections, service levels, governance model and other expectations such as process improvement were baked into the agreement. Failure to perform adequate due diligence or incorporate the appropriate processes in the agreement and working relationship, means both parties will only be praying their way to a desirable outcome. No amount of praying will lead to high customer satisfaction.
So as both parties “Pray” their way out of the arrangement, service levels deteriorate, the seller starts getting hit with service level credits or penalties, the seller’s business / financial model falls apart as their cost structure gets out of control, business processes do not get executed as they used to before the outsourcing, the associates on both the teams get stressed, and the ultimate customer gets significantly dissatisfied with the new arrangement. The outsourcer pleads that the service level credits be held off to stabilize the arrangement until perhaps a “new agreement” is executed with the proper service level, financial and governance design and then begins the true “Outsource” phase.
The lesson I have learnt is: do your due diligence thoroughly, talk to as many people and companies as possible not only about the seller but about outsourcing in general, think outside the box and look at niche players, have a well defined long term strategic plan on outsourcing, have a realistic time line, build a very effective governance function, make sure knowledge is appropriately transferred and most importantly take the ultimate customer in confidence in everything that is done.
And when things do not work out, do not “Pray” or dig in your heels but work together as one
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