I. Operational View

Often full consideration is not given to the structure, skills and capabilities required for the retained organization staff and team members to shift from doing the work to managing the work of the provider.

• Retained Organization Structure: The first thing retained employees want to know is what the new organization structure is and what their new jobs are? Left on their own, employees will continue to do the jobs they are familiar with, oftentimes getting in the way of the provider rather than effectively managing hand-offs. The chaos that ensues between the customer and the provider can often be exacerbated by a lack of business process documentation to define exactly where the key touch points exist between the customer and provider and what needs to happen at these intersections. These intersections are where value is either created or lost. A bad hand-off means value leakage in the system. Poor planning and communication of new structures and operating roles on the front end translates into a lot of leak plugging on the back end.
  
  
• Retained Talent Management: It is not enough to define the new structure and new roles, but to ensure the right people, with the right level of authority, monitoring and administering the right processes and having the right metrics on which to base decisions, are in place prior to the transition. The key is to manage talent prior to the transition. Too many times the retained organization is comprised of people who performed well under the old structure, but do not have the skills or ability to operate effectively in the new environment, either because they lack the core competencies to do so, or because the organization has not enabled them to make the shift.
  
  
• Business Process Design: Business processes change once a provider is engaged. Most providers come ready with fully optimized business processes with the intention of leveraging work processes they already have in place with other customers. They make their money by standardizing and improving. On the other hand, customers may arrive to the partnership with old processes, legacy systems, and nonstandard business processes. While some standards such as Information Technology Infrastructure Library (ITIL) provide a foundation for joint customer / provider alignment, it is more likely that customers need to better understand the processes of their selected provider and understand how these internal business processes should be integrated to capitalize on the standardization already achieved by the provider. After all this is where at least part of the value of outsourcing can be realized. Value leakage occurs when the customer organization spends months developing new business processes to better interface with the provider and the provider spends an equal effort understanding how to get work done in the new relationship. Certainly, some difficulty is part of any transition, but when it goes on too long, non-recoverable costs escalate and the sourcing business case begins to erode

II. Financial View

Without question, the reason organizations consider the sourcing alternative is to reduce costs. But this is an incomplete vision of the fiscal impact that outsourcing has on every organization. Too often, the intense focus on cost reduction fails to achieve balance in the relationship, resulting in value leakage in less visible areas such as productivity and customer satisfaction.

• OPEX Reduction: Everyone knows the imperative to drive cost out of the business at every opportunity. While a compelling argument, it has been demonstrated time and again that managing your way to profitability through cost elimination is like playing defense all the time where one can never score. In many outsourcing cases, costs escalate during the first months of the transition. This happens for all the reasons discussed above under Operational View. Hence, paying attention to operational issues as part of the transition will ensure more value is captured from the start.
  
  
• Productivity Improvement: Productivity is usually difficult to measure. However, in an outsourcing relationship that is properly structured, unit pricing, transaction volumes and cost per FTE are baselined prior to consummating the deal. The challenge for many customers is that such metrics were not understood prior to retaining a sourcing advisor and, in most cases, were not benchmarked to an industry standard. The idea of creating synergies between the customer and the provider is critical to value optimization in the outsourcing relationship. The customer should not be getting the same productivity at a lower cost, but rather more productivity at a lower cost. Establishing financial controls that are based on binary ratios of performance rather than on singular measures is the way to evaluate real value creation.
  
  
• Customer Satisfaction: Often considered a soft measure of financial performance, the ability of the organization to achieve its customer satisfaction objectives is tantamount to value optimization. During transition business customers will no longer be able to call their friend in IT to get a personal resolution to their problem or use other legacy problem resolution strategies previously effective available to them. The ability of the retained organization to quickly communicate and educate their internal customers regarding new business processes and problem resolution efficiencies is important. Again, much of the value optimization opportunity resides in effective operational management during the transition.

III. Strategic View

The sourcing strategy should be developed with the ability to map back to the value exchange concepts underlying outsourcing as a business initiative. Examples include the ability of the organization to remain nimble and responsive to market conditions, the ability to innovate, its ability to reliably deliver on its commitments to its customers and shareholders, the ability to reduce risk, and keep the commitment to managing the relationship with providers. Often, strategic initiatives are focused on the value or utility that can be extracted if the strategy is successful. Such is the case with most sourcing strategies. However, equally important is the likelihood that the anticipated outcome will be realized. Creating more certainty regarding the sourcing strategy is partly dependent upon how well the transition is managed. Hence, transition management should be part of the strategy.

• Business Context of the Solution: The business context of a multi-level marketing company is different than the context of a financial services organization. While most companies share some contextual features, the sourcing solution must be a tailored fit for the organization. For example, customer service, while critical to all businesses, is imperative to the success of multi-level marketing organization. The impact of the sourcing solution to enable core business functions is critical. Before and during the transition, the business context of the solution should be evaluated to determine the impact on strategic imperatives core to a particular business's niche in the market. Failure to address context as part of transition management results in sub-optimized value and could be disastrous.
  
  
• Assured Innovation: Sourcing as a strategy can be thought of as "performance by letting go." But letting go means shedding old ways of doing business. While sourcing may be considered a means to assure innovation through standardization and change, it is equally frightening to depend on a partner for innovation in some part of the business. The provider's own capabilities as an innovator should match up with the culture of innovation within the customer's organization. Transparency and trust are key transitional factors for eliminating surprises and optimizing value.
  
  
• Risk Reduction: Alignment of risk aversion profiles between the customer and the provider are seldom included as part of the transition strategy. Disagreement on time horizons for value realization, identification of potentially over optimistic views of what sourcing can provide and underestimation of the challenges of transition are all common pitfalls that can be avoided through up front assessment and communications. Most managers are focused on incremental cost savings and innovation within a short time horizon. Establishing a realistic set of milestones with specific reality assessments along the way promotes trust and sets both parties up for mutual success.

Closing the Value Gap
Once the contract is executed the work of realizing the value of the outsourcing business case takes center stage. The operational capabilities of the retained organization become starkly visible to internal customers with senior managers and shareholders eager to see the ROI on the sourcing strategy. A reduction-in-force may be part of the transition as well as key customer employees being transferred to the provider organization. No wonder transition management is so difficult.

To make matters worse the International Association of Outsourcing Professionals reports that:

"Advisors are under serving customers in the areas of change management and managing transition."

IAOP Research 2006

A 2007 Alsbridge review of the market indicates customers are looking for transition management support in ten key areas in priority as follows:

An advisor steeped in transition management can certainly provide methods, business processes and governance structures that will shorten the transition time horizon and help optimize value realization. In addition to the above areas, the retained organization should evaluate and understand the essential interfaces between the retained organization and the provider. The figure below shows an example of these interfaces for an ITO operating structure:

Working a Plan

Three phases of transition management are suggested to align customer and provider organizations culturally, strategically and operationally. Experience demonstrates that transition must happen quickly, typically within 120 days of contract signing. While a long-term change management initiative may be required, transition management is about standing up the organization and avoiding the chaos that unnecessarily drains value from the customer / provider relationship. The following chart provides a high level view of the typical phases and actions to be taken within the first 120 days.

Successful transition management starts and ends with people. Getting the right team and role structure in place is imperative. Companies that understand and adopt best transition management practices long before the provider is selected and the contract signed stand a much higher chance of ongoing success and achieving the value expected from outsourcing.

Conclusion
Transition management is just one key element of what often is a larger plan for transforming the business to meet the challenges of a highly competitive global economy. Hence, this article is a starting point for understanding the foundational elements that should be part of any outsourcing arrangement.

In the final analysis outsourcing strategies are focused on:

• Providing services,
• Consistently meeting requirements,
• Managing individual and organization performance,
• Proactively enhancing value, and
• Sustaining operational excellence.

To achieve these objectives, those charged with managing transitions will need to remember the following keys:

• Management leadership support and involvement are essential,
  
  
• Transition management processes, tools and communications are an integral part of the outsourcing strategy - not separate and apart,
  
  
• People who cannot see the way forward tend to stay where they are until the way becomes clear,
  
  
• You cannot take a long time to transition,
  
  
• Communicating a transition plan is critical,
  
  
• Cultural, operational and strategic differences between the customer and the provider must be understood and valued, and
  
  
• More often than not an experienced transition guide or advisor is the difference between baseline business case value leakage and value optimization from the start.