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Before looking at the factors to be considered in the creation of a successful strategy for outsourcing, it is important to be clear about what is meant by that term. Grosvenor defines outsourcing as: ‘the appointment of a supplier to undertake the management and resourcing of activities that were formerly, or could be, undertaken internally.’ Such services might be performed on-site or off-site, on-shore or off-shore, or in the Cloud. Over the years, organisations have been outsourcing for the following reasons:
• to reduce costs; • to improve quality and skills; • to decrease management effort; and • to effect IT and business change.
Some or all of these reasons are also likely to form the basis of your business case for outsourcing an activity. Critical success factors In the course of providing outsourcing advice and guidance to hundeds of clients on thousands of projects over more than 20 years, Grosvenor has identified a number of critical success factors that determine whether organisations secure the benefits they are seeking from outsourcing. In our experience, in order for an outsourcing exercise to be successful and the benefits set out in the business case achieved, every one of the following needs to be satisfied:
1 Realistic expectations Many outsourcing customers, especially those with output-based contracts, are reluctant to ask how outsourcers will meet expectations. Too many have relied on big-name, specialist suppliers’ assertions, untested. Because the reasons for outsourcing relate to improving the performance of your organisation, it is vital that you understand how outsourcers can meet your expectations while also making a profit, carrying legal, sales and marketing, and management overhead costs, transitioning the services to them and making contingencies for risks.
Do not let them hide behind confidentiality claims. You must understand how they will meet your expectations just as if you were providing the service for yourself.
2 Appoint competent suppliers Obtain and verify that potential suppliers can actually meet your expectations. Reference customers might be getting less than they should be receiving – consider how much of their success was actually achieved by them, rather than the supplier. Many suppliers have documented procedures, but rarely adhere to them. Seek out customers where they are applied and ask them how effective they really are and how suppliers address deviations. Your supplier’s account team will be pivotal to your success. Think of them as your potential employees and undertake assessments of them that are just as rigorous as if you were to be their future employer. Ensure you know who your account service delivery manager will be before commencing contract negotiations, as he or she must play a key part in them if contractual promises are to be met.
3 High-quality contracts Contract schedules should be developed by and be useable on a day-to-day basis by the service delivery teams on both sides. Think of them as the procedures manual. Anyone who does not fully understand both what you are seeking and the motives and methods of suppliers should not be left to draft or negotiate them. A good contract will include pre-agreed methods for dealing with, and pricing for, almost all circumstances likely to arise over the life of the contract. That requires expertise gathered over the full lifetimes of many different types of contracts. Clearly, changes will be needed to keep the contract up to date, but the most commonly encountered issues should all fall within pre-agreed terms.
Strategy: The essential elements of successful outsourcing
4 Proactive supplier management Just like any in-house team, the supplier’s team needs to be actively managed by you to ensure expectations are met. Too often in-house teams end up doing tasks themselves when suppliers are found wanting. This means you pay twice over for that work, and severely endanger any redress you might have in court. Outsourcers should be held to the obligations to which they committed in the contract and for which you are paying. This is particularly important with respect to management information that you need in order to assess their performance and will need in future to replace the supplier.
5 Robust change management Often, daily rates charged by outsourcers for their regular services are much lower than their project rates. As a result, changes and projects can be very lucrative for them. While change is inevitable, it is imperative to secure as much change effort as possible at base service rates. The charges schedule in the contract should comprehensively detail all the key factors that will determine future charges, whatever causes the underlying changes, and the formulae to be used to calculate any new charges. Always have available a plan that will allow you to exit from the contract in an orderly fashion, at known cost, at any time. Adequate resourcing Outsourcing strategies are often developed without considering whether there will be sufficient resources available to implement the strategy. Too often, people within the IT function are expected to run an outsourcing project, write tender documents, evaluate suppliers, carry out due diligence, negotiate contracts and, ultimately, manage what might be a complex arrangement, without the necessary experience or expertise and while carrying their existing workload. This is often a recipe for ensuring the outsourcing exercise fails to deliver some, if not all, of the business case benefits.
Specialist support It is all too easy to develop a strategy for outsourcing based on corporate desires to reduce costs, improve quality, get access to skilled resources or transform services – these are the objectives of most organisations today. However, none of these objectives will be met without ensuring every one of the critical success factors described can be, and is, achieved. Not only are specialists needed to deal with particular aspects of these transactions, but it is also vital to have someone involved who has seen it all before and successfully tackled all of these issues. Resolving any one or a few might achieve little – achieving them all is required for overall success. Find out more If you would like to discuss any of the subjects raised in this paper or would like more information, please contact: Chris Tiernan on +44(0)7831 664 281 or [email protected] Carolyn Jacks on +44(0)7775 811 502 or [email protected]
Grosvenor Consultancy Services LLP Thames House 5 Church Street Twickenham Middlesex TW1 3NJ United Kingdom Telephone: + 44 (0)20 8891 6767 Fax: +44 (0)20 8891 1177 www.grosvenorconsultancy.com
