Is transition management really that important?
Most organizations understandably develop tunnel vision early in their outsourcing journey when the prize is making the right deal. But what’s next? What happens when the ink dries on the paper and customers can relax knowing they’ve negotiated a sustainable, value-for-money deal with a trusted supplier? The answer is: don’t relax. Translating that deal into a successful day-to-day operational reality is vital from an organizational and often personal standpoint. The current global economic downturn makes keeping transition costs on budget and reaping the benefits of outsourcing even more important. And the cost of doing it wrong?
- Delayed transition to outsourced service
- Unsuccessful business case
- Increased cost and resource load
- Bad customer/supplier relationships
- End users and stakeholders oppose new ways of working
Experience shows that the lack of a strong and focused client-side transition management activity is a common contributing factor to deals that never got off the ground. Research shows that governance and relationship issues alone can account for 40-50% value leakage in the average outsourcing contract. Common symptoms are a delayed transition, eroding the business case, leading to messy and inconsistent communications, and compromising the ability to properly manage the people and processes involved and impacted by the outsourcing initiative. Resources on both sides are stretched and responsibility for additional costs incurred strains relationships, often leading to a blame game. All of these things are real obstacles to truly realizing the tangible and intangible benefits of the commitment to outsource. You have one opportunity to lay the proper foundation to prevent that drain of value from occurring: the transition phase.
As the transition phase sets the stage and tone for what is typically a five or seven year relationship, the damage done during this phase tends to last. The bottom line is that once value has been lost, whether in terms of relationships or direct costs, it cannot be recovered. Closing the gaps to try to stop the flight of value once it has started will never yield as good results as a well-executed transition: after all, prevention is better than cure. So where should the transition management effort be focused to ensure that the best plans laid out during negotiation and contracting actually come to life? Priority areas of focus vary by client, but some common themes have emerged.
management program – The first issue here is that clients often don’t see the need to hire a full-time transition project manager until it’s too late. Don’t assume that devising a solid plan during the negotiation and having a transition manager on the provider side will be enough. This is a basic requirement if success is to follow. The second topic is a bit more difficult. While experienced project managers can be quite accessible, direct experience of the outsourcing transition process is more difficult to come by, but is immensely valuable in managing an outsourcing transition effectively. Experience provides vital insights and lessons learned. Why is change management so important? What tools and training does a retained organization need to operate within an outsourcing arrangement? What are the technology requirements and where is the property, where are the key transfers? The list goes on. Your provider will have assigned a Transition Manager to dedicate full time to your service transition, this is their core business so they know how important it is to put a trained and experienced person in that role. Make sure you do too.
Change management – Why all the fuss about change management? Surely it happens as a result of all the other activities that take place during the transition? Change management can be broadly described as driving cultural change through communication and education. That communication and education can take different forms. The right way for your organization needs careful evaluation and adaptation through detailed mapping of communication channels and stakeholders. This type of activity provides a foundation for the entire transition. If it is not done correctly, you will not achieve operational readiness. In other words, all the tools, systems and processes necessary for the provision of outsourced services can be in place, but if the company does not know how or is unwilling to use them, the transition will fail. You need HR leaders and business partners to champion change, so they must be prepared and accept the inevitable changes in their roles to go out and sell the new world to others. A clumsy approach to communication and education can leave a bad taste in the end user’s mouth for a long time. And of course, change management really comes into its own if any existing staff need to transfer from TUPE to your provider. Proper and professional management of this population is absolutely critical to the success of your business.
retained organization – Your retained organization will be the inside face of the new outsourced world. They are expected to manage the deal, take ownership of the end-to-end processes, champion the solution, adopt a one-team mentality, and continue end-user education, among many others. They can also be expected to meet these goals by working with a large workforce component abroad, which creates a cultural challenge that most have not faced before and therefore are not prepared to present a training challenge. only. So what is the best way to build a successful retained organization? Choose the right people to form it. Many clients simply look at those currently providing in-house service and keep the most competent ones to make up the retained team. This is an easy mistake to make and not necessarily the correct answer. The skill profile of a retained strong team member does not directly match that of an internal team member. A good help desk administrator is not necessarily a good contract administrator. An outsourcing contract is a complex legal document – will your contract team have the necessary skills to understand and interpret it? Key relationships, processes and handovers will be designed during the transition phase. The retained organization is key to this and crucial to the continued smooth running of the deal.
Governance – Not having a robust governance structure mapped, established and operational from the moment of signing the contract can have far-reaching consequences. By working closely together to negotiate a deal, all customers and suppliers begin their partnership aligned with each other’s strategic goals and how the deal fits with each other. Take your eyes off this for even a short period, however, and misalignment can show up incredibly quickly. Misalignment, in turn, is a contributing factor to relationship breakdown. Similarly, if there is insufficient, inefficient or ineffective governance from day one, your organization’s ability to achieve timely and effective resolution of transition issues is significantly eroded and the transition process itself is compromised. The right governance teams must include empowered decision makers and people who know the contract and schedules from day one. There are many ways to get an outsourcing partnership off paper and into life – think about what will work for you. Begin as you plan to continue, think about how to discourage negative interaction styles, such as ‘dropping the book’ every time a problem occurs.
Risk management – While it is true that entering into an outsourcing agreement may introduce some element of risk sharing, it is not a strategy for absolute risk mitigation. In fact, there are specific risks involved in making a transition to outsourcing. They must be identified, evaluated, tracked and specific mitigating measures implemented. Develop a clear method and make sure you have the right stakeholders and decision makers taking those mitigation actions to plan and schedule. Making sure to manage risk during such an important and often innovative transition may seem like a no-brainer. Perhaps so obvious that some clients take this for granted and, as a result, are less focused on managing their outsourcing risks than they should be. Transition timelines are often tight, and it only takes mismanagement of a few of those key risks to derail the process.
The success of all the elements discussed above is critical to the success of the transition. Derailing just one can seriously affect ‘time to value’ and the foundation of your partnership with your service provider. Organizations that go through this type of transition are usually doing it for the first time; either because it’s their first outsourcing/offshoring experience, their first outsourcing experience with a particular process, or perhaps they’ve outsourced the process before, but this time it’s with a new vendor. Therefore, it is logical that the client does not have all the necessary tools, experience, knowledge and benefits of lessons learned to maximize the chances of success. But not managing the transition properly is too big a gamble. Make sure you’re managing the biggest risk of all by making sure you’re properly equipping your organization for the transition. This valuable investment will help build a positive supplier partnership and shorten total time to value, allowing you to achieve your ultimate goal of sustainable bottom-line savings.