Outsourcing Project has its Own Tricks
September 26, 2016
I have been involved for the past 12 years in different types of outsourcing projects, ranging from the straight-forward implementation of a few selected processes to full-blown, global competitive outsourcing programs of SW development, maintenance and IT operations as a whole. Journeys have never been easy but some projects have been more successful than others. Why is that?
In my view, the best implementations start with a well-defined partnering strategy and a strong management commitment. Outsourcing cannot succeed if it is done in silos, inside some business unit or IT alone. You should never outsource your decision-making and the ability to steer the key processes in your company. For the first “Go” decision, top management will, of course, need a good set of business case scenarios which can be “stress-tested” by qualified people, including a team typically consisting of experienced internal professionals and outsourcing experts.
An operational outsourcing project should always start with an internal preparations phase, where some key people are working under strict NDAs and start collecting relevant data for the scope. This needs to cover financials, personnel, processes, current contracts, systems and tools. The level of the needed documentation effort is often underestimated and creates pressure in the later due diligence phase. In parallel to the documentation effort, the first draft of the retained organization can be drawn by the responsible management. One crucial success factor is the need to define the retained manager layer who will take care of the operative partner management and show the way for the transition and transformation.
Formal competitive bidding may start with a request for information (RFI) round if the scope is any bigger. This gives time for the preferred partner candidates to prepare themselves and to get better informed about the customer needs and change drivers. RFI sessions can be organized so that all candidates are present. This tells them, especially to possible legacy vendors, that the competition is real. RFI results are also valuable to customers because it is important to know the partner candidate companies, including who they are and what they have done elsewhere. It also provides the first signals about whether the candidate is truly interested in the opportunity. Requests for proposal (RFP) might then be only sent to the short-listed group. However, it is still important to have an adequate number of candidates continuing. RFP responses are binding proposals. Therefore, proper responses take several weeks. It is good practice to organize virtual data room and the Q&A process in order to support candidates’ proposal process, and to share additional information equally with everyone.
When entering into the negotiations phase, it is still beneficial to have 2-4 candidates left so that there is an adequate basis for comparison. I also recommend that there is a proper project plan for the negotiation phase. It takes time and effort to organize several parallel teams for this but it counts, and you can adjust meeting schedules with others if some candidate start looking very well-qualified. Down-selections can take place at any time but two candidates are needed when the final price and key terms are agreed upon. This later negotiations phase needs to get support from true due diligence facts based on which final proposals can be given. No partner is ready to commit if the scope is still somewhat uncertain. This would only leave unnecessary reservations for deal closing.
A realistic transition plan is, in my opinion, one differentiator when partner selection is done. The customer seeks business continuity and fluent transition. This will not be the case if the process is not planned in detail. What, when, by whom and even what if, are good questions in order to check the real execution capability in various transition streams. Transition project cost should always be agreed upon on a fixed-fee basis.
In most outsourcing projects, people transfer is an elementary part of the business case. It is an important lever for success or total failure. You need to be ready for some attrition because, in general, outsourcing is seen negatively and as a threat. People behave differently but I have found that the most common questions in outsourcing info sessions are what this means to me as a person, what happens to my salary, overtime payments and personal benefits? Therefore, it is very important to have open communication from both the sending and receiving parties as soon as the outsourcing arrangement is public. In successful transitions, HR teams on both sides work together for months to prepare beneficiary comparisons and to reach agreement on a target compensation plan. They are then ready to answer all of these questions immediately. The professional outsourcing partner has also planned the new delivery teams in advance and can prioritize key persons who are critical in delivery. These individuals can also be opinion-leaders in the subsequent change management phase.
In summary, an outsourcing project has its own characteristics but they can be managed. The partnering attitude and management commitment create the basis for a successful outsourcing project. This is essential for long-lasting collaboration where the partner is truly committed not only for the agreed upon deliverables but also for continuous improvements and new innovations.