The continuum in the delivery of the Services is highly correlated to the level of ownership and the assignment of risk. Let’s examine the different extremes and see who owns the risk.
Hands On “Buyer as Expert” We choose to be highly engaged in the way Services are performed and/or delivered. We specify the what, when, and how either because we are the executional expert or because the risk of error or poor performance is too high to relinquish control. An example is Laboratory Services: we may have created the method and standard or designed the machine to perform the test or evaluation. Another is production line services where temporary workers are standing right beside Company workers doing more or less the same job.
Why would we choose to engage a Service Provider if we are the expert? Likely the need is temporary or cyclical where employing someone permanently is not a viable business option. In fact there are laws controlling this type of “Joint Employer” Service engagement because of the risk to laborers when neither joint employer provides for legally appropriate wages and benefits. In this category, we are typically paying for these Services under a Time and Materials commercial model and we must reinforce the temporary nature of the work with our internal business partners. The buyer assumes all the risk because we make the decisions and are accountable for the outcome – if we fail to set the proper expectations and the results are poor, we pay the price of rework.
Hands Off “Service Provider as Expert” When we are either unskilled or unfamiliar with the methods of how the Services are delivered, we should employ a Hands Off “Service Provider as Expert” type model. In this extreme, we want the result but don’t have the competency nor choose to develop the expertise to do the work. We identify Service Providers who have built the mastery we need and engage them to deliver services on an on-going basis. An example could be Corporate Real Estate or Travel Services. The transfer of ownership and the assignment of risk shifts to the Service Provider and the method we use to contract these Services should be focused on the Outcome or Result. A Fixed Price or Performance Based contracting model is typical as both the performance risk and the reward for strong results sit with the Service Provider.
Hands Transferred – What remains is something in between and ensuring best value is quite a challenge. We know just enough to question the method the supplier used and think we might do it better or with higher productivity. Remember that hair cut example in my first post, I don’t know how to give a good haircut, I’ve never been trained, nor do I choose to learn but I certainly know what I want to look like when it is complete and I can evaluate good vs bad quality. Where do you struggle with this in-between of Hands Transferred and what methods do you use to keep the playing field fair for both your internal business partner and your Service Supplier?