Advice for Starting an Outsourcing Relationship
At Outsourcing Center, we study hundreds of relationships to ascertain what works and what doesn't. One thing is certain - the implementation and transition phases are fraught with complexities and unexpected challenges. Although some relationships move on to meteoric success, others hemorrhage so badly at this stage of the game that it's difficult to recover and achieve the desired results in the timeframes anticipated.
This second article in a series of three about starting outsourcing relationships in a manner to bolster success highlights dangerous situations that can adversely affect smooth implementation and transition.
To be sure, many beautiful quilts are the successful product of patchwork; but outsourcing relationships are not supposed to begin with this type of approach. Obviously, no buyer or service provider has this approach in mind as a strategy, but it happens frequently that best-laid plans evolve to patchwork when the buyer is unaware of factual data and does not provide adequate information to the provider at the time the agreement is signed.
Oxiquim, located in Chile, for example, outsourced some of its IT processes to Getronics Chile. Andres Loyola, Oxiquim's IT manager, recalls that their agreement called for Getronics to support Windows, Microsoft Office, Lotus Notes and a couple of other standard software programs. But during implementation and configuration, they encountered several end users with additional software programs. "We hadn't considered at the beginning that there were some translation software and drawing software programs that some users had," says Loyola. "So we presented the problem, and Getronics had a good, flexible attitude and agreed to support those for us." But it necessitated rewriting the agreement to include the new software.
Eileen Palumbo, director, Shared Services Benefits at Johnson & Johnson - which has outsourced some of its benefits processes - cannot speak highly enough of its relationship with service provider, Hewitt Associates. Still, when asked what she would do differently if they had to go through the outsourcing arrangements again, she doesn't hesitate in mentioning the quality of data.
"I would have been more insistent on cleaning up the data before giving it to Hewitt," Palumbo says. "That was one of our biggest lessons learned. We have spent a lot of time, money and effort cleaning up data so that we can take advantage of the technology that's available through Hewitt."
Relationship manager for BP's outsourcing arrangement with Exult, Peter Whalley, agrees that, if he had to go through it all again, he also would "pay a great deal more attention to the quality of the data." The company had a heritage of acquisitions and mergers over the 10-year period prior to outsourcing to Exult, and it amounted to a residual of unresolved issues.
"The quality of data shows up when you start pulling the boundaries down," Whalley states. "All of sudden you discover that one piece of data is not identical to another and you have to start building all sorts of things to get around it. Especially if you wish to globalize things, getting very serious about your data very early on is very important."
Alliant Energy, which outsourced its facilities management processes to FBG Service Corporation, encountered major problems from missing data. Steve Gladson, regional facility manager, recalls their challenge of internal complaints about the provider's services at the outset. "We thought we had given them the data on all the sites that we had, but there were several hundred sites that we missed." The initial complaints about missed service were tied to the locations that were not in the database.
"We should have had more internal people involved and figured out a way to make sure we had a more accurate database when we started," he continues. "It can be a killer if you are missing five or 10 percent of your data."
Again, the outsourcer's flexibility and willingness to solve problems made the difference in the success of their relationship. The provider got involved at each Alliant zone and walked through the database again, helping to identify missing sites. Gladson says, "Then they got right on top of it and got somebody out to those sites immediately to take care of whatever the problem was."
When Outsourcing is Twinned with M&A
Never underestimate the complexities and unexpected challenges that can arise when the implementation phase of an outsourcing arrangement happens concurrently with, or close on the heels of, other major transactions in the buyer's organization. Mergers or acquisitions are particularly troublesome.
During the five-month implementation for outsourcing of Royal Bank of Scotland's flexible benefits process to Hewitt Associates, the bank had just completed its acquisition of London's National Westminster Bank (NatWest). "The enormity and scale of the movement of data and amount of paperwork was a real shock to both Royal Bank and Hewitt," recalls Greig Aitken, manager, HR Strategy Development at Royal Bank of Scotland. "It was an unbelievably exhaustive process because we were trying to swallow NatWest, an organization whose population was three times as large as ours."
Finding a balance between resources and efficiencies while being able to support the users during the transition was a difficult challenge. "It only happened because we and Hewitt worked together as a partnership," states Aitken.
Compaq Computer Corporation encountered similar difficulties because of its acquisition of Digital in 1998. Elaine Beddome, director, Compaq Benefits, says "We were two large organizations re-inventing ourselves together as one large company, and we were both already outsourcing our benefits programs at the time." In addition to challenges in ensuring accurate data from the buyer, Hewitt had to go to both prior vendors, build an entire new process and train the Hewitt teams to understand a double set of existing benefit plans and rules.
Making the Leap
No one approach is a sure-fire guarantee of success in making the leap to outsourcing. But Ray Brusca, vice president of Employee Benefits at Black & Decker, advises those considering outsourcing for the first time not to be "fooled into thinking that a service provider can take you from one extreme to another in a very short timeframe. Things take time. I'd rather do it slow and right than fast and wrong."
So how does one do it slow and right when a company is faced with the rapid changes in today's marketplace? Because outsourcing is a strategy that's complex to structure and implement successfully, the best approach is to use an outsourcing consultancy with expertise and methodologies in developing effective Requests for Proposal, service descriptions, service level specifications and metrics, as well as transition and governance documents.
Lessons from the Outsourcing Journal:
- The accuracy and completeness of the buyer's data is crucial to success in implementing an outsourcing agreement.
- Build extra time into the implementation phase for challenges that can arise when the implementation phase of an outsourcing arrangement happens concurrently or close on the heels of a merger or acquisition.
- An outsourcing consultant can eliminate the steep learning curve in the complexities of designing an effective outsourcing agreement and focus necessary expertise on implementation, transition and governance of the relationship.