MAINTAINING ALIGNMENT WHEN OUTSOURCING

Executive Summary

by Ian S. Hayes

Do you know what your company’s strategies, goals and objectives are? If you do, you are already on the road toward alignment. Do your decisions, actions, and daily efforts promote those goals? If they do, congratulations. You are skilled at maintaining alignment.

Within a company with hundreds or thousands of employees, ensuring that each worker, department and organization is aware of, and aligned with, larger corporate objectives is a daunting task. Even if some level of alignment is originally obtained, it is relatively easy for someone to go astray at any point. If enough people drift from these objectives, then alignment is jeopardized. Making matters worse, alignment is not a static proposition. Business, economic and technology changes demand that corporate strategies shift in response. Yesterday’s corporate goals may be different than today’s. Communicating these shifts and rallying people around the new goals is essential for success, but extremely difficult to accomplish in practice.

For many reasons, maintaining alignment between technical organizations and business areas has long been a challenge for many companies. When an IT organization adds third parties to the mix through outsourcing, the potential for misalignment becomes more acute.

Outsourcing is gaining in popularity, and many companies now outsource IT functions to third parties as part of their larger strategies. But third party outsourcers are yet another step removed from executive thinking, making it harder to communicate changing objectives and to identify the adjustments that must be made. The prevalence of longer tem outsourcing engagements increases the odds of drift. Moreover, conflicting agendas and divergent needs among the parties create an atmosphere conducive to misalignment.

Companies that outsource IT functions need to maintain alignment at four different levels. At the highest level, they must ensure that the strategy underlying the engagement continues to be the right one. Next, they must ensure that the relationship established with a particular vendor continues to make sense. At the next level, companies must ensure that the scope of the engagement continues to reflect and support the needs of the company. Finally, at the lowest level, companies must ensure that the day-to-day performance of their outsourcing projects results in measurable, acceptable service to the end user community.

This Report addresses the topic of maintaining alignment in outsourcing engagements. It considers what alignment means in an outsourcing engagement, offers guidelines for taking the pulse of alignment, and suggests tools for maintaining alignment. The Report describes some of the most common alignment issues that plague outsourcing engagements, gives recommendations for turning around misaligned engagements and advises companies on how to build a self-aligning engagement from the start.

As previously mentioned, maintaining alignment spans the highest levels – keeping strategies in sync – and the lowest levels – performing tasks in the right priority to acceptable measures. The ability of an outsourcing engagement to accomplish these goals is a reflection on how well aligned the IT organization is itself. With the IT organization often serving as a go-between, an outsourcing project will only be as well or poorly aligned as its liaison.

The overriding characteristics needed to maintain alignment are vigilance and flexibility. Vigilance is all about management – monitoring the health and direction of the outsourcing arrangement to detect alignment problems at the earliest possible time to enable the least disruptive fix. Flexibility is all about the willingness to make changes – the minor tweaks and larger adjustments needed to shift direction along with shifts in corporate objectives, and to fix problems when they arise.

Maintaining alignment boils down to 7 multi-level efforts.

• Ensuring that the sourcing strategy still meets corporate objectives
• Ensuring that a given sourcing engagement still makes sense
• Ensuring that an engagement’s vendor still makes sense
• Ensuring that the rules of engagement still make sense
• Ensuring that the project matches functional needs
• Ensuring that task parameters meet needs
• Ensuring that day-to-day activities are aligned with project goals

There are no hard and fast rules as to when alignment should be checked. Some inquiries, such as strategy alignment, may occur only semi-annually while others, like task alignment, are performed on a daily basis. Balance the amount of investment with the risk/reward of performing alignment checks.

Tools for maintaining alignment run the gamut from executive oversight to sound operating documents. They include:

• An executive steering committee to provide direction and strategy, and set overall priorities
• Vendor meetings to negotiate and re-negotiate the scope of the project(s) and work on relationship issues
• A Program Management Office to manage the day-to-day operations of the engagement
• An IT Strategic Plan to define and clarity objectives for the outsourcer
• A flexible master contract to enable rather than inhibit change
• Operating principles to tell the participants how to perform their work on a practical basis
• Statements of work to define the scope of the project(s) and assign responsibilities
• Service level agreements to define acceptable levels of performance and performance goals
• Customer satisfaction surveys to gauge how happy end users are with the outsourcer’s performance and serve as a double check on the service level agreements
• Performance metrics to measure various facets of the outsourcer’s performance
• Pay structures, incentives and penalties to motivate the parties to perform in the best interests of the outsourcing engagement

Alignment issues are not inevitable, yet, if they do occur, it helps to identify them quickly and resolve them speedily. Allowing alignment problems to fester can damage a relationship beyond repair. The worst thing that can happen is for the parties to allow problems to exist for too long, and to allow misalignment to compound.

A host of alignment issues can crop up during the course of the engagement. The Report contains a diagnostic guide to help companies identify the issues that could potentially, or may already be, undermining their outsourcing engagements. These issues include such things as:

• unreasonable vendors who are unwilling to make adjustments when circumstances call for them
• poorly scoped projects that open the door for misinterpretation and work falling between the cracks
• poorly drafted agreements that are inflexible or inhibit change
• changes in circumstances that impact the client’s strategies, goals or objectives and necessitate adjustments to the engagement
• changes in management that create uncertainty about the tenor of, and outlook for, the relationship
• alignment problems in IT that get mirrored in the engagement
• projects that are too isolated from the business, hampering communications
• poorly set expectations that lead to misunderstandings, disappointment and immediate misalignment
• poor performance reflecting vendor incompetence or imperfect performance goals and measures
• "under the table" work that creates an immediate drop in end user satisfaction when outsourcing starts
• faulty or missing measurements that impede the ability to gauge the outsourcer’s performance

Over the life of an outsourcing engagement, alignment issues will arise, differing in their level, impact and duration. The first step in turning things around is taking stock of the situation, accomplished by interviewing the affected project constituents about problems, expectations and changes. These interviews provide crucial information to diagnose the problems and determine their likely root causes. Re-aligning the engagement will ultimately depend on the depth and extent of the problems, the availability of the right alignment tools and the degree to which all parties are willing to make the relationship work.

After diagnosis, the next step is to assess options for re-aligning a wayward engagement. Selecting the right approach requires balancing possible solutions against the value of the project, and each party’s willingness to invest the time, effort and capital into improvement activities. Guiding this decision are considerations about the amount invested to date, the duration of the engagement, the flexibility of the agreements and the vendor, the ultimate value of a successful project and the difficult of terminating the relationship. Realignment approaches range from quick fixes to correct just the problem at hand, investments in improving the alignment infrastructure, revisiting scoping and planning and terminating the project. Part of any fix, the parties must also spend the effort to rebuild the relationship and realign individual incentives. The Report also provides specific solution techniques for each of the common alignment issues mentioned previously.

Integrating alignment into every facet of an outsourcing engagement is the best way to avoid problems in the first place. A self-aligning engagement works naturally toward maintaining alignment, detecting problems early and enabling easier fixes.

Self-aligning engagements accomplish their goals by:

• proactively considering the conditions that could cause change and designing agreements that will be responsive should those changes occur
• understanding the needs of all parties and designing agreements to accommodate divergent interests and yet motivate the right behaviors
• designing tools, agreements, processes and governance structures that provide the flexibility, oversight and guidance needed on a daily, weekly, monthly or yearly basis
• regularly measuring performance to objectives
• working on improving the relationship every day

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Establishing and maintaining alignment is a critical, yet often understated, aspect of every outsourcing engagement. Alignment issues will arise, but anticipating and planning for their occurrence will minimize their impact. Vigilance in detecting problems, and flexibility in resolving them, will keep every outsourcing engagement on track for success.