Saturday, April 24, 2010

Choosing a Service Provider -- Cautionary Tales

A colleague confided in me recently that he believed the reason his former employer (a successful 20-year company) was no longer in business was due to a critical misstep on a single major transaction. The team became enamored with doing a major deal with a very large and well-known company. It was the "deal of a lifetime" for the team. In their rush to get the business signed, the sales team overlooked some critical warning signs:

1) The client couldn't clearly define their requirements or their business objectives up front

2) The service provider team members weren't allowed to ask questions or voice concerns because it would "slow the process down".

3) Service Provider hubris did not allow them to admit that they couldn't deliver what the client was requesting.

4) The client lacked a strong leader in place to manage the multiple team members who wanted to change requirements after the deal was done.

5) This client would have more than doubled the business of the company, straining a team to serve the new client at the expense of their current clients -- or to grow more rapidly than was reasonable.

Both sides erred in going through with the deal -- neither did the proper due diligence on each other before rushing to "ink a deal". Neither side was clear on the requirements. But, when it became apparent that the service provider couldn't deliver as anticipated, there were plenty of people lining up to assign blame for the disaster.

For some companies, this may have been a small blip in the scheme of things -- some heads would roll, everyone would have learned a valuable lesson, and life would go on. Tragically, this company was not strong enough to withstand such a severe beating, or such demands on its team and infrastructure. Less than two years later, the company no longer existed.

The conversation came full circle a few days later when I talked with another friend whose company is struggling to sell services and maintain delivery standards to its current clients. It has chosen not to spend the time or money to ensure a strong foundation in its current services, but instead, is rushing to expand its services into new areas, in a desperate attempt to increase revenues in a difficult market. Time will tell if they are successful in this endeavor.

I provide these two stories as a followup to my previous posts on selecting service providers. I will leave you with several cautionary thoughts.

1) When deciding to outsource, proper due diligence is required on any service provider -- even the larger ones. Just because a service provider is large and well-established in one area of service, doesn't mean that it can provide great service outside its comfort zone or in a new line of business.

2) Just because the salesman or Executive says they can do it, doesn't mean they can actually deliver. Take the time to talk to the team to understand their level of comfort and expertise in doing the work you are requesting. Talking to the team members can be revealing.

3) If you are considering a service provider for whom you will be more than 50% of their business, you should proceed with extreme caution -- if at all.

4) If your team has not defined its strategy and requirements and you lack a strong leader to manage the relationship, this will mean a difficult time for you, and could produce disastrous results for the service provider.

I am sure there is much more to the two stories I have related, but the lessons are clear -- when outsourcing a critical function, do your homework, investigate your potential partner, and take the time to do it right.

10 comments:

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