Methods for effective outsourcing success revealed

In the world of business, building trust and consistency is crucial, especially in outsourcing agreements. A new paper from researchers at Portsmouth University has identified 18 components of a successful outsourcing relationship, and the partnership between pharmaceuticals giant Eli Lilly and Interserve serves as a prime example.

The outsourcing journey between Eli Lilly and Interserve began in 2002, when Lilly outsourced its facilities management. The contract, which was signed in 2013, saw Lilly growing the number of services it outsourced to Interserve from 5 in 2002 to 17 in 2007.

The paper, based on interviews with the UK division of Eli Lilly, highlights several key success factors. Top management engagement from both parties was essential, setting the overall tone and philosophy and regularly monitoring the service provider's performance. Clear aims and objectives were also important, with client and service provider jointly developing written goal statements for their relationship.

Cultural fit between the buyer and supplier was another success factor, though difficult to define precisely. The high calibre of the supplier company can attract high-quality staff and offer training and qualifications, fostering a shared understanding and camaraderie.

Effective communication was critical, ensuring that both parties understood their roles and responsibilities. Clearly defined roles and responsibilities were crucial to prevent the collapse of outsourcing relationships. Outsourced staff should be treated with the same respect and camaraderie as internal employees for a successful partnership approach.

Management of the outsourcing arrangement must be conducted in an orderly and disciplined way. Continuity and succession planning are important for the supplier to maintain service delivery, especially during acquisitions. The supplier must demonstrate continuous improvement to show better performance each year.

Contract flexibility is necessary to accommodate changes in business demands. The high failure rate that still exists in outsourcing may be explained by negligence in setting a well-managed relationship with the service provider.

Confidence in the supplier is necessary for a successful outsourcing agreement, allowing the buying organization to treat the service provider as a partner rather than just a supplier. The supplier must have an understanding of the buyer's core values and beliefs, and key performance indicators (KPIs) should reflect these values.

The outsourcing contract with Interserve was deemed a success. In the first three years, Lilly achieved a 30% reduction in cost, followed by a subsequent 5% reduction. If there is a dispute over performance between buyer and supplier, the buyer has the final say.

Regular and continuous attention should be given to outsourcing arrangements to ensure their health. A healthy balance between the size of the contract (commercially significant but not too big) is necessary for a successful outsourcing agreement.

Eli Lilly appointed dedicated staff to manage the outsourcing contract, ensuring consistency in people delivering roles, which is fundamental to build trust in an outsourcing agreement. The supplier must be competent in doing the work, specializing in the area of service they provide.

In conclusion, the partnership between Eli Lilly and Interserve serves as a shining example of a successful outsourcing agreement. By focusing on top management engagement, clear communication, cultural fit, and continuous improvement, they have built a strong and mutually beneficial relationship.