How can you assess your preparedness for managing an outsourcing transition?

by Bob Cecil

Congratulations! You’ve been named the new transition-management lead for your about-to-be-signed FAO contract. Your internal team has worked with the service provider to define the transition elements and lay the plan. All you need to do is execute.

Unfortunately, although the ball has moved down the court, execution is far from a slam-dunk. Your deal team is tired. In the rush to contract, some transition elements may not have been fully defined. And even worse, as you prepare to move non-standardized processes thousands of miles away, senior management expects—unrealistically—for you to manage the transition with “no noise.”

Transition management is not a job for the faint of heart. With complexities ranging from service levels to governance structure and everything in between, the quality of transition management influences the success of the entire outsourcing engagement. Notably, EquaTerra’s research shows that the lowest level of customer satisfaction with outsourcing relationships occurs during the transition period. And if the transition is not handled extremely well, the longer-term value of the outsourcing deal is at risk of de-scoping or even discontinuation of the relationship.

Assess your readiness
So how do you navigate the challenge and avoid the transitional valley of despair? The key is to ensure you’re ready before you start. To find out, conduct a comprehensive assessment of your transition preparedness. Consider a progressive, multi-tiered approach:
1. Structural defects. Identify fundamental defects—such as governance, process control, fragmentation or process localization—and fix them before the transition. Do you have C-suite sponsorship for outsourcing? If not, this spells disaster for relationship governance. Do business processes have proper controls in place? If not, outsourcing them to a service provider will put a spotlight on the risks. Are your staff functions and technology platforms highly fragmented? If so, it’s hard for a third party to transfer the work and for you to get the savings. Do you have processes that require specialized knowledge or local presence? Highly customized processes make consolidation difficult.
2. Operational requirements. Next, define the operational requirements for your new environment. What will the technological infrastructure look like? Consider factors like connectivity, interfaces and business continuity. On governance and control, who will have decision rights, and what are the reporting protocols?
3. Tactical requirements. Once you’ve determined the operating environment, define the tactics to meet the requirements. Do you have a process for employee security screens? Has the user-acceptance testing for your ERP been completed and signed off on?
4. Specifications. Finally, define the specifications needed for the new operating environment. What are the specs for optical character recognition? What about drug screenings for staff?

Assessment checklist
In all levels of the readiness assessment, clearly identify the requirements and risks and convert them to a plan for managing the transition. Cover these key categories:
• Contract. Ensure the contract is clear in both form and substance. Instead of sitting on a shelf, the contract should enable you to govern the relationship in accordance with the deal intent. In addition, consider mechanisms such as milestone credits, service level credits and termination assistance, which can help mitigate identified risks.
• Process. Have work processes been clearly defined and documented? How will they flow in the new outsourced environment?
• Operational service levels. Ensure that current service level baselines have been set and that expected service levels have been clearly defined, grouped by importance and articulated with clear algorithms.
• Knowledge transfer. Have the plans been created? Have completion criteria been defined?
• Responsibilities and accountabilities. Have commercial and operational responsibilities been specified? Define decision-making processes for various circumstances, and set a clear calendar of contract deliverables.
• Environment. Ensure the creation of business continuity plans and protocols for security and access.
• Technology and platforms. Have voice and data connectivity requirements been defined? What will be the impact on current technology?
• People. What’s the strategy for retaining employees during the transition? Are you ready to recruit and onboard the operational team?
• Governance and control. Ensure that a governance structure has been defined, a governance team selected and trained, decision rights specified, and governance tools and processes documented.
• Communications. Finally, make sure the organization has a communication plan for all stakeholders.