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Assuming that costs savings is the most important factor to consider when evaluating a potential outsourcing arrangement, what do you think is next in importance? Service Levels? Innovation? Greater access to technology? While I would agree that these are important components of an outsourcing agreement, I would argue that these pale in comparison to building a flexible agreement that holds up over time.
What do I mean by flexibility? I’m really talking about the mechanisms that allow the outsourcing contract to withstand the inevitable pressures that will come as a result of business and market changes. These pressures can include:
1) Changing business priorities
Things that are highly important now from a client perspective may not be nearly as important in the out years. For example, the original deal may have been constructed to minimize delivery risk and maximize availability. However, from a business perspective, perhaps the client is now better positioned to accept some risk in return for freeing up dollars/resources/capacity to work on IT activities that add additional business value. Continue Reading "The Second Most Important Factor in an Outsourcing Agreement"
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Well over a year ago, I had the pleasure of advising a client that was willing to “take a risk” by doing something non-traditional with their external IT services provider. This client followed Alsbridge advice and used innovative price methods for application maintenance services outsourced to a Tier 1 Provider. The savings they achieved were expected, but the relationship improvement with business end-users was a surprise.
During a re-negotiation of the IT outsourcing contract in which the provider was to receive significant increases in work volumes, the client insisted on new price methods for Application Maintenance Services (AMS.) As many people have experienced, outsourced AMS is difficult to price in ways that keeps both parties happy. Many IT outsourcing contracts settle on pricing staff levels of effort or simply establish annual budgets for the services.
Continue reading "Taking a Risk Reveals Hidden Value"
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I’m always interested in hearing about the trends and best practices for maximizing the business value from outsourcing relationships. With the news of several outsourcing service providers being acquired (e.g., ACS/Xerox, EDS/HP and Perot/Dell) a common “trend” being touted is that the acquired companies should be able to leverage the innovation that comes from the Xerox’s, HP’s and Dell’s and apply it to their sourcing model thereby offering their clients something more than simply a lower-cost way of doing what they already had been doing via labor arbitrage.
Having dealt with many large scale systems integration projects, innovation is not just about applying new technology from the parent company. Innovation is about changes in IT operations, reinventing a business process entirely, developing new or improved products and services, or changing the business model or how the company competes. Yes, technology plays its part as seen in the Xerox/ACS partnership where Xerox can use its vast R&D capabilities to address the business problems of ACS’ customers. Add them together in a collaborative environment, and the hope is that they will be able to solve problems in new ways and provide new services to their clients.
So I’m wondering why developing this type of innovation is so hard for the outsourcers? Well, according to a recent Harvard article, collaboration is good but if you keep asking questions to over-analyze a decision an original innovative idea will never move forward because the process of getting the innovation to market takes too long. Hopefully, the new alliances will build collaborative environments that enable innovative ideas to be auctioned and go beyond the traditional outsourcing services. That’s a trend I’m sure we would all would like to see.
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I was recently working with a CIO that wanted to know what “operational alignment” truly meant, and how it could affect a sourcing decision. This client was weighing the pros and cons of outsourcing versus a shared services solution. The CIO felt that with either solution, the new retained organization had already been defined, and that meant the company had already had achieved operational alignment. While having the retained organization defined and ready to implement is an important step in the sourcing journey, it is not a component of having operational alignment.
As we walked down the hall to the CEO’s office, I quickly explained the three critical elements to achieving operational alignment:
1. Process Alignment - This particular client had been in business for over a century and had always done infrastructure and applications development and support in-house. In order to align with a new potential outsourcing partner, or to align multiple disparate IT organizations, it is important to document current IT processes and align those processes. I told the CIO that while it is important to use ITIL®V3 as a guideline, it was more important that the company document their current processes and align those with the future way of doing business.
2. Governance Alignment – Focus on the future governance structure, account management process, and the team that will be in place. Additional areas to focus on would include: performance monitoring and reporting, service level agreements, tracking, reporting and approach, and the use of tools for reporting to the business.
3. Transition Alignment – Document the internal transition plan, timeline and milestones. Create documentation on what capabilities, tools, methodologies, processes and technology are currently available to the company. Some additional items to document would be transition approach, plan for knowledge transfer, and training milestones and deliverables.
I continued down the hall and left the CIO to introduce the CEO to the three cornerstones to operational alignment:
Operational Alignment = Process Alignment + Governance Alignment + Transition Alignment
Documented processes, governance structure, and transition plans should be vetted with the new provider, or with individual business units if going the shared service path. Once these processes, structures, and plans have been reviewed and agreed upon, you can correctly say that you have operational alignment and are prepared for a successful sourcing relationship.
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Over the years I’ve worked with dozens of tier one and tier two outsourcing providers. I recently asked some of them to provide their perspective as to “why their clients and potential clients should hire a sourcing advisor.” One would initially think that a provider would be opposed to having a sourcing advisor involved as it might slow down the process and lessen the advantages that a provider could have over the client without the benefit of independent advice. I found quite the contrary.
Listed below are a dozen “uncut” reasons why providers believe clients should hire a sourcing advisor:
A Dozen Good Reasons
1. Ensures objectivity – brings in impartiality to the provider selection process
2. Acts as a catalyst – a good sourcing advisor spurs the sourcing discussion within the client environment
3. Provides a financially sound approach and rigor – develops a sound data-centric business case for sourcing options leveraging a data-driven approach
Continue reading Provider’s Point of View: 12 Reasons to Hire a Sourcing Advisor
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Outsourcing is comparable to the synergies created by an acquisition in which the algebraic properties are no longer applicable to the rules of mathematics.
1+1 does not equal 2
2-1 does not equal 1
The value of acquisitions create the concept of revenue growth multiples through product and service line leverage; additional geographic penetration; and sharing innovation through research, development and best practices. At the same time, redundant processes, expenses and staffing are eliminated, and the benefit result of lower costs increase the bottom line. Benefits also flow through to the final customer, higher sales and lower costs are achieved by one entity (as opposed to the two, separately) and shareholder value is increased exponentially. Combining the two entities achieve results of: 1+1 equals 11
Placing processes with an outside provider brings lower costs, leveraged industry experience, improved processes and innovation that was not readily available while working in an isolated environment away from others. Companies not using outside providers define its best practices as what employees know as existing, and the only reference point is oneself. Outsourcing algebra equation is: 2-1 equals something <1
Value Creation > 2
Here are some of the pieces of value creation and how it works: • Labor arbitrage • Elimination of tools • Training costs reduction • Leveraged environment • Capital preservation • Buying by the drink • Cost control and avoidance • Soft savings in telephony, benefits, environmentals and human resources Savings opportunities exist with the elimination of a layer of management staffing that is no longer required to oversee the staff and replaced with a leaner vendor management organization to manage the provider. Available department time allows for greater focus for supporting company strategies and business growth. Share your comments with others about how outsourcing achieves: 2 – 1 equals something < 1; Value Creation > 2
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In recent work with a client and major IT sourcing provider, I discovered how important organization really is! Getting organized to begin a transition with multiple towers is critical to your success, and perhaps more importantly, to reducing transition management efforts.
In this particular case, it was clear the transition planning was aligned by tower rather than for an overall transition effort. The provider, with good intentions, created a transition reporting structure with leads for each tower. The leads in turn created their transition plan, in some cases a Word document rather than a MS Project plan. This would no doubt add challenges to the transition manager’s responsibilities because the plans were not integrated into a single plan. Additionally, the provider did not include the client in developing the plans – the client’s detailed tasks, efforts and interdependencies were only estimated.
Here are some thoughts surrounding setting up a TMO, Transition Management Office, with an integrated project plan in mind:
1. Begin with a TMO structure that outlines the areas of responsibility and identifies individuals who will be held accountable. Include representatives from all parties, at a minimum the client’s organization as well as the provider. There may be multiple providers and outside advisors too. Starting at the top, the TMO structure will include a TMO Steering Committee with IT executives responsible to the stakeholders affected by the transition with an executive from the provider. I recommend a “2 in the box” TMO structure for daily management activities with the top level being the overall transition manager from the client and provider. The “2 in the box” approach should have a transition lead from the client as well as the provider for each area of responsibility – doing so tower by tower is a good example.
2. In our writing classes, we learned to start with an outline. In project work, start with a Work Breakdown Structure, or WBS. Now that we have a TMO, outline in a WBS the highest level deliverables in a collaborative effort with all the parties. From there, drill down to the next level prerequisite deliverables. Once you have organized your deliverables, tasks and interdependencies will be well-organized in your project plan.
3. Development of an integrated plan is best practice. Interdependencies and prerequisites, especially with multi-tower transitions, will be easier to manage as well. As discussed above, organizing your deliverables first in a WBS will support the creation of a well-organized and complete integrated plan. The management and report of this plan will be simplified, which will allow more effort and time to focus on the fulfillment of the transition.
A mentor of mine shared this with me: “Plan your work, work your plan.” With this front effort, or planning, you should be organized to deliver a successful transition by working your plan.
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There have been several stories quoting Cognizant is considering buying the investors out of GenPact. Watch this video to hear the story as reported from CNBC India: http://www.youtube.com/watch?v=40HrpCJ2XGk
The Alsbridge Opinion:
If consummated, this is an interesting move that will reduce the number of major competitors in the India-based global services outsourcing market. While we have no specific information on the opportunity, we think this is something that buyers should stay tuned to as it may affect their decision making process.
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A bit more than a year ago, I took a position with a global business process service provider in what many had termed as going over to “the dark side”, a term typically used when an industry person joins a supplier organization. Having been a renowned research analyst who tracked outsourcing activity for more than 12 years, I longed for a change. I already had worked with all the major suppliers, consultants, lawyers, associations, and publications to share perspectives about outsourcing. I was ready to hone my experience into a strategic position to help grow the brand of a company I respected.
Well, lo and behold, I am still in the service provider universe – more well rounded, more confident re: what I am good at (and challenged at doing!), more understanding about effectively working through cultural differences, and definitely more impressed with how global companies succeed in spite of external and internal challenges. Every day turns out to be a learning experience. I continually find glimpses of gaining respect for my colleagues and third parties with whom I work as we all try to stay “one step ahead” of what might be.
In retrospect, the only dark side I could pinpoint is the loss of volume to my voice…something that happens to all of us if/when we move from a position of influence and authority to that of being just 1 of tens-of-thousands of other employees. But you know what? In this world, we find ways to make ourselves heard. We churn out work products that make us proud. We help others solve problems. We communicate more effectively with folks we otherwise may not have reached in the past. We aim to collaborate in a corporate environment that requires perseverance and patience.
Most of all, being in a supplier role has taught me the importance of focusing on the “light,” not the dark. At the end of the day, all we have is our accomplishments and ideas of what we could do better tomorrow. And I’m still excited to be in this outsourcing universe and the potential of what may be in 2010.
Lisa Maio Ross is Vice President, Marketing – Sourcing Advisor Relations for Genpact. Her comments represent her personal views, not those of Genpact. She can be reached at 857-318-1358 or
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on Monday, 15 March 2010 13:39
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