Successful Outsourcing - Accounting > Consulting > Tax | …€¦ · · 2015-06-25Specialists in Shared Services and Outsourcing ... successful outsourcing deals can produce substantial

Successful OutsourcingBC Supply Chain Council

December 16th, 2004

Robert CookeIntex Consulting Partners

© Intex Consulting Partners Inc. 2004

Agenda

Background on Outsourcing:

- What is it?

- What is being outsourced

- Overview of Process

Best Practices and Learnings

- References:

Direct experience with clients

Conferences, books, articles, interviews


What is Intex?

BC based boutique consulting firm

Specialists in Shared Services and Outsourcing

Key services:

- Services sourcing reviews and feasibility assessments

- Contract Governance & Vendor Relations workshops

- Relationship diagnosis and alignment

- Organizational change and transition support

Resource pool of senior specialists

Client sectors include public, private and crown across Canada


About Outsourcing

“Outsourcing has become an essential tool in managing today’s andtomorrow’s organizations”

(Michael Corbett, Chair, Outsourcing World Summit)

“Outsourcing is the fastest growing industry in the world”

(Peter Drucker)

“Outsourcing is one of the greatest organizational and industry structureshifts of the century”

(James Brian Quinn, The Amos Tuck School, Dartmouth College)


About Outsourcing

Outsourcing is about establishing a long term relationship that results intrue collaborative advantage

It has been defined as “A strategic, long term relationship with an outsidespecialist for managing work traditionally performed within theorganization”

It is considered to be analogous to a marriage and its success rate hasnot been stellar (over 50% of relationships still fail)

There is a growing backlash against outsourcing in the U.S. as it isconfused with “off shoring” but it will continue to grow at dramatic rates

Despite the challenges, successful outsourcing deals can producesubstantial savings, increases in service levels, and consistent, leading-edge solutions


Outsourcing as Percentage ofCorporate Budgets

0

5

10

15

20

25

30

35

40

1998 2000 2002 2004

Source: Michael Corbett & Associates 2004


Percentage of Executives NOTOutsourcing

0

2

4

6

8

10

12

14

16

18

2001 2002 2003 2004

Source: Michael Corbett & Associates 2004


What’s Being Outsourced

Physical Services

Printing and publishing

Mailroom and shipping

Warehouse and distribution

Component manufacturing

Facilities maintenance

Food and catering

Specialist Services

Public relations and legal

Payroll and tax

Recruiting and training

Advertising and promotion

Information technology

Supply Chain

Customer relationshipmanagement (call centres)

Source: Outsourcing Institute 2004

Transactional Services

Order processing

Employee benefitsadministration

Travel and expensemanagement

Accounts payable/receivable

Invoicing and receivables

Data entry and transcription

Industry specific processes(e.g. insurance claimprocessing, visa cardprocessing)

OTHERS?


Trends In Supply Chain Outsourcing

50% of firms in Europe and U.S. are considering outsourcing part of theirprocurement operations by end of 2006 (22% currently outsource) *

Procurement Service Providers being used today/considered for the future *

- Strategic Sourcing (18%/42%)

- Inventory Management (22/%/44%)

- Requisition to Pay (26%/60%)

- Hosting e-procurement application (39%/75%)

- Hosting e-sourcing applications (45%/75%)

Growth in 4th Party Logistics providers (4PL) who manage services of 3PLproviders such as transportation and warehousing

* from Accenture study of 219 procurement directors in 2004


Current Practices Discussion

What is the current state of outsourcing of supply chain in your organization?

- What have you outsourced?

- What are you considering outsourcing?

- Why?


Successful Outsourcing:Best Practices and Learnings


BP# 1: Have a Clearly Defined OutsourcingManagement Process

Re

latio

ns

hip

Man

ag

em

en

t


Phase I: Pre-Planning


BP# 2: Establish Clear Goals

Innovation

Speed to MarketAccess to SkillsVariable Costs

Flexibility

Improved Focus

Reduced Costs

“Outsourcing is not the goal, business improvement is”

“If outsourcing is based on cost savings alone it will ultimately appear asa hollow solution”


Outsourcing Begins With Three SimpleQuestions…

1. If starting from scratch today, would you really do it yourself?

2. Are you so good at it, that others would hire you to do it for them?

3. Will tomorrow’s leaders come from this part of the business?

If core competency, the answer will be yes to all three.


BP# 3: Formalize the Pre-Planning Phase

Establish a project team: project manager, business expert, financial and HR support

etc.

Complete scope and baseline assessment. Clearly understand what is included in the

function

- Is the Function ‘well-defined’

- Has the function been successfully out-sourced by other organizations

- Are there ‘significant’ potential benefits from out-sourcing this function

- Is the organization ‘ready’ for this type of change

If processes are ‘a mess’ you may want to consider fixing them up before proceeding

Complete Initial business case

- If just considering the outsourcing option this will require comparison of current costs to vendormarket best fully loaded costs.

- If considering other options such as shared services, business process improvement the processis much more complex as processes and sub-processes and their associated costs will need tobe defined


Phase II: Contracting


BP# 4: Comprehensive Due Diligence

Soundness- Financial strength, funding and stability- Clearly defined and visible cost structures- Management team strengths & capability- Technology capability- Staff capability- Customer satisfaction rating- Growth potential

Practices- Quality and continuous improvement processes- Problem solving capability and reputation- Project management and transition experience

Reality- Site Visit- Culture and values fit and compatibility- Demonstrates clear understanding of your needs and expectations- Service philosophy- Work environment: employee capability, performance and climate- Contract priority for them


BP# 5: Win/Win Negotiations and Contracting

Keep in mind that you want a long term relationship where you become partners in longterm success- Build a strong working relationship while negotiating the optimal deal

- Establish a common ground for working together (but recognize you have very different goals)

- Keep the negotiation process friendly: unresolved conflict will live on

- Clearly define service level expectations

Move to process focusing on:

- Key objectives (not tasks or rigid performance indicators)

- Open sharing of costs and financials

- Honesty re expectations and concerns

Develop a document that is:

- Flexible and can adapt to changes in technology, economy, business needs

- Structured as user friendly, not to be filed away

Define a process for managing changes

Use professional negotiators


Phase III: Transition Planning


BP# 6: Recognize the Real Work Begins Afterthe Contract is Signed

Once the contract is signed the real work begins: (for many this is seen as theend of the project – this is wrong!)

The real work after the contract is signed is to:

- Finalize the transition plan

- Handle the transition (movement of people)

- Implement new operating model and processes

- Deliver intended results

- Manage contract governance

- Sustain a long term working relationship with the vendor

Establish a dedicated internal transition team as well as a joint team todevelop and implement the plan

Ensure change management is an integral part of the transition

Recognize in the planning that transition goes on for a number of months afterDay 1


BP# 7: Develop a Risk Management Plan

Risk management asks the questions, “What could go wrong and whatwould we do – mitigation or contingency - if it did go wrong?”

Each risk is assessed with respect to the likelihood of its occurrence and theconsequence of its impact should it occur

Mitigation/contingency plans are developed for highly rated risks which includeclearly defined actions and accountabilities

A process for ongoing identification and assessment of risks needs to bedefined

Risks are typically assessed in the following categories:- Customer Care & Performance

- Financial

- Human Resources/Labour

- Market

- Political


BP# 8: Take Change Management Seriously

The change and cultural shock created by outsourcing can severely impactbusiness performance.

There will always be resistance to change because of:- parochial self interest

- misunderstanding and lack of trust

- differing assessments of the process and outcomes of change

- low tolerance for change

Change Management is about:

- Understanding the type and scope of change

- Understand how people and groups manage and overcome personal andorganizational resistance to change (traditional “change management” tasks)

- Developing and assessing organizational change options

- Planning for change implementation

In the end, success is all about the people!


Phase IV: Contract Governance &Vendor Relations

Pre-Planning

Contracting

TransitionPlanning

ContractGovernance &

Vendor Relations

ContractGovernance

Start-Up &Activation

Page 0

ResultsAssessment

RelationshipAlignment


Contract Governance & Relationship Management

CONTRACT GOVERNANCE

To Monitor, Direct and ControlVendor Performance

RELATIONSHIP MANAGEMENT

To Establish a Long TermSustainable Relationship

CONTRACT MANAGEMENTThe process of ensuring effective contract governance

and relationship management


BP# 9: Formalize Contract Governance

Well selected and trained stay back team

- Clarity of roles and accountability for managing vendor performance

- Knowledge of the contract

- Knowledge of contract law

- Skills in managing non-performance and vendor relationships

Cleary defined governance processes

- Performance reporting against standards

- Time sensitive reporting of performance problems

- Problem escalation and conflict resolution process


BP# 10: Focus on Vendor Relations

When things go wrong, focus on understanding joint contributions

Wise decisions need joint input

Surprises should be rare: work as a team to maintain internal and external

alignment

Cultural differences need to be explored, understood and managed

Key Relationship Success Issues

- degree of trust

- ease of working together

- capacity for joint problem solving

- capacity to resolve conflicts

- openness and quality of communication

- capacity for taking a ‘what is best for the relationship” perspective


Vendor Relations Progression

Step 1: Start –Up Friends and colleagues working together to achieve

mutual goals Minimal change in roles and expectations

Step 2: Honeymoon All working together during months of transition Stay back team staff very much involved in their old work

and day to day management Not much confrontation on performance issues Some signs of growing stress start to emerge

Step 4: Sustaining the New Relationship Increased recognition by both parties of each other’s unique needs Building protocols, increasing communication and trust

Step 3: The New Reality Recognition that goals are not all congruent Increased conflict over responsibilities Performance feedback increases tension Increased demands by vendor to reduce costs reduces

performance and customer satisfaction

Where is yourrelationship?


Relationship Management Challenges

Management of negative perceptions lingering from negotiations

Resolution of ambiguities in agreement

Efficient and effective joint decision making

Proactive identification of conflict or tension

Maintaining and enhancing trust

Management of commitments

Learning from both recurrent conflict and broken commitments

Maintenance of internal alignment (both sides)

Minimization of surprises about internal (organizational) changes

Anticipation of significant external changes that will impact therelationship


Actions to Enhance the Relationship

Relationship alignment workshops

Audit the health of the relationship on a regular basis

Formal monthly, quarterly and annual meetings to discuss the relationship

Develop relationship vision, goals and metrics

Develop “working together” , communication and decision making protocols

Establish conflict management methods and processes


Summary of Best Practices and Learnings

BP# 1: Have a clearly defined outsourcing management process

BP# 2: Establish clear goals

BP# 3: Formalize the pre-planning phase

BP# 4: Comprehensive due diligence

BP# 5: Win/win negotiations and contracting

BP# 6: Recognize the real work begins after the contract is signed

BP# 7: Develop a risk management plan

BP# 8: Take change management seriously: it’s all about the people

BP# 9: Formalize contract governance

BP#10: Focus on vendor relationship

BP#11: Others? What have you learned along the way?


Questions?

Documents

Successful Outsourcing - Accounting > Consulting > Tax | …€¦ · · 2015-06-25Specialists in Shared Services and Outsourcing ... successful outsourcing deals can produce substantial