Outsourcing Transitions: How Not to Stumble and Fall Out of the Gate?

Transition refers to the period between the actual signatures of an outsourcing agreement until steady state is achieved. Depending on the type of deal, this is a short, or a long period of time and represents the start of outsourcing governance efforts, the time when the proverbial outsourcing ‘rubber meets the road' and outsourcing aspirations become reality or not. The transition is a critical time.

Transition efforts are inherently difficult, especially for clients new to outsourcing when multiple service providers are involved. As buyers' outsourcing efforts become more complex so do transitions. This means the bar is constantly being raised on what constitutes the best practice and even buyers with extensive outsourcing experience can struggle with transitions. Figure 1 illustrates this point by showing the small percentage of outsourcing transitions completed on time, within budget, and to specified requirements. These levels have changed little in the nearly 10 years KPMG has been polling on this topic.

More important than on time and within budget is the impact the transition has on the remainder of the outsourcing effort. Here the news is not much better. Figure 2 illustrates how often transitions negatively affect the relation of buyer and service provider and through that the outsourcing relationship overall.

There are many reasons why organizations and their service providers struggle with outsourcing transitions. They fall under three main categories: Planning and ownership on behalf of both the client and provider, the transition management discipline, and failure to define, communicate, and respect the magnitude of change or change management overall for the transition. The table below lists examples of specific problems under each of these categories.

As illustrated in Figure 2, a bad transition can have a negative long term impact on the overall outsourcing effort. This impact is derived from several sources.

• Credibility: A service provider's credibility is based upon meeting initial client expectations and promises. If these are not met, the client organization starts losing faith in the provider's ability to deliver as transition missteps create a permanent element of doubt.

• Client organizational motivation: Most organizations undertaking outsourcing are already destabilized going into transition due to events associated with outsourcing such as job losses, concerns over potential loss of control, and pending changes to the way business processes are conducted. Execution problems during transition can result in overt negative behaviors including lack of cooperation on behalf of affected areas of the client organization or through the creation of ‘shadow delivery' functions.

• Executive support: Significant work will have been spent establishing client executive buy-in to the transition and the outsourcing effort overall. Maintaining the positive perception of the transition by executives will be critical to long term success and a botched transition immediately attacks that perception.

There are many skills and capabilities organizations need to avoid for problematic or failed transitions. They include the following:
Proper planning, continuing focus, and adherence to good project management techniques keep transitions out of the hole.

• A robust transition methodology: There needs to be a conscious planning effort and a disciplined approach to manage the complexity of transition.

• A well-designed transition governance model: This enables both client and provider to build on the relationships created during the initiation phase and vetting of the many decisions that come from the transition teams.

• Rapid resolution of issues and early identifications of risks: This is required to maintain the momentum and consistency of the transition. When issues and risks are not resolved or addressed in timely manner, motivation problems can occur.

• Communication: Frequent and clear communication to the transition team, client, and provider organization will help to eliminate ‘noise in the system' that comes from the transition.

• Dedicated and skilled change management resources: Outsourcing transitions are all about change management and it is critical to have skilled, dedicated, and experienced full-time change management resources and leadership. While the provider can help with this, it is ultimately the client's responsibility.

Start the transition process early: Organizations should not wait until close to contract signature to start transition planning.

The last point above is very important. Signing the contract is just the start of the outsourcing journey but too often leadership on both the client and provider sides view it as the end of the game not the starting point. Similar to (many problematic) ERP implementation where there was a fixation on ‘go-live' not what to do afterwards, outsourcing efforts that are not fully prepared for what comes after contract signing are in trouble. Figure 4 illustrates the lifecycle of the transition process.

 

It is important to define the workstreams for all participants in the transition process. Each player must understand its role and how it relates to what other participants in both the client and provider organization are doing. Some of the workstreams for a service provider include overseeing their transition team and plan, identifying and addressing risks and issues, and submitting and tracking contract change requests. The retained organization is focused on things such as status reporting, transition project change request management, and transition deliverable and milestone acceptance.

Related to workstreams, all transition participants must understand what their roles are. There are three groups and associated sets of responsibilities.

• Core delivery team: Fully involved from project inception to completed transformation. Responsibilities include representing the client's corporate view and internal customers needs, ensuring that the focus is on client's best interests, and validating the overall transition process.

• Transition office: Involved as needed from project inception to transfer of services. Responsibilities include providing detailed market and provider-specific knowledge, providing the transition process and methodology, and helping formalize transition decision rights and procedures.

• Service provider: During the transition, a critical responsibility is ensuring business continuity and committed service levels. Additionally providers produce final transition-related contracts, leads, and hold accountability for end-to-end transition activities with client and transition teams, and conducts quality knowledge transfer and shadowing activities with client team in a timely manner.

Finally, the transition needs to pave the way for ongoing outsourcing governance efforts. There are several objectives organizations must meet to establish transition governance.

• Set the foundation for long-term governance processes
• Manage the relationship between the client organization and service provider to ensure accountability and ownership across the project
• Facilitate a structured partnership with internal stakeholders and provider team
• Mitigate risk by rapid resolution of issues and enable management control
• Realize value by ensuring sustainability and efficient execution of transition plan within a structured framework
• Manage acceptance of transition deliverables (quality gate checks)
• Neutral point of view on success

Outsourcing transition efforts are rarely painless, fun or glamorous but when successful can lead to an outsourcing effort that is all of these things. Or at least meets its business case. Like anything complicated, transition success require planning and a plan to follow, skilled, dedicated and adequate resources, and a balance between ambitions and the ability to support them. These are the critical success factors.