When Choosing An Outsourcing Partner It’s Best To Stay Out Of The Casino

I usually focus my attention on talking about the benefits that Teleperformance can offer to our clients rather than shining a light on the problems of our competitors and rivals, but recent analysis of UK-based service companies in the FT was scathing and deserves a mention just because the allegations are so serious. In fact, the FT analysis goes beyond just stating that these service companies are not delivering a good service to their clients, it says that they are all using essentially bankrupt business models. In some cases, the implication is that they may not be around this time next year.

The data comes from Company Watch, a financial analytics company used by Whitehall to vet bidders for government contracts. It was shocking enough to see Carillion collapse almost one year ago, but this Company Watch data suggests that many other government contractors all have worryingly weak balance sheets and could easily follow Carillion into the history books. In every case the companies have almost nothing to fall back on if their cash flow deteriorates.

Naturally all the companies mentioned by Company Watch dispute the research, but this is an independent organisation that advises the government on who should be delivering vital services – it’s not just the opinion of a noisy journalist with an axe to grind. After reading the report, what I personally find disturbing is the high value placed on goodwill for all these companies. Company Watch details how goodwill is the largest asset on the balance sheet of several of the companies mentioned and for the others it is almost the largest item on the balance sheet.

Goodwill is always included in company reporting because it helps to measure the relationships and confidence of a company, in effect goodwill is a guess about the future profitability of a company. It has a place and is valuable to know, but when it is the largest asset any service company has then that should cause some concern. Goodwill is not a tangible asset. It is not a building or bank account balance. It is not even a promise of future income; it is literally as described – is there goodwill towards this company in the marketplace? If an unexpected scandal breaks then all goodwill can vanish overnight.

The study also found that these companies’ profits were hit by “exceptional items” – restructuring costs, penalties, fees for exiting a business etc – so often that they were actually unexceptional. In some cases government contracts had been accepted with contracts that ensured that the more business passed from the government to the company, the more the company would lose.

The FT analysis said: “Companies with such weak balance sheet structures, which have consistent pre-tax profit margins lower than 3 per cent, tended to be more vulnerable, according to Company Watch’s analysis of companies that had previously failed.”

Even the UK government does not have confidence in the survival of these companies. Last week, several government contractors were asked to create a ‘living will’ so that there are plans in place for key government services to continue if the company fails.

None of this inspires any confidence. So, what is it that governments and companies that need the expertise of a service company should be looking for in their partner? What can you look for to ensure that your partner is stable and can keep delivering the services you have contracted? I believe the most important attributes are:

  • Stability; take a look at the annual report and interim results of the company you are planning to work with. Are they being hit with exceptional costs year after year? How does their revenue growth look? Can they make a profit on this income? Are they making strategic acquisitions or launching new services? In short, does it look like a company that will be around advising you years into the future?
  • Flexibility; once you sign that contract and agree on your Service Level Agreement can you change it? What if your customers change their behaviour, can you sit down with your supplier and change the deal? Business moves fast today so if your contractor is locking you into a tight five-year contract that cannot be adjusted then be wary because right now who can even predict next year, let alone five years into the future?
  • Culture and values; does their team just punch the clock and leave as soon as possible or are they enthused by their job and always full of new ideas? Are they engaged in their local community, making a difference beyond the immediate work of the company? Do they share your values about what it means to deliver a great service?

This should be simple. However, this shocking analysis in the FT shows that all these companies would struggle to leap over such basic hurdles. You can take a look at the most recent Teleperformance financial results here and here you can read about some of our community and employee engagement.

Finding a supplier you can trust shouldn’t be like visiting a Las Vegas casino. You just need a partner that is competent, has similar values, and plans to stick around for the long haul. That’s our plan. Our numbers are published and transparent. Read the documents and then drop me a line if you would like to have a conversation about our expertise.

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