WP-Alsbridge-Change-Is-Hard

© 2015 Alsbridge Inc. All Rights Reserved. Contact: mike [email protected]

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CHANGE IS HARD

Sourcing Transitions Pose Unexpected Challenges

MIKE SLAVIN, MANAGING DIRECTOR

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© 2015 Alsbridge Inc. All Rights Reserved 2

CHANGE IS HARD

EXECUTIVE SUMMARY Consider the scenario: you’re approaching the end of a contract term. The relationship with your incumbent service provider has not – to put it mildly – gone well. You’ve determined that you cannot achieve your objectives without making a change, and are confident that you can do better by bringing in another provider or by taking services back in-house.

Before proceeding, make sure you know what you’re getting into.

Even executives with extensive experience in managing outsourcing relationships often underestimate the cost, risk and disruption associated with transitioning to a new service provider or with repatriating services to an internally managed delivery model. Indeed, the transition process presents a range of operational, financial, contractual and organizational challenges that enterprises need to anticipate and address in order to achieve the benefits anticipated from the change in service delivery. Absent that preparation, the problems that arise during transition can – at best – take the shine off the fresh approach, and at worst doom the new operating model from the outset.

This Alsbridge white paper examines the various considerations and challenges associated with the transition process in general, and focuses specifically on issues related to transitioning from one service provider to another, and to repatriating services from a third party to an internally managed approach. Strategies for avoiding transition pitfalls are outlined.





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CHANGE IS HARD

TRANSITION OPTIONS AND CONSIDERATIONS If you’re managing an outsourcing relationship and determine that some level of change is needed in the service delivery model for a particular set of services, you have three basic options to choose from.

Renegotiate: If you believe some change is needed but are confident that you can achieve your objectives for the given scope of services with your current provider, then renegotiating the terms of the existing agreement makes sense.

Re-compete: If you’re are confident that your current provider can’t address your objectives, issuing an RFP to find a new provider is an option.

Repatriate or in-source: An alternative to firing the incumbent and finding a new provider is to take operations back in-house and internally manage the previously outsourced scope of services.

Each of these options involves a number of strategic considerations for managing

the existing or new scope of services, and each path creates a different set of transition challenges with a wide range of potential outcomes.

A successful outsourcing renewal strategy requires smart decisions around when and how to make changes in service delivery. A thorough assessment of your organizational goals and operational strengths and weaknesses allows you to eliminate some options and validate others. This assessment should be forward-looking and consider downstream implications and impacts – for example, assessment of the repatriation option should take into account the internal resources that will be needed to manage services on an ongoing basis.

Once the options analysis has been completed and the best path forward selected, you need to manage the transition of services to put in place the mechanisms for governing the resulting landscape





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CHANGE IS HARD

Regardless of the sourcing option or mix selected, the transition process is essential to the success of the new service delivery model. An effective transition builds a foundation for an effective relationship, while an ill-planned and poorly executed transition undermines the new operation from the outset.

TRANSITION RISKS Given the importance of transition to a successful outsourcing strategy, addressing transition risks is essential. Regardless of the transition scenario, these risks can be divided into four categories:

Operational: The devil of transition is in the details, and a successful transition must address myriad questions and account for a wide range of activities and moving parts, including tower-specific plans for changeover, knowledge transfer, physical location of teams, hiring and training, lead times for connectivity and acquisition of tools.

Clients typically lack visibility into all of the specific functions carried out by the provider team. Underestimating this scope of activity when building your transition plan – especially if you are repatriating – can lead to significant disruption.

Financial: Before embarking on a change, be sure to assess costs and potential disruption associated with assets, particularly if a change in providers means moving from, say, a data center in one city to a co-located facility somewhere else. Terms and conditions around termination can be an issue. Switching fees can be exorbitant, and – somewhat ironically – being fired can be lucrative for the exiting provider.

Contractual: Contractual details should be another area of focus. Do the new terms and conditions adequately support the new scope, and provide needed flexibility in the future? Are the terms market-based and an improvement? (If not, you probably need to question why you are making a change.) Because





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CHANGE IS HARD

service models can vary, you need to ensure that the SLAs align to ensure complete support and performance, especially in a multi-provider scenario.

Relationship/Organizational: The full scope of the relationship post-transition needs to be considered, specifically with regard to governance teams and service integration. If, like most enterprises, you are working in a multi-supplier environment, you need to be prepared to seamlessly integrate the new provider into the existing team. This requires understanding the distribution of functions and touch-points between providers and the retained function.

FAILURE POINTS In addition to risk categories, several common causes of transition failure can be identified. One fundamental problem is a general lack of planning and failure to specifically plan tasks and define roles and responsibilities for client and provider. In addition, clients often take a hands-off “the provider will manage it”

approach, without supplying the needed support, thereby requiring the provider to plan in a vacuum.

A failure to plan reflects and is related to the fact that clients often underestimate the complexity of transition. This sets the stage for mismanagement of expectations and communication around the magnitude of the change and the effort needed to achieve a successful transition. We also commonly see a blurring between transition and transformation and a tendency to want to move too quickly to the future state.

Transition management discipline is another typical area of shortcoming. Service providers often fail to adhere to their own transition processes and lack the dedicated and experienced transition organization needed to capture and store transition artifacts and manage complex cross-tower hand-offs. For example, a smooth transition requires that agreement sign-off is synchronized with completed work. But without a clear process in place, these contractual





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CHANGE IS HARD

and functional sign-offs can fall out of alignment, leading to confusion and disputes.

CHANGING PROVIDERS VS. REPATRIATING In addition to the general considerations outlined above, certain issues relating specifically to transitioning from one service provider to another must be addressed.

Switching Providers: A key question is whether the incumbent provider – the one being transitioned out – has put together an effective and realistic plan for the switch. Specific criteria to consider include the balance of responsibilities – while the transition shouldn’t be left entirely to the provider, it also shouldn’t require you the client to do a disproportionate amount of the heavy lifting. Also, inclusion of incentives for on-time performance can be crucial to a cooperative exiting incumbent and a successful transition.

Repatriating: Repatriating services often presents a much higher level of risk than switching providers, primarily because clients tend to either insource for the wrong reasons or significantly underestimate the challenges involved in transitioning and then managing operations in-house.

A contentious service provider relationship can lead to a rash emotional decision to repatriate services, without considering the level of investment and internal resources needed to effect the change, recruit and hire new people and manage the new operational state. The fact that an effective repatriation strategy can take 18 months to two years to execute underscores the folly of rushing in. Moreover, the transition plan by definition presents a challenge, because the exiting provider has a strong incentive not to put good people on your team, since you will have a strong incentive to recruit them.





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CHANGE IS HARD

One way to address these challenges is to hire a third party to manage the transition for you – an impartial and unbiased perspective from an advisor with outsourcing expertise can identify risks and challenges and outline roles and responsibilities while minimizing conflict. In addition, repatriation can be

well-suited to cloud-based delivery because contracting models are less complex. We’ve also seen some examples of industry consortia such as non-competing regional banks that share knowledge and best practices on repatriation and in-house management.

BASIC QUESTIONS AND HONEST ANSWERS Before embarking on a repatriation initiative, you should – to put it bluntly – know what you are getting into. Step one is a thorough assessment of internal organizational capabilities to answer the basic question, “Do we have the knowledge and resources to internally manage this scope of services?” The chart below show a checklist of key functions.





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CHANGE IS HARD

The second basic question: “What could go wrong?” Here again, thoroughness is essential to identify and understand the potential and often unanticipated areas that can create significant problems for your business.

AVOIDING THE PITFALLS Proper planning, consistent focus and adherence to good project management techniques can address the myriad challenges that characterize sourcing transitions.

A robust transition methodology, characterized by a conscious planning effort and a disciplined approach to manage the complexity of transition is essential. Similarly, a well-designed transition governance model enables both client and provider to build on the relationships already created and to manage the myriad details, questions and issues that arise during the process. Governance also plays a central role in ensuring thorough





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CHANGE IS HARD

evaluation of multiple risks across operational, contractual, financial and organizational categories.

Rapid resolution of issues and early identifications of risks allows you to maintain momentum and consistency during the transition. Allowing issues and risks to fester without resolution is sure to sap motivation.

Frequent and clear communication to the transition team, client and provider organization, meanwhile, can mitigate the flow of rumors and ease the tension of a transition.





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CONCLUSION

CIOs have always had to make difficult decisions at the end of an outsourcing contract. The renew/renegotiate/ repatriate quandary is all the more challenging given today’s dynamic marketplace and technology landscape. With fierce competition driving down prices and new innovations continually coming on-line, changing providers or delivery models to achieve business benefits can be an attractive option.

However, any initiative involving change in sourcing delivery requires a thorough and realistic assessment of risks associated with that change and a rigorous plan to manage the transition process. While transition presents a wide range of risks, perhaps the greatest one enterprises face is to underestimate the challenges involved and to fail to effectively address them. Repatriation initiatives are particularly susceptible to inadequate preparation and unpleasant surprises after the fact.

Bottom line: Whether you’re bringing in a new provider or taking services back in-house, be sure making the change for the right reasons. And before you embark on the transition journey, know what to expect.





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ABOUT THE AUTHOR

MIKE SLAVIN, MANAGING DIRECTOR Mike is a sourcing industry veteran with more than 30 years of strategic consulting and operational experience helping business leaders deploy large-scale and complex sourcing initiatives involving application development and IT management functions. He has deep experience launching and managing programs that utilize strategic sourcing and design, and that focus on transformation, supplier development, adaptability to new technologies and corporate sustainability.

Prior to joining Alsbridge, Mike was a top Strategic Sales Leader with HP Enterprise Services, where he was responsible for major deal qualification and pursuit. Previously, Mike was a Partner and Managing Director at TPI, responsible for all ITO and ADM strategy and sourcing advisory engagements in the Americas during TPI's period of largest growth. Mike was also responsible for sales, growth and delivery of TPI's advisory services in the media, telecom and utilities sectors.





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ABOUT ALSBRIDGE

Alsbridge is a global management consulting firm that helps companies enable their businesses and reduce costs by optimizing their service provider relationships. As a trusted advisor to over 40% of the Fortune 500 and FTSE 250, we work with over 200 clients a year on over $11b in spend. Our experienced consultants leverage market insight and deep benchmarking databases to help clients align their requirements to the optimal vendor solution, apply best practices, negotiate terms at fair market prices and improve relationship governance. We help clients utilize the most cost-effective and value-added sources globally for IT infrastructure services, network carrier services, hardware and software, application support and development, business processes and cloud services.

20+ Years of experience as a trusted advisor

>40% Of the Fortune 500 engage Alsbridge

$11 Billion+ Enterprise spend Alsbridge represents annually across categories

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