Partnering for profitability

5 key behaviors of highly successful sourcing partnerships

By now you’ve probably heard about the financial benefits of sourcing, the practice of partnering with business and IT services providers to add strategic capabilities and achieve measurable business outcomes. When companies do it right, they enjoy twice the revenue growth and five times the gross profit growth of their peers (See Why partnering strategies matter). But what does it mean to “do it right”?

To achieve outcomes like attracting more customers or speeding time to market takes more than just choosing the right business partner. It takes a thoughtful, measured approach to developing a new kind of business relationship. In this piece we’ve culled our learning from thousands of business and IT sourcing engagements—with clients big and small, in all parts of the world—and developed a high-level checklist of best practices to follow before, during, and after a sourcing partnership.

1. Establish strategic objectives

What used to be called “outsourcing” has come a long way in the last ten years. What began as a movement to reduce costs by shipping non-strategic tasks overseas has evolved into something much more dynamic and strategic. But our research shows that many companies still aren’t aware of what’s possible in a well-conceived strategic sourcing partnership. These days, companies are partnering for everything from international expansion to customer satisfaction. So when you’re evaluating your needs, think broadly and strategically, tie your objectives closely to corporate goals, and consider how to best take advantage of a sourcing partner’s transformational capabilities.

2. Expect a shift in corporate culture

When a business partner helps your company innovate and grow, rather than simply taking on your-mess-for-less, it’s a fundamentally different relationship. It’s the difference between an arms-length vendor relationship and a true partnership. And this shift requires a cultural adjustment on the part of the client organization, including a willingness to trust and empower a sourcing partner with decisions that are strategic to your business. In choosing a sourcing partner, you’ll want to vet providers for both targeted capabilities—proven technology and processes, subject-matter expertise, deep industry knowledge—and cultural fit. You’re going to be working very closely with them, after all.

3. Measure, measure, measure

It’s a known fact: enterprises that insist on tying metrics to business outcomes see increased profitability and revenue growth. Every enterprise has its own unique goals, objectives, and measures of success. So the importance of choosing the right metrics to measure the success of a sourcing relationship cannot be overstated. By focusing on enterprise-specific goals and go-forward business objectives, enterprises are able to zero in on the capabilities, evaluation criteria, and contractual obligations they need to succeed. And sourcing partners can clearly understand how their performance will be measured.

4. Master the governance

The success of “traditional” outsourcing relationships—especially offshoring—has always hinged on how aligned the client and vendor stay throughout the project. And that is also the case with today’s more strategic sourcing partnerships. Whenever two businesses work together toward a common goal, transparency and open communication are critical. Project specifications should be clear and detailed before work begins. Progress should be constantly monitored and measured. And after each deliverable is completed, both business partners should evaluate and evolve their relationship accordingly.

5. Work across business units

To innovate on a broad scale and get measurable results, enterprises must take a broad view. Strategic sourcing contracts should be structured vertically to include business process, application and technology infrastructure. And strategic sourcing partners should be chosen based on their deep industry and functional expertise and their ability to innovate—understanding not just how to get something done, but also why, and what’s next.

Sourcing for transformation requires collaboration. Coordination between different business units and service providers is crucial. Finding a partner who can synthesize and integrate these business units and services, and push for an enterprise-wide strategy for governance is key.

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