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Avoiding the gotchas of outsourcing transition

Posted: 06/17/2016 - 20:09

The transition period of bringing a new provider into an environment is critical to the success of an outsourcing initiative. An effective transition sets the stage for a long-term partnership, while a poorly managed one can damage the relationship beyond repair.

Under the best of circumstances, managing the transition is no easy task. From the client’s perspective, the fundamental challenge is to keep up with the pace of change surrounding transfer of knowledge and resources and putting infrastructure and process in place. Given all that has to be accomplished, transition periods are often overly ambitious, and sometimes ridiculously short. Clients sometimes agree to short transition times to achieve savings targets in the sourcing business case. Moreover, under a typical contract, invoicing commences only upon completion of the transition phase. This gives the provider a powerful incentive to speed up the process and keep things on schedule – and if the client gets steamrolled along the way, so be it.

The pace and complexity of the transition process, coupled with the financial and operational stakes involved, sets the stage for a number of potential problems. For one thing, the client who fails to engage on an equal footing from the outset and keep up the pace risks falling behind and never catching up. If the provider dictates the transition process, critical decisions on how to do things will default to the provider. Over time, the client can become increasing disengaged, and ultimately abdicate responsibility for managing the relationship. This can lead to a related risk of provider lock-in. If the client lacks the competencies to manage the relationship, they lose oversight of the service delivery model as well as the ability to evaluate the provider’s performance and to assess potential alternatives.

Staffing shortfalls are another common complication of sourcing transitions. When a provider wins a major deal, they rarely have adequate resources on the bench, and typically have to hire large numbers of new staff to deliver the work. In many cases the provider can’t staff up quickly enough to meet the client’s requirements. But again, given the economic pressure to keep on schedule, providers will often backfill the new positions post-transition and conduct training behind the scenes. This scenario can have a negative impact on service quality and compromise the foundation of the delivery model over the long term.

Effectively transferring knowledge between the client and provider teams also presents a challenge. Because a significant portion of the provider’s resources are typically located offshore, connectivity between the client and provider teams is essential to conduct training and share information. However, in many cases ordering and establishing a network connection that enables high-bandwidth video conferencing and screen sharing can take 90 to 120 days. Similarly, acquiring licenses for new applications and tools takes time. If these seemingly minor details aren’t anticipated and addressed in advance, the transition process loses momentum.

So how can clients level the playing field and effectively prepare for a transition? Philosophically, the transition needs to be approached as a massive exercise in project management. To execute, a Transition Management Office (TMO), operating as a virtual organisation, can be structured to address high-level sourcing strategy considerations as well as the in-the-weeds details essential to keeping the transition on track.

A TMO generally convenes in advance of the transition process – ideally six weeks or so – to assign roles and responsibilities and define key to-dos. Typically comprising a core team of 10 to 12 members representing different stakeholder groups (business users, IT, HR, communications, procurement and finance), the TMO’s tactical responsibilities include orchestrating internal governance meetings that convene on a monthly or weekly basis, depending on the responsibilities of each team. A key focus is to identify potential pitfalls – both large and small – and how to avoid them; this often requires thinking through unanticipated scenarios in rigorous detail.

Through this exercise, the TMO can prepare the internal organisation for the breakneck pace of the transition process. By identifying critical tasks in advance, the TMO can create its own transition plan that includes milestones and “hooks” that enable oversight of what is being done – and what isn’t. This plan identifies all the things that the client has to do to fulfill its transition obligations in support of the new provider. For example, a weekly status report requiring specific updates on staffing can provide the client with transparency into the provider’s progress. If, in fact, the provider is struggling to onboard staff and is attempting to obfuscate, the client has documentation to justify pushing back until the problem is resolved. Outcomes of these meetings can include a red/yellow/green status to prioritise follow-up actions.

An effective TMO can also develop a plan to address the minutiae surrounding the acquisition of new tools and licenses, providing access to servers and applications and resolving security issues – minutiae that frequently snowball into complications that bedevil transition programs. Indeed, a proper transition plan typically states requirements and addresses contingencies down to the level of where client and provider team individuals will sit during training sessions. While that may seem like overkill, attention to detail – within the context of a broader strategy – truly is the key to success of managing a sourcing transition.

Service providers conduct outsourcing transitions essentially on a full-time basis. As such, even clients with significant outsourcing experience are potentially at a distinct disadvantage. Effective planning and rigorous preparation – through a project management structure that leverages sourcing expertise – are key to bridging the gap.

Alsbridge

[EDITOR'S NOTE: In December 2016 Alsbridge was acquired by Information Services Group (ISG). To avoid confusion and for the purposes of historical integrity, Outsource has kept all references to Alsbridge in place, on all content published prior to the date of acquisition.] Alsbridge is a management consulting firm that helps companies improve operations, reduce costs and optimize service provider relationships. With over 300 consultants globally, Alsbridge has worked with over 40% of the Fortune 500 and currently advises over 200 clients a year on over $11b in spend. We apply operational data and market insight to help clients align sourcing strategies to business requirements, negotiate contracts at fair market prices and improve governance and vendor management. Services comprise Sourcing Advisory, Network, Transformation and Cloud, IT Asset Management, Benchmarking, Vendor Management and Governance and Intelligent Process Automation Advisory. Contact us to learn more.

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About The Author

Beth Anderson's picture

Beth Anderson is a Director with Alsbridge, a global sourcing advisory and consulting firm.