With employee shifts come many other changes that require best practices for a smooth transition

by Phil Fersht, Derek Sappenfield

The outsourcing debate over recent years has been dominated by the operational ability of companies to transition processes to a third-party supplier to manage. Too many companies have presumed their business will carry on as it was pre-outsourcing, but with third-party staff managing some of the business functions. However, in the majority of outsourcing efforts there is a degree of employee transition, and when this happens there are leading practices for both transitioning and restructuring the retained organization. Experience demonstrates that those companies that proactively prepare their management effectively to (1) modify their roles, responsibilities, and management styles, (2) view outsourcing as a strategic tool, (3) learn new skills, and (4) even change their daily routine are those that are able to achieve value from an outsourced environment.

CIOs who do not effectively leverage time-tested technology and other efficiency-creating alternatives will generally not last long. The same is beginning to apply to finance, HR, procurement, and other senior executives inforward-thinking companies. They are now expected to be versed in how to take advantage of third-party service offerings, leverage leading practices from other companies that are already outsourcing business processes, and apply innovative methods in service delivery to improve business processes and keep administrative costs at a minimum. Outsourcing is just one of several alternatives available to achieve business efficiencies, but it is now much more at the forefront of many corporate agendas than it was a few short years ago.

When tackling outsourcing, issues must be managed across both the existing organization and the new organization. Hence, C-suite executives must focus not only on transitioning the old organization, but also on proactively preparing the new organization.

Transitioning The Old to Prepare the New Organization
Critical factors during the transition process are centered on the company performing an early assessment of its potential outsourcing vendor’s cultural fit, employment practices, and talent management program. Moreover, adapting human capital practices to local labor markets for compliance and employment competitiveness must be carried out well in advance to manage risk effectively. In most cases, there are pools of employees that will be “re-badged” into (i.e., employed by) the service provider organization. Companies need to make these employees fully aware of how their jobs, remuneration, benefits packages, etc., will change.

Most employees tend to remain in place if they are offered positions within the outsourcing provider, but the company needs to focus on the critical staff remaining with the organization post-outsourcing. This entails a great deal of collaboration with the service provider on knowledge and people transfers during service transition. Early execution of both short- and long-term targeted retention programs, with rigorous contingency plans, is essential. Table 1 highlights the key considerations for the C-suite in their preparation for the pre-transition.

Lessons Learned
Corporate leaders seeking to transition to outsourcing today are fortunate they can learn from the mistakes of many of their peers and benefit from leading practices that have evolved through years of experience operating effectively in an outsourcing environment. Most outsourcing providers have become far more experienced with their approach and are helping their clients drive effective governance programs.

Providers depend on client references to grow their outsourcing business, and having clients avoid poor transition experiences is top of their agenda. Moreover, experienced advisors that are adept at post-outsourcing governance strategy and organizational change can be engaged early on in the sourcing evaluation process to help drive effective change programs. Someone must be held accountable for implementing an effective governance program years down the track. The following proactive policies should be taken on by the outsourcing company’s governance team to avoid many of the pitfalls suffered in the past by companies that did not have the benefit of learning from companies that had been through an outsourcing transition experience:

Transitioning the existing organization
• Compliance with HR legal requirements. Engage country-based HR specialists to provide consistent compliance with both employment law and HR policies and procedures

• Management of performance and perception. Prepare managers to set expectations and hold employees accountable for performance/productivity through transition. Educate line managers on ways to identify symptoms of degrading productivity and manage performance issues.

• Retention of business-critical and/or key performers. Short-term: link incentives to effective transition and knowledge transfer. Long-term: career planning.

• Knowledge transfer. Anticipate a steep and protracted learning curve for the sourcing vendor to establish an understanding of the company’s business and parallel process. Develop a knowledge transfer process that minimizes extra workload.

Preparing the new organization
• Retained organization enablement and strategic redeployment of resources. Structure the new organization and clearly articulate the new operating and interaction models to relevant stakeholders before day one. Provide a compelling career path and value proposition for retained resources.

• Vendor management capability and governance. Develop a service management capability to support the combined entities that is flexible enough to accommodate future sourcing efforts or an expanded scope of service offshore. Define the interaction model, governance structure, roles and responsibilities, accountabilities, and performance expectations.

• Learning strategy. Develop training to support those colleagues who will need new skills and/or will follow new procedures to help support technology or procedure adoption (balance time and cost considerations).

The cost and performance benefits of outsourcing are now generally recognized, but the range of benefits varies widely. And, much of this variability can be attributed to the company’s ability to effectively transition to the new organization. Although fatigue can often set in after the contract has been signed, companies should continuously focus on the new organization to extract the full potential value from the move to outsourcing.

Phil Fersht is F&A BPO Marketplace Leader, Deloitte Consulting LLP, Outsourcing Advisory Services. Derek Sappenfield is a senior manager in the McLean, VA, office of Deloitte Consulting.