The ability to build sustaining partnerships is vital in the digital world
The business model of the communications industry is of a single provider owning and controlling all of the assets needed to deliver the service. But in the digital world, that model is quickly being eclipsed by approaches where groups of partners collaborate to provide components of the overall service. Since the quality of the overall service depends on how well these component services fit together, creating and sustaining successful partnerships is fast becoming an essential skill.
These component services come from an ever wider circle of providers and may include capabilities such as connectivity, processing power, storage, application functionality plus services that manage the customer interaction such as billing, care and so on. To work, these must be win-win relationships: each party is dependent on the other and all have to make it work or all suffer the consequences.
Increasingly complex partnerships are emerging with companies simultaneous being providers and users of managed services. This duality of both user and provider means that the idea of a value chain with fixed end points is rapidly giving way to a complex value web. For example, Amazon is simultaneously a provider of cloud computing managed services while being a user of managed connectivity services to provide their Whispernet service.
Not only are business models evolving quickly – the services themselves are rapidly becoming more complex and sophisticated. While early digital services were aimed mainly at consumers, they are increasingly being used by enterprises who demand high quality services backed by service level agreements. Delivering services that you are prepared to back with guarantees across multiple partners requires a very high level of sophistication in how you manage those partner relationships.
So what exactly are managed services?
Unlike outsourcing, which often involves simply transferring people and/or infrastructure and responsibilities to a third party, managed services are generally a ’black box’ approach where you don’t get concerned about the detail of how something is delivered, you just focus on what is being provided. Perhaps the simplest example is an electricity service – it just arrives and all you care about that the current, the voltage, frequency and price are as agreed in the contract, not how it is generated or transmitted. Communications services are another good example.
Cloud-based solutions and virtualization are taking managed services to new levels, with almost any type of application previously delivered as physical software and hardware becoming available on a service basis. At the same time they could be much more tangible such as the provision of physical capabilities like cell towers or data center infrastructure. The easiest way is to regard managed services is as clouds as shown below which can be used in any combination.
To partner or not to partner?
There are many reasons why you might use a managed service rather than providing this component yourself. For example, it can allow more focus on your core business or access to new knowledge, talent and operational expertise. It can also be a catalyst for change by helping drive innovation, restructuring the cost base, improving quality, reducing time to market or offering better risk management.
But using managed services simply as a way of quickly getting rid of a problem isn’t a generally a good idea. Entrusting a function to someone else doesn’t mean you no longer have responsibility for ensuring it’s delivered - if you’ve built your service on top of those provided by partners, it’s your customer base and your brand that gets damaged.
Another bad reason for using managed services is simply to cut costs - if that’s possible then all well and good but lowest cost usually means lowest quality and least flexibility. Partners should be treated as you would any other critical part of your service delivery model because that is exactly what they are – your priorities should be focused on gaining competitive advantage, enhancing the customer experience, gaining agility flexibility and sustainable, operational efficiencies.
Where should partners fit into your strategy?
Using managed services is a big strategic decision, particularly if it is an integral part of your own service delivery to customers - it fundamentally changes your business model and the way you need to organize and manage your own operations. But all too often, executives allow the shift to managed services to be done on a tactical, piecemeal basis - managed services should be tightly integrated into your corporate strategy and guided by answers to the following some straightforward questions:
If serving your customers is going to be partially dependent on partners, it’s much better to have worked these types of basic business questions first rather than find out that different parts of the delivery process have negotiated multiple contracts, with different service level agreements, contractual terms and length of contracts. That creates an operational and business nightmare but it’s common when departments act autonomously.
All departments need to be acutely aware of the impact on the end-to-end service delivery chain and ensure that commitments to the end user can be delivered. It’s essential that managed service contracts are tied to that end-to-end service delivery view rather than a blizzard of incompatible contracts that are expensive to change and difficult to exit.
Shared responsibility and trust
One of the biggest issues in to successfully using partners is trust. If there isn’t complete trust, companies are often reluctant to hand over control to the managed service provider and don’t give them the necessary information to do their job properly. This begins a vicious circle where the managed service provider can’t perform very well, which erodes trust even more. This is particularly prevalent where the managed service provider is taking over functions previously carried out in-house and where a mentality of ‘no one can do it as well as we can’ prevails. Starving the managed service provider of important information or advice and being critical when problems occur can start the rot in a partnership from the earliest stages of the contract.
Building business partnerships is a little like getting married: building a trust-based and sustainable partnership is helped greatly if you choose the right partner in the first place. It’s always a good idea for both parties to understand as much as possible about the other and this means an in-depth, all-round assessment of the proposed partner including an analysis of the risks involved: what is their organizational structure, financial position, competency track record, culture, business drivers and so on. Such an analysis should not be rushed and the old adage of marrying in haste and repenting at your leisure applies as much to business partnerships as personal ones.
Defining the service requirements and measures of quality that the supplier needs to provide is hard but essential. Too many contracts focus on metrics that were previously used internally rather than business impacting goals and the buyer should focus on the what and leave it up to the partner to figure out the how of achieving it.
Some rules of thumb for partnership success
Here are some rules of thumb as a general guide to partnership success.
Do: focus on the what, not the how. Don’t try to tell your partner how to deliver your service – it’s their core competency after all, so give them the flexibility to bring their skills to the job. Focus on the desired outcomes such as targets for availability, reliability, revenue generation and customer satisfaction.
Do: use incentives and proper governance to drive the right behaviors. A governance structure should provide insight, not merely oversight and solve problems in the spirit of a partnership.
Do: make sure you have commitment and involvement of senior executives when establishing a managed services partnership.
Do: expect resistance: someone will always think they can manage a function better in-house than using a partner – and after all, it might be their job at stake.
Do: revisit the terms of the contract regularly to ensure ongoing value and assess if it is still meeting your business needs. No matter how difficult, if something isn’t working – fix it.
Do: ensure key people are embedded with your partner and retain some key skills sets in-house to properly manage the partnership plus providing insurance if the contract is brought back in-house.
Do: use standardized business processes and interfaces between you and your partner because it will save you time, money, effort and resources concerning integration and subsequent testing and, if the worst occurs and you have to change partners, changing will be very much easier.
Do: ensure you negotiate flexibility into the contract to quickly track changing market conditions. If you don’t, anticipated savings may disappear in the process of renegotiating terms and conditions.
Do: consider your customer’s experience at all times – don’t sacrifice it at any price, it will cost you dearly in the long run.
Don’t: be ’penny wise, pound foolish’. When a company selects a partner purely on cost it can lead to trade-offs in quality and service.
Don’t: use managed services as a quick fix - managed services are way to deliver customer and business value, not a quick fix for business problems.
Don’t: measure minutiae - stick to a small number of really important business goals.
Don’t: play the zero-sum game – in other words don’t assume that something that is good for the partner it is automatically bad for the buying side. Look at how both parties can gain from any improvement.
Like it or not, the digital world is fast becoming a complex web of partnerships and truly successful players will be those who, among other things, really know how to get the best out of those partners. The old ‘master – servant’ approach of simply beating suppliers into a pulp for the best price and terms won’t work for long up against competitors who build lasting and sustainable win-win partnerships.
It takes time for big organizations to learn how to do that – sooner or later you are going to need to do it, so no time like the present to get learning!
This article is the fourth in a series based on Keith Willetts new book Unzipping the Digital World, available from the TM Forum and Amazon in hardback and Kindle formats. Later articles will explore key competencies in greater detail.