TON’s October 9 program: Relational Uncertainty

October 10, 2014

Our theme for the TON program held on October 9 at Arla was “Relational Uncertainty.” Our focus was on working in ambiguous environments with service providers; the challenges of establishing trust; and getting buy-in/support from the client organizations’ own resources.


Peter Ørberg Jensen from CBS kicked off the program with a bit of insight into what the research tells us about the competitive advantages of organizational cooperation. Yet, the challenges of aligning expectations and strategies between service providers and clients mean that more than 30% of outsourcing contracts are not renewed.


Hans Grønnebæk Hansen from Arla then gave us a qualified look into Arla’s multi-vendor strategy. Arla’s outsourcing strategy reflects its goal of uninterrupted service delivery. Hans noted that even short downtimes can incur losses and longer downtimes are disastrous for the organization. With this in mind, stability is critical. Arla hasn’t always had a multi-vendor strategy and Hans described Arla’s journey through several earlier models that Arla has employed in its efforts to achieve its goals. One point that Hans brought up was that the effort involved to implement the multi-vendor strategy has been underestimated by the organization and that the organizational change required to obtain full utilization of the model is the biggest challenge facing the strategy.


Hans’ colleague, Jan Nilson, then gave us a chance to hear a bit about Arla’s shared service level agreements which are a fundamental tool of Arla’s multi-vendor set-up. Arla uses the shared SLAs to minimize disturbances while reflecting the priorities of the various business units. The shared SLAs have a degree of flexibility that lets Arla categorize them according to business priority, such as peak seasons, and brings focus to suppliers’ behaviors. Yet, this model and these tools have brought increasing complexity to the organization.


The reality of the increasing complexity in vendor management was a topic of discussion that spark a lively debate in the group regarding our own organizations’ abilities to manage it. Do we have the right competencies? What are the tools, practices and structures necessary to do so? One point that resonated was that vendor management in and of itself is a critical core competence for organizations working in this space.


Our program also had a series of challenges that gave our participants a chance to discuss several key issues central to outsourcing and offshoring. Casper Algren from Novozymes discussed the challenge of getting Danish-based managers to support Novozymes’ offshoring activities in India; Jørgen Christian Iversen from FLSmith Airtech discussed the challenge of “ethnocentrism,” that is, the idea that other cultures can’t do something as well as our own; and Rasmus Lundorff Østerbye from Vestas discussed the substantial organizational change management challenges facing Vestas in the wake of the decision in earlier 2014 to outsource its data center.


We had some great and lively discussions throughout the day and thank everyone who participated.


We look forward to our next program which is being held on November 27 at DSB. The theme for the program is “People.” Some of the broad issues that we will touch upon include cultures, organizational structures, the human side of outsourcing, and organizational change.


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