Customers and their providers are both experiencing pressure to realize the efficiencies and cost savings that were initially identified in the business case for outsourcing. Whether the deal was ITO, BPO, HRO or some form of shared services on-shore, off-shore or hybrid, the underlying reason for embarking on outsourcing is always value creation.

The Challenges of Change

Realizing this value has been more elusive than both customers and providers expected in many cases. The original business case most likely identified millions of dollars of opportunity critically important to sustaining the competitiveness of the company. Furthermore, senior executives expected to see the positive results of outsourcing within a specified time period.

Recent research has shown that managing change is a critical challenge for both customers and providers. Among the top 10 challenges facing both customers and providers are:

• Shortening transformation time,
• Reducing transformation costs,
• Linking results to shareholder value (Customer), and
• Reducing implementation costs (Provider).

The growing pressure for financial returns on outsourcing deals is critical to both providers and customers. Alsbridge research and experience show that managing change is at the heart of value realization. A recent Sourcing Interest Group whitepaper observed,

“The governance organization can only be effective when there are 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.”

Governance, process, skill and measurement all play a key role in capturing the value of the outsourcing relationship. When these areas are not adequately addressed, even before the deal is signed, erosion of the business case begins. Non-recoverable costs escalate and the sourcing business case begins to erode because people can’t make the shift from old operating practices to new operating practices involving a provider. The result is a reduction in value that starts long before outsourcing transition is initiated.

Typical Kinds of Value Leakage

What happens in organizations entering into outsourcing relationships is dynamic and, far too often, chaotic. Customer organizations often experience the following types of value leakage:

• Operating model implemented without a cross functional process foundation,
  
  
• Business processes developed in silos without provider input,
  
  
• Retained IT organization that has never worked in a managed services model,
  
  
• Confusion regarding how to manage value based service providers,
  
  
• No definition of skills / capabilities required under the new operating model,
  
  
• Compensation and performance objectives not set for new model, and
  
  
• Inability to manage talent in a new flatter organization where upward mobility is more limited.

• Customer behaviors construed as tactics to sabotage the relationship,
  
  
• Unintentional human error made by customer personnel who are still trying to do their old jobs,
  
  
• Misunderstanding and unproductive confrontation about unclear accountability,
  
  
• Vague or inflexible contractual terms that must be worked out as part of the transition,
  
  
• Misaligned customer and provider roles and business processes, and
  
  
• Limited customer incentives to optimize financial returns under the outsourcing model.

Confusion over organizational functions within a highly matrixed customer organization and failure to define provider accountability are sure ways to erode the business case. Erosion often starts before the deal is ever signed. Hence, addressing change management as part of the selection and contract development process is key to achieving speed-to-value for both the customer and the provider.

Achieving Speed-to-Value

Realizing the value from an outsourcing relationship demands Rapid Transformation Management (RTM). During the first 120-day period, foundational processes and roles are established that set the tone for the longer-term relationship. Traditional organizational change management methods do not adequately address this critical window of opportunity and this is where RTM is needed to capture value before it begins to erode.

RTM includes the use of business and governance process templates and documentation to speed the design and structure of the outsourcing relationship. RTM includes the following foundational elements:

• Governance and business process design to bring structure to the decision-making process and enhance transition execution,
  
  
• Talent management to define skills, specify new role requirements and identify competency gaps that must be closed prior to roll out, and
  
  
• Stakeholder alignment to bring clarity, sponsorship and execution based on a structured retained and outsourced organizational design.

These three elements, when rapidly deployed, create the structure required to achieve speed-to-value and ensure that people in the midst of change can execute effectively.

Underlying these foundation principles are key project work streams that involve both the customer and provider in:

• Business process modeling,
• Role and skill modeling,
• Governance structure design,
• Process and retained organization alignment,
• Provider and customer role and process alignment, and
• Training and communications that are completed at key milestones throughout the Rapid Transformation process.

Measuring Success Along the Way

Measuring progress along the way and identifying issues for resolution ensures the work being performed is effectively accomplishing speed-to-value objectives for both the customer and the provider.

Applying a dashboard tool to consistently evaluate progress against key performance indicators keeps the discussion between the customer and the provider fact-based rather than perception-based. Fact-based discussions can be productive because they address perception-based issues relative to measured results.

A dashboard tool that collects data along the way, allowing customer and provider stakeholders and staff to provide qualitative assessments of different relationship and project attributes provides the fact-based foundation for resolving issues quickly and efficiently. Most important, it eliminates the kind of surprises that can irreparably damage a relationship before it matures.

The Operational Alignment Dashboard shown below provides an example of a simple, yet effective tool that can be used to assess Cultural, Operational and Strategic alignment factors that tell both the customer and the provider if and when issues impacting the transition process may require attention.

The old carpenter’s rule of “measure twice, cut once,” also applies to measuring and monitoring the outsourcing relationship. Quickly identifying issues on consistent basis using a dashboard ensures that both parties are being held accountable for communicating and resolving fact-based issues.

Summary

Change management does not have to be difficult. It does have to be structured, timely and appropriate to the cultures of the parties to the outsourcing agreement. Leveraging the tools and experience of an advisor is a cost-effective way to achieve speed-to-value whether it is linked to shareholder value or reduced implementation costs.

Remember the following key transformation management principles; they can make the difference between success and failure:

• Effective transformation behaviors are a product of process, tools, skills, mindset and management systems,
  
  
• The Relationship Matters – Starting the relationship off with a clear vision, role clarity, cross functional accountability and coordinated customer to provider hand-offs sets the foundation for eliminating value leakage,
  
  
• Speed-to-Value can be achieved for both the customer and the provider by leveraging the tools, templates and experience of those who have already walked the path, and
  
  
• Never underestimate the power of people to make or break the business case.