108 Best Practices to Build Sustainable Strategic Outsourcing Partnerships

Dr. Raghu Korrapati

• Publisher: Diamond Books
• Year: 2020
• ISBN:
  9789385975899
• Topic: Personal Development
• Subtopic: Personal Success

This book is the essence of author's 30 years of business management experience with highly successful multinational companies, coupled with distilled knowledge of his close interactions with great industry leaders. The book comprehensively covers - developing a solid outsourcing strategy, deciding what to outsource, negotiating a good deal, keeping the engagement on track, ensuring access to the vendors' best resources, or even terminating a deal in a way that does not harm you. The book helps everyone whether you are from a firm that is looking to outsource or a vendor who seeks to establish his company as first choice partner for clients, to gain the advantage you are looking for in the fiercely competitive marketplace of today. The book is not just a guide to people who want to benefit from outsourcing. It is a comprehensive account of what all vendors must do if their goal is to establish trust, grow the engagement, and be known as a trusted partner. And 108 required knowledge and skill areas so that one can develop an action plan to build a sustainable partnership for competitive advantage.

SECTION 1
STRATEGY

1. Develop outsourcing roadmap

If you have specific and significant goals for your outsourcing engagement, you need a map to make sure you arrive at the intended destination.

- Stephanie Overby

Most information technology leaders enter into outsourcing relationships with a reasonable understanding of where they’d like their IT services provider to take them—some point in the future where the state of IT has been improved by saving money, increasing efficiency, or implementing new enterprise systems.

The problem with that strategy is that it’s akin to heading off on a road trip to a great new destination without a map or directions.

Outsourcing clients need to specify not only where they are going — we want a cost reduction of 20 percent over five years, for example—but also how they’re going to get there. One way to do that is to create a transformation roadmap: a definitive plan specifying how the vendor will provide those contractually obligated improvements. A transformation roadmap should consist of a set of projects prioritized by their importance as well as the timing of their implementation.

Each transitional project in the overall transformation should include a specific set of information. For example, if the overall transformation roadmap calls for overhauling an organization’s help desk, one transitional project might be changing the password-reset process, which would look something like this:

Description/Objective

A brief description of the project (The introduction of automated password-reset tool)

Scope

Intended scope of the project (An IT Help Desk)

Investment

A non-binding estimate of what the anticipated investment will be and who is responsible for making the investment (Projected implementation cost of password-reset system is $300,000. Cost will be shared by client and provider.)

Benefit/Savings

Anticipated benefit of implementing project—typically expressed in terms of ROI or productivity (Implementation of the password-reset tool will reduce password calls to the Help Desk by 50 percent annually. At 50,000 password-reset calls annually and $20 per call, anticipated annual cost savings is $625,000. ROI achieved in approximately six months.)

User Impact

Anticipated impact to the end-user community (Average hold times at Help Desk today are 45 seconds. Users will benefit by being able to reset their passwords at their convenience with no hold time, with a corresponding increase in customer satisfaction.)

Dependencies

Any dependencies that might affect the project (In order for the client to achieve a higher ROI, the client must accept the provider’s existing password platform. The client’s corporate security must also approve the vendor’s password reset platform, policy and procedures.)

Timeframe/Approach

Projected implementation timeframe and any specifics related to project approach (The project will take 90 days and will start in the first quarter of 2016. Standard provider project methodology will be followed.)

Then, each project can be categorized into one of three project types:

Category A: Client/provider has sufficient information to start the project, create the project plan, define investment requirements and estimate savings.

Category B: Client and provider believe the project could have a positive effect but lack sufficient information to create project plan, investment requirements or savings estimate.

Category C: The idea, vision or innovation are anticipated to be beneficial but will need to be jointly evaluated in the long term.

While some projects, particularly those that fall into the last category, may not be completely defined, the information included as part of the transformation roadmap should be descriptive enough to allow client and provider team members to effectively evaluate and prioritize them on business needs and the available budget dollars.

The first year of a transformation roadmap may even be incorporated into the initial contract, along with language that commits both parties to an annual review of the roadmap and funding mechanisms for revising it. If not enough information is available to include a first year plan in the signed papers, outsourcing customers should include language that stipulates a methodology for and obligation to create a transformation roadmap in the first year of the deal.

The roadmap is mutually beneficial. It takes the vague notion of continual improvement and puts it into concrete terms. Additionally, it helps set expectations on both sides for what changes are coming and when they’re expected to occur.

The only danger is getting too deep into the details in the early stages of every project. If that happens, both the client and the vendor waste valuable time arguing about the people, processes and tools of each and every project rather than the benefit of that project to the overall company business strategy. Both parties have to learn to walk the fine line between too much detail on each project and too little—with the right amount being just enough information for each party to make a strategic decision based on the merits of the individual project, and its ultimate benefit to the business.

2. Plan for the long-term before taking short-term actions

Of all the stages in the outsourcing life cycle, the initial strategic planning stage is among the most important.

-Anonymous

Outsourcing projects – large and small – are not generally planned with detail and underpinned by long-term strategies.

In order to achieve a solid, realistic outsourcing strategy, an organisation must be able to analyse every aspect of its business, which is often a difficult task as it may require numerous areas of the business to work together, possibly for the first time.

The strategy setting process will ultimately change the roles of both management and employees alike, and will also come under great scrutiny. Therefore, it is vital to ensure that all stakeholders – employees, clients, customers and suppliers – are included in the prerequisite due diligence process, which will set the components of the outsourcing and is vital for the development of the strategy.

Determining the objectives

Organizations which have a clear vision of their strategic and tactical objectives prior to entering an outsourcing agreement have a much better chance of ensuring that their outsourcing suppliers are able to meet those objectives. They will also have the ability to clearly communicate those objectives to the service provider and to use them as a contractual basis of their relationship. They can also use the objectives as a management tool, so that both parties know the criteria set to keep the agreement on track.

Assessing the risks

An important element of setting a strategy is assessing the potential risks to all parties involved. Each outsourcing procurer has its own set of objectives, however each comes with its own set of risks – either specific to their organization or market – the following are common problem areas:

• Failure to obtain commitment to the customer’s vision or culture from the service provider;
• The distraction of having to manage the relationship with the service provider – an organization with its own goals and a different culture;
• A perceived loss of control and a feeling of over-dependence on service providers – which can be particularly acute where there is a single, large service provider and few retained staff;
• A feeling on the part of retained management staff that they have less influence on the development of strategy and policy and on the part of retained technical staff that they have become less skilled in their specialist field; and,
• Unanticipated expenditure – services that were assumed to be included in the service provider’s package appear as extras in its invoices and/or promised cost.

Considering alternatives

The initial review of objectives and risks should also include the consideration of alternatives to outsourcing. Some organizations looking to outsource give their existing in-house departments the opportunity to put forward a competing bid, while others conclude that the benefits available from outsourcing could be obtained more economically by changes in internal processes, for example increased standardization. Even when it is decided that outsourcing is a viable solution, there may be steps that the customer could take prior to the procurement process that would put it in a better negotiating position.

Testing the market

Having determined the objectives required from outsourcing, it is prudent to test whether those objectives are achievable in the marketplace. To do this, organizations either use consultants to tell them what is available or approach suppliers directly - or a combination of the two. The direct approach generally gives the customer an opportunity to test assumptions as well as refine objectives. Market feedback is particularly important in view of an organization’s increased willingness to consider ‘off-the-shelf’ outsourcing solutions, sometimes called COTS (commercial off-the-shelf) solutions.

Planning internal change

Inevitably, any outsourcing will force some degree of internal change, therefore the outsourcing strategy has to be comprehensive in its detail as to how these internal changes will be implemented, and also what the implications will be. The degree of change can be modest or very significant. For example, where a group whose members have each run their own bespoke HR processes decides that all HR will be sourced from a single service provider, each company will have to amend its processes to conform to those of the service provider.

Outsourcing transactions that involve this degree of change are often referred to as transformational, and one of the key lessons of transformational outsourcings is that internal change within the customer requires as much, or more, planning and effort as negotiation with the service provider. Several studies of projects in the public and private sectors have shown the danger of trying to implement an ambitious new IT system when the users who are to operate that system are not organized in the way that was assumed by its designers. A key element in any planning is an assessment of the degree of change required and the resources required to manage that change.

Understanding the starting point

Any organization looking to outsource an internal function needs to understand that function fully before it can even consider the outsourcing of it.

At the very least, this means having a clear idea of the extent and capabilities of the internal function, the services that it supplies, the standards to which those services are supplied, the resources, including the staff, assets and contracts, it uses to produce the service and its running costs. Assembling this information can often be one of the most difficult tasks in an outsourcing project, particularly where the internal function is widely distributed across the customer organization.

Planning the procurement

The procurement phase also contains time-consuming tasks, such as service definition and contract negotiation. These tend to impose a heavy workload on the procurement team and are often difficult to reconcile with “business as usual.” Therefore one further strategic consideration is to determine the way in which the procurement will be managed, establish the balance of internal and external resources and set a budget and project plan.

3. Consider the intangible benefits of outsourcing

Inflexibility caused by an excessive cost reduction focus can result in business disruption.

-Anonymous

Clients need to look beyond cost savings to some of the subsidiary benefits of outsourcing. Outsourcing factory IT functions such as help desk and desktop support enables CIOs and technology experts to focus on innovation and competitive differentiation, rather than on keeping the lights on for utility IT functions. Contracting with an external service provider can give customers access to expertise, tools, methodologies, and disciplines that they wouldn’t have access to otherwise. Outsourcing, through the use of structured contracts with clear metrics and performance incentives, can help surface the real cost of IT service and support—costs that are often hidden in shadow support and under-the-desk servers and applications.

There are many reasons for firms to consider external services. Firms considering outsourcing are more likely to achieve success when their search process clearly outlines their expectations with regard to technical, financial, and procedural issues. The goals and objectives, critical success factors, and discovery processes that precede the search process are the input; a successful relationship governed by an SLA-driven, mutually beneficial contract is the outcome. Although it may be obvious that a checklist of benefits and expectations for the relationship is a key element of the selection process, IT executives also need to look at more intangible attributes such as passion and balance.

In the realm of passion, some of the factors that clients seek to discover are whether the potential partner:

• Has a passion for excellence, rather than just satisfaction
• Has a strong commitment to the relationship’s success
• Takes ownership of the work
• Brings brainstorming and creativity to the table
• Goes above and beyond contractual expectations

A vendor should have balance, which can mean the following attributes:

• Seeking a level of give and take
• Seeking a happy medium in disputes or challenges
• Facilitating compromise
• Implementing joint ownership of issues and a win-win approach to solutions

Any IT professional with experience in outsourced project work would agree that these characteristics, although a bit challenging to articulate and uncover, go a long way toward ensuring that inevitable challenges and misunderstandings will be resolved in an atmosphere of collegiality.

4. Plan carefully - be as specific as possible

Deciding to outsource an IT project is a strategic decision for a company and it’s important to not rush headlong into a project without proper planning.

-Nick Rossiter

Companies looking to outsource some IT functions should plan carefully ahead of time, considering a broad range of issues, to help ensure these projects will be successful. Start by analyzing the total costs of the project. Don’t look just at the difference in labor costs. Be sure to factor in additional costs for conducting due diligence, communications, oversight, international travel and training. Since outsourcing costs will not be constant during the life of a project, companies should consider the costs for different stages of the project. Since initial costs are generally highest during an outsourcing project, your company may not realize significant cost savings until one or two years after the start of the project.

It’s also important to be realistic about the level of productivity that outsourcing providers can offer. Some companies assume that the productivity of an outsourcing partner will match that of internal IT staff: this isn’t always the case. In particular, b...

Table of contents

• Cover
• Title Page
• Dedication
• Foreword
• Preface
• Content
• SECTION 1 - STRATEGY
• SECTION 2 - CONTRACTING
• SECTION 3 - IMPLEMENTATION
• SECTION 4 - MULTIPLY
• Dr Raghu’s Guiding Principles
• References for the Book