The possible perils that can impact the success of an outsourcing relationship’s transition phase are well known. These days, most buyers are as aware as service providers of the need for a robust governance framework that facilitates the parties’ identification of challenges and working collaboratively to address them quickly. Most have also read tales of the problems others encountered when transitioning work to a service provider when there was a lack of system and/or process documentation. And it’s no secret that many buyers don’t budget enough time for the transition phase.
But these are not the only factors that drive success or problems in the outsourcing transition phase. In fact, in assessing the success of transitions among the relationships nominated in the past five years of Outsourcing Center’s annual Outsourcing Excellence Awards program, the Center found four “lessons learned” encountered by multiple buyers that are seldom mentioned in industry literature on the outsourcing transition phase.
Though not broadly recognized, the following four tips have a huge impact on success when they come into play.
Tip #1: Don’t be people dependent
Frequently in outsourcing arrangements, the service provider hires the customer’s employees whose jobs will be eliminated. This causes some organizations to think that they will encounter fewer challenges since their own former employees will still be doing the work. This can make it difficult to gain true process and total cost of operations cost reduction goals.
While it is true that the knowledge of rebadged employees now on the provider’s payroll can bring much of the early success in the beginning of such a relationship, this results in a “people-dependent” model. It is not sustainable over time.
The parties need to change to a process-dependent model. The customer and provider need to determine which functions/tasks work optimally in the customer’s in-house model and which are not optimal and then document the processes. The question then becomes whether to implement the process-dependent model before transitioning the work to the service provider or at some point after transitioning the work.
Buyers whom Outsourcing Center interviewed on this topic state a lesson learned was to move away from the people-dependent model on day one of the outsourcing contract. They report this resulted in a shorter time for service stabilization.
In instances where they began with a people-dependent model and then switched at a later point to the process model, there was a dip in service performance until the rebadged employees could perform at higher standards to meet the expectations of the outsourced service.
Tip #2: Walk the talk
Many outsourcing buyers report that the importance of their company’s top executives in driving and supporting the outsourcing initiative cannot be overstated. However, in some relationships, the executives behaved and communicated this way regarding their own employees but behaved and communicated differently toward the service provider.
Their lesson learned was to “walk the talk” – not just talk internally about the importance of the outsourcing strategy and relationship but also behave toward the provider in a way that enables a successful transition.
This entails management at both companies agreeing up front that they will work through any challenges without getting into the blame game and focus, instead, on the facts, the objectives, and win-win solutions. They also agree to treat each other with respect. Creating an environment for resolving issues jointly takes a concerted up-front effort.
Tip #3: Be open and communicate
Unanticipated challenges arise in many outsourcing transitions. Such challenges range from baselines and databases with errors to the buyer’s business volume climbing or sinking dramatically to industry regulations that cause a change in priorities. Technology may not work as anticipated or implementation may be delayed, and even a natural disaster or an economic crisis can occur.
At such times, both parties must be able to feel completely comfortable in bringing these challenges to each other’s attention and trust the other party to support these challenges and the potential financial implications. Such discussions can be tough and emotional, and resolution is often not easy.
The buyers Outsourcing Center spoke with reported that resolution was easier in cases where they had taken the time up front to establish a communication structure that facilitates open discussions so that both parties can clearly understand each other’s perspectives around the potential resolution outcomes.
Tip #4: Anticipate pressure from parallel critical activities
An outsourcing transition is a major, critical activity that requires focused attention and time to manage through the tasks. But the success of many outsourcing transitions is plagued with multiple critical activities undertaken at the same time as the outsourcing initiative. Examples of these types of activities include:
- Merger, acquisition, or divestiture
- Enterprise resource planning (ERP) implementation
- Corporate reorganization
- Sarbanes-Oxley attestation
Even with resources dedicated to the concurrent activities, the organization faces a high degree of pressure from the sheer volume of change occurring. There are additional challenges when the two activities overlap. Companies with effective change-management methodologies fare better than others.
Even so, several buyers reported a significant lesson learned. They underestimated the increased call volume to customer call/contact centers and help desks due to the changing procedures, processes, and technologies. If the call center or help desk is an internal service, it is unlikely that the buyer has the resources to handle the extra volume.
If the call center/help desk services are outsourced, a provider can bring in additional resources. However, the buyer will need to consider relaxing the service level agreement (SLA) during this period if demand exceeds the baseline volume criteria in the SLA or contract.
Buyers planning to transition a business process or function to an outsourcing service provider will benefit by keeping these four tips in mind. These insights from lessons learned will impact not only the smoothness of a transition but also help to contain the costs that can easily climb when these types of challenges occur.