Business (Managing Higher Ed)
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Trouble in Paradise: When Outsourcing Doesn't Work as Planned
PHOTO © RACORN
You’ve followed the process of determining if outsourcing a service is right for you, including considering your mission, considering your ability to provide the service well now and into the future, running numbers, deciding it’s the best way to proceed, defining the scope of services, shaping formal documents, issuing an RFP, evaluating proposals, meeting and negotiating with vendors. You sign the contract with a mixture of emotions, including hope, excitement, relief and nervousness, and move into a period of transition.
Everything moves along well for a while. Then things start moving erratically. There’s trouble in paradise, and you have a real conundrum on your hands.
Why Your Outsourcing Isn’t Working Well
There are a number of reasons outsourcing a specific service may not be working well. “It could be that there are personnel disputes,” says Richard Vedder, director of the Center for College Affordability and Productivity (CCAP), a Washington-based organization dedicated to researching the rising costs and stagnant efficiency in higher education, with special emphasis on the United States. “It could be that the vendor isn’t providing the quality of service and product that was expected. It’s often difficult to put these things in writing, but there are ways to do it.”
In fact, Nick Owen, expert in digital and IT transformation and member of New York-based PA Consulting Group’s management team, outlines four reasons outsourcing may not go as planned. The first is that the transition may not move smoothly or quickly and the vendor may discover issues that weren’t part of the contract. “The second is service or quality issues, such as staffing or solution incompleteness,” he says. “The third is project issues, such as going off budget or moving in a different direction than planned. And the fourth is financial aspects, such as the vendor’s underestimation or the administrator’s over-expectation as to the payment for the project scope.”
Finding a Solution
When you find yourself facing one of these challenges, what are you to do? “You can get legalistic and call a lawyer every time you have a problem,” Vedder says, “but that’s a less successful and more costly solution to informal resolutions based on trust and an ethical relationship.”
Karen Stinson, expert in digital and IT transformation at New York-based PA Consulting Group, agrees. “When outsourcing doesn’t go as anticipated, your mind automatically thinks, ‘Terminate the contract,’” she says. “But that’s the least desirable action for anyone who has taken time to plan a strategy and negotiate a contract.” She recommends starting with these two options. First, ask for a change in executive leadership from the vendor, so that you have better insight and visibility with the vendor about the problems he/she is having. Second, implement financial penalties, such as withholding or reducing payments, when performance metrics are not made. Similarly, consider giving additional projects to a different vendor.
Before You Sign the Contract
These are terrific solutions, but let’s take a step back for a minute. What can you do upfront, before the contract is even signed, to ensure the best possible outcome? Well, there are a couple of things.
“Administrators can minimize problems by signing short-term contracts and/or writing in contractual reviews where either party is able to opt out of the contract,” indicates Vedder. “It minimizes the likelihood of a dispute not being resolved to the satisfaction of both parties because the vendor knows the university can reverse the arrangement in a short amount of time.”
Vedder cites an agreement at The Ohio State University as an example. Administrators outsourced their parking service for a large amount of money in a long-term contract. “Shortly after that,” he says, “the university’s CFO resigned and took a job running the parking company to which the university outsourced its parking services. It caused such a furor that the deal was canceled. It also caused a bit of bad press for the university, which could have been prevented if the contract had been for a shorter amount of time and if the contract had a stipulation saying that this couldn’t be done.”
Stinson bolsters Vedder’s suggestion with two of her own. First, make time before the contract is signed to start transition planning, bringing in both teams to discuss goals, timelines and benefits, and making sure they understand the contract exigencies, so the transition planning doesn’t take months after the contract is signed. “Second,” she says, “put together a change management plan supplemented with communications so all stakeholders are clear as to the direction and value of the outsourcing agreement.”
Toward a Successful Relationship
The best way to avoid challenges is to remember that you hold the keys to avoidance in the first place. Here are four ways to ensure a successful relationship with your vendor.
1. Have common goals stated and understood from the outset.
2. Make a good partner selection. This doesn’t necessarily mean the lowest bidder. It does mean that the skills match, the price is fair and you’ve done sufficient due diligence in terms of partner selection. “Our core competency is education,” explains Diane L. Reynolds, CASP, MBA, assistant vice president for Business Services at Richmond-based Virginia Commonwealth University and NACAS president. “Our mission is not to cook food; it is to educate students. We want the best food service for our students, so we try to find the best operators to provide this service.”
Drawing on an example, Reynolds indicates that the university’s food service vendor, Aramark, has a culinary test kitchen in Philadelphia. “They have chefs who develop new recipes and discover the hot new food trends, which is the kind of skills we expect from our vendors.”
3. There must be a commitment on both sides to develop the relationship and meet the contract’s goals. This commitment has served Southwestern University in Georgetown, TX, and its residential network provider, Apogee, well. After 12 years of service, Southwestern administrators knew their campus network needed upgrading and that a paradigm shift had occurred where there was no longer a demarcation between the two networks for students. They realized that they needed to make a decision to either take back the residential network and upgrade and manage both themselves, or outsource both. Because it made financial sense, and because of the long-standing relationship with Apogee, they decided to outsource everything.
“When we decide something isn’t working correctly or the way we expected, we have open conversations about what is and isn’t do-able,” says Todd K. Watson, Southwestern’s senior director of Information Technology. “Sometimes in the process of describing what we want to do, we decide we don’t want to do it after all, and sometimes we discover that we really need to continue to do something that we thought we didn’t need to do anymore.” That commitment to develop the relationship and meet the contract’s goals via open conversations is clearly benefitting the university’s ability to provide top-notch services to both students and staff.
4. Benefits must be transparent. “Agreements won’t be perceived as beneficial if the benefits aren’t transparent,” notes Owen.
No one likes trouble in paradise, especially when it comes to outsourced services. The good news is that conflicts are often resolvable. The better news is that, with some planning, there doesn’t need to be trouble at all.
This article originally appeared in the May 2017 issue of College Planning & Management.