Managing the Outsourcing Process-2

Originally published: Jun-16-2004

Submit a Question

Phase Four: Implementation

During the implementation phase, the transition from in-house provision of services to outsourcing is made.

To ensure complete capture of all critical elements of a project, the outsourcing provider should adhere to a formal project management process, including:

Assignment of a dedicated Project Manager. The center point of contact for the project’s implementation is the Project Manager. This person manages all phases of implementation and controls project planning, task assignments, project issues and resolution, status reporting, along with any direct client contact necessary to manage and control the project deliverables.

Completion of a Requirements Study. A Requirements Study documents and provides definitions of and solutions for all of your organization’s requirements. The document generated by the Study details the organization’s system needs and how these needs will be implemented in the environment. It also defines any customizations required, and fully describes the project plan.

Establishment of a project timeline with designated milestones and sign-offs. At key points throughout the project, your organization should be asked to sign off on the completion of major milestones in the design and development process. These sign-offs serve to indicate an agreement between the outsourcing provider and the organization that the specified deliverable has been completed to the satisfaction of both parties.

Report customization. The outsourcing provider can assist in determining the design and data content of requisite reports.

System design, development, and configuration. This is where the process of building the outsourcing solution actually begins. Custom rules, identified as part of the definition of project requirements, are detailed and defined to include analysis, design, and specifications. Recommendations of test scenarios and test guidelines are created. All necessary code is developed and integrated into the system. At this stage, all documentation is finally completed.

System testing. A plan is established to ensure that the solution developed by the outsourcing provider works correctly, is complete, and meets the organization’s specifications as previously outlined in the definition of project requirements.

Transition to "Go Live". This is the final stage of project implementation. Once the project has been designed, developed, configured, and tested, it is ready to be activated or "go live".

Phase Five: Operations

Signing an outsourcing agreement should not and cannot mean the abdication of the organization’s responsibility for the business activity. Effective management of the relationship between the organization and the outsourcing provider is key to the success of the project. Strong working associations must be developed on multiple levels to gain the trust and understanding needed for a successful, long-term partnership.

The outsourcing provider should appoint a dedicated account manager, who will be resident at their location, but travel widely throughout the customer organization. The organization should assign a project manager or single point of contact, who is knowledgeable in terms of the outsourced infrastructure and its cost drivers. This management team then becomes responsible for establishing and maintaining open communication channels and ensuring the success of the project.

Additionally, the outsourcing provider’s personnel should be trained to understand the organization’s business environment, culture and goals. This will help them develop sensitivity to the key issues that drive the organization. It is also a good idea to include provider staff in internal meetings and improvement programs, and to encourage joint participation and sponsorship of quality teams and/or recognition events.

On average, organizations report that 4% of the outsourcing contract’s value is spent on managing the relationship.

Measuring Success

Ultimately, successful outsourcing relationships must focus on results. To be meaningful, these results have to be objective, measurable, quantifiable, and comparable with pre-established criteria.

Interestingly, according to a survey of executives by PriceWaterhouseCoopers, the financial benefit realized from outsourcing non-core business processes is not the main reason for satisfaction with the decision. Most of the executives surveyed saw the practice of outsourcing as a means of transforming their business strategies around core competencies. Their goal was to realize improvements in process efficiency, effectiveness, and customer and/or end user satisfaction, more than to achieve a given cost benefit.

A powerful technique for managing the outsourcing relationship and measuring its success is the use of balanced scorecards. Balanced scorecards include categories representing the most general level of expectations -- usually built around cost, service, and quality. Within each category, specific attributes are defined through a joint buyer-provider process, with the exact composition and number depending on the goals of the relationship and the service in question. Choices are made about an appropriate measure for each attribute.

Key principles to remember:

• Develop the balanced scorecard with the outsourcing provider.
• The scorecard should balance long-term and short-term goals.
• Only measure what you wish to manage.
• Don’t hold outsourcing providers accountable for things outside their control.
• Use as many measurement tools as possible.
• Scorecards should gather and report information on a recurring basis.

Sample Balanced Scorecard
Receivable Management Outsourcing

Utilizing balanced scorecards will accomplish three things:

1. You will have a customer-defined, mutually agreed upon performance management system to use at regular intervals to reward exemplary service, and conversely, disincentive sub-par performance.
2. There will be an established set of metrics by which performance is measured with the opportunity to make on-going changes in service levels and expectations.
3. Historical information will be available to help decide the future of the relationship when it is time to renew the contract.

Terminating an Outsourcing Relationship

In most cases, following the steps outlined above will result in an outsourcing solution that is viable over the long term. However, sometimes even the most carefully considered and well-structured plan can break down, requiring termination of the outsourcing relationship. This may be the result of cause or convenience, but in either case, a pre-defined exit strategy and termination plan is essential.

Issues to consider in formulating a termination policy, include:

• How services will wind down if the vendor is terminated for cause; how long the process will take; and any penalties that may accrue.
• How much notice is required to terminate the vendor without cause, for convenience? Typically, sixty to ninety days is considered sufficient notice.
• If termination is for convenience, will the organization pay a termination fee to the vendor and how will this be structured?

Ultimately, the goal of the exit strategy is to guarantee no gaps in the performance of the business process, along with a seamless transition to either another outsourcing provider or back into the organization.

A properly planned, well-structured and carefully managed approach to outsourcing non-core business functions can prove of tremendous benefit to your organization. But, the decision to outsource cannot be made lightly. To be successful, outsourcing must result from a long-term strategic plan, not from short-term perceived benefits.

*****

Written by ABC-Amega Inc. – providing first party accounts receivable collections outsourcing for management of commercial receivables portfolios.