Mastering the Outsourcing Process

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5. The Handoff
When it’s time for the crucial handoff, no amount of planning can prevent a surprise or two, Lackow warns. The service provider normally will take the lead at this point but will need a lot of support from its new client, he says.
The service provider, Lackow notes, should bring in an experienced team to do the transition due diligence. Then it’s time to move the assets—people, files and systems.
If the outsourcer will be accessing your systems remotely and doing its work on them, not a lot of trucks will be needed to relocate the operation. If a full department—people, file cabinets and computer systems—is to be relocated to the outsourcer’s premises—either locally or far away—the process will necessarily take longer and cost more, he points out. It will also have more points of potential trouble that will have to be checked and rechecked.

It’s absolutely critical that companies have a migration plan for handing off a process to an outsourcer. The transition period typically is as short as six months or as long as 18 months. During the transition, the process will be run for a while in parallel operations, costly but necessary redundancy that still will cost less than not doing it, Haider says.

6. Keeping It Going
With the handoff complete and the new process working, things settle down to an ongoing process of managing the outsourced operation, Lackow explains.

This usually entails implementing a governance program, reviewing the performance of assets and personnel that have been transferred, conducting continuing governance activities, conducting service reviews and quality surveys and applying pricing benchmarks. It’s not a process that can be wound up and let go; you have to measure continuously. You also have to check the market from time to time to see whether new technology or providers have come along that could now do it better, faster or cheaper, he insists.

The service agreement will normally have a term. At the end of that term, you have to make an informed decision to renew the agreement, negotiate a new one with that provider or start over with a new selection process.
Even if jobs were protected by moving skilled employees to the outsource provider, morale is not necessarily safe. Many employees want to work for a company based on its reputation.

“When I tell my nieces and nephews I work for the Walt Disney Co., their faces light up. It wouldn’t be the same if I told them I work on Walt Disney processes for a company they haven’t heard of,” Haider explains. Don’t discount the power of the legend, he advises.

Outsourcing projects often are launched with high expectations of measurable cost savings, process improvement or more timely execution, so management watches for the first numbers. Often they are disappointed. The success of an outsourcing project has to be measured over a longer timeframe, Haider says. In fact, it’s always too soon to declare victory.

“A project may be successful for 10 years and then run into problems,” he cautions. And a good outsourcing project that will cut costs significantly in the long run is likely to increase them for the first few months due to extra effort and redundancy on the front end, he notes. It’s important to manage expectations as well as the process, he adds.
Dependency on an outsourcing partner is so great that if the outsourcer runs into trouble, its customers may come to its aid. They’re not necessarily being altruistic. Afterall, the United States spends billions of dollars to help the Russians protect their nuclear arsenals, Haider notes. The reason is simple: If security breaks down and weapons are stolen, it could cost the U.S. a lot more than it costs to keep them secure. (See “Repairing a Bad Contract.”)

One of the most successful outsourcing arrangements Prifti has seen involved a provider located in India and a program manager in the U.S. who would regularly get up at 3 a.m. and dial into conference calls on the other side of the world. The stateside manager knew exactly what was happening, and during daylight hours in the U.S., he would resolve issues and make changes.

By the time people in India came to work the next day, answers would be waiting for them. “It worked incredibly well, in spite of a ten-and-a-half hour time difference—or maybe partly because of it,” Prifti observes.

Why do some outsourcing projects go bad?
In one case, it was because the provider was a general contractor who used subcontractors to do much of the work. When things got off track, the finger-pointing began and it was hard to get problems resolved, Prifti recalls. So, find out if subcontractors will be used, and write SLAs that make the general contractor responsible for subcontractor performance, he advises.

At the end of a sourcing contract, a key choice must be made: Reup or rebid. The right choice depends on how happy you are with the service and price you are getting and how much the marketplace has changed—e.g., new technology and new providers

There is a cost of change,” Rosetta points out. And making the transition from our staff to a third-party is an altogether different process than making the transition from one third party to another, he notes. The incumbent supplier has less motivation to cooperate.

While no amount of map-reading can guarantee a smooth journey and on-time arrival, the growing popularity of outsourcing as a destination shows that you can get there from here.

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