Transition to Outsourcing: How To Minimize Risk

Transition is the stage of greatest risk in any outsourcing relationship, as it represents a sustained period where failure is acknowledged by customer and supplier as being possible. However, the precise scope of the transition will become clear only when the preferred supplier is selected and the preferred solution is determined in conjunction with the supplier.

The execution phase normally consists of three main activities:

• Transfer is an event, the action of moving responsibility for assets and people, leases, contracts and licenses from one organization to another.
• Transition is about the physical movement of processes from one organization to another.
• Transformation from the current environment to something better, faster or cheaper is almost always the driver for outsourcing in the first place.

This article deals with the most difficult of the three activities, transition.

The key principle of transition is that you are the party that owns the relationship with the incoming and incumbent service providers. This is true for newly outsourced services and for transition of services between outsourcing suppliers. As such, you must own the transition process, with a dedicated transition management team that controls the scope and deliverables.

Business process outsourcing (BPO) and IT outsourcing (ITO) transitions require full analysis of the services being outsourced. In addition, ITO transitions require careful mapping of the supporting infrastructure for hardware and software agreements. Careful management of the transition process is required to ensure that service-level agreements (SLAs) are met and that the outsourced services continue to support the business.

Irrespective of the long-term goals, transition (in the short term at least) must enable the supplier to assume service delivery responsibilities for services delivered out of the customer’s identified locations. This may involve introducing different procedures, systems management, monitoring, service desk and reporting tools or "simply" preserving the status quo prior to a transformation of the approach to service delivery.

Pre-planning sessions (transition definition workshops) with customer and supplier are advised to establish the transition planning process before the contract is signed and, thereafter, to work with them to develop an agreed plan and identify roles and responsibilities. It is essential that a basis for continuing service excellence is established, and that the perceptions of people are managed to ensure that everyone involved has the right level of expectations with regard to service acceptance and subsequent delivery.

In seeking to manage these perceptions (and the expectation framework within which they are formed), it is necessary to recognize that the transition process should start long before a deal is struck, when the transition method and first outline transition plan are laid out in the request for proposal (RFP).

Typical transition activities during the selection phase include:

• Review and check on the supplier’s transition and transformation plan as part of the best and final offer.
• Provide objective judgment on activities and costs.
• Define scope, deliverables, timescale and acceptance criteria.
• Identify risks.
• Establish governance structures.
• Create teams (steering committee, transition and transformation team, communication team).
• Advise on working council activities.
• Create a project and implementation plan or review and enhance any existing plans.

Transition is a multi-lateral project, with the interests of the customer and supplier requiring satisfaction if the project is to succeed, and with all parties playing an active role in the management and execution of the project.

These interests, at a minimum, include:

• Customer (executives, management, retained staff and end-users).
• Suppliers (executives, sales teams, transition teams, delivery teams).
• Transferring staff (if applicable) from customer and perhaps others.
• Third parties (software, hardware and service).

Relationships might be more complex than this, requiring, for example, the integration of many direct and indirect suppliers.

Unless the true complexity of the context is fully identified and understood by the customer and supplier, and unless the transition process, transition plan and conduct of the transition project acknowledges that complexity, only limited success will be attained and the true long-term potential value of the relationships will never be realized.

Transition Aim and Objectives

The sole aim of transition is to ensure that the required business benefits of the outsourcing relationship (for the customer and supplier) can be achieved by implementing the terms of the agreements thoroughly.

To achieve this, the following objectives must be met:

• No disruption for the end users. To ensure that the transfer of services to supplier is transparent to the end user (i.e., the end user suffers little or no disruption, and that service levels are, at a minimum, maintained at the current levels).
• Establishing end-user perception of the suppliers and the services. To ensure that the perception of the end user to the new service arrangements are clear, positive and supportive.
• No disruption for the staff. To ensure that the staff, either being transferred or remaining with the customer (or incumbent supplier), remain focused on delivering—and motivated to deliver—the service. People transferring must be treated with respect and dignity, and it is appropriate for the customer to have significant input to the supplier’s internal communication process to ensure that this is so.
• No disruption to work in progress on projects. To ensure that all projects that are current during transition are identified, the responsibilities for completion defined and signoff parameters agreed between all parties involved.
• Establish working practices and procedures. To ensure that key staff is put in place and to build and implement processes and procedures that enable effective interface and control at all levels (executive, management, users and other suppliers).
• Verify and agree on service levels. To ensure that achievable service levels are defined, that sensible measurement is in place, and that the supplier’s ability to meet these levels is verified.
• Establish a continuous improvement program. To ensure that parameters are defined within which the supplier is to use its service delivery skills and competency to improve the service, and to establish this as an ongoing program with agreed budget and targets.

The supplier will want to:

• Ensure that due diligence is demonstrably complete via meeting pre-agreed criteria (and that any necessary adjustments to the original deal are made).
• Ensure that all agreed assets (if any) and maintenance contracts are transferred.
• Establish and prove their service structure.
• Raise their level of visibility with the end user and business organization.

Ownership and Resources

Effective outsourcing relationships are the result of realizing mutual business benefits and helping each other to do so. The customer and supplier must, therefore, mutually manage the transition process and actively work together to ensure successful transition.

It is certainly true that the supplier will undertake much of the activity during transition, but the precise nature of the customer/supplier split of activities will evolve as the preferred "solution" becomes clear and typically after the transition definition workshop, but the transition project will require cooperation between the supplier and the customer.

The supplier will provide the majority of resources and probably will bring greater experience to the project than will the customer (except of course for the insight into the customer’s precise requirements and processes). This is where engaging with specialist sourcing consultants for the transition lifecycle who solely represent the interests of the customer can reduce risk significantly.

Most customers will look to the supplier to provide an outline transition plan and support them in constructing their part of the project. It is assumed that the supplier will provide such a plan as part of their response to the RFP.

Governance

The scope of transition planning should include governance (project board and specific project team) and the use of a structured project methodology approach.

Key requirements to a successful transition (outputs from due diligence and negotiations) include:

• The original business case that will clearly define the required business benefits and timescales for the outsourced services.
• Statement of work defining the scope of the service and responsibilities, detail of assets, if any, and contracts to be transferred plus detail of staff (including terms and conditions) to be transferred.
• Detail of the services to be transferred (together with agreed service improvements and service level improvements).
• Detail of costs (baseline and ongoing budget).
• Framework transition plan.
• A structured project approach agreeable by both parties.

Key deliverables of successful transition include:

• Retained organization in place (demand and supply).
• Employees and assets transferred to supplier.
• Regular service and contract meetings scheduled.
• Formal SLAs and key performance indicators (KPIs) in place.
• Service level reporting.
• Invoice scheme implemented (supplier).
• New procedures documented.
• Formal relationships established (client, supplier, third parties).
• Smooth handover from transformation to operation with the establishment of a future-proof (business) platform to manage the outsourced services.

Summary

Transition is the most complex and demanding element of the execution phase of outsourcing. It is often delivered in the glare of unrealistic expectations while at the same time dealing with uncomfortable things such as staff redundancy.

This is often the period where relationships between customer and supplier are strengthened and reinforced or fractured and weakened. To improve the chances of a positive outcome, use the best practice principles with proper planning from both sides using people experienced in transition.

This article is adapted and reposted with permission from EquaTerra, a global outsourcing and insourcing advisory firm. Penny Edwards is a senior consultant at the firm.