Many things prompt companies to consider outsourcing in the first
instance. Some want to focus on their core competencies, and offload
non-strategic functions to the outsourcer. Others may want to purse a new
opportunity, change direction or correct problems in their IT
organization. None of these companies, however, would be willing to
consider outsourcing if it meant a deterioration in service. An
outsourcing arrangement that does not offer good or superior service is
simply not worth doing. And the quickest way to kill an outsourcing
relationship is to provide poor service.
Every company knows when they are receiving good service, but it is
often difficult to express what constitutes good service -- to define it
in quantifiable terms, and to manage it to consistent levels. This Executive
Report considers the topic of service from several different angles,
and throughout all of the phases of the outsourcing life cycle. Each phase
has its own set of management issues, challenges and solutions, and
techniques that can be used to deal with service issues.
The best advice for any company that is considering entering into an
outsourcing relationship, or that is in the midst of one right now, is
"prepare yourself." A laundry list of service-related issues can
arise during each phase of an outsourcing engagement, and many of which
are foreseeable. A company that prepares itself adequately through proper
planning, that correctly sets its expectations, and that adopts a flexible
and open frame of mind, will be able to deal with and resolve the
inevitable service issues that may arise.
Service topics appear from the outset, in the Planning and Analysis
phase. In this phase, the parties devote substantial effort to researching
and analyzing things like project scope, work requirements and performance
commitments. The goal of this phase is to create documents and plans that
will serve as touchstones throughout the remainder of the relationship.
The culmination of this phase is to produce a set of documents -- the
master contract, statement of work, service level agreements, metrics
definitions and operating principles -- and a transition plan that covers
the timing, activities and responsibilities of the next phase when the
outsourcer assumes operations.
From a service perspective, the most important documents to come out of
the planning and analysis phase are the statements of work and service
level agreements. The statements of work delineate the services that the
outsourcer will provide. The service level agreements state how to measure
the outsourcer’s performance in providing those services. These
documents are crucial to obtaining exceptional service. Since the parties
will strive to conform their behavior to match these documents, the
contents must be unambiguous and accurate, and must succinctly state what
constitutes good service.
The planning and analysis phase is replete with issues that can affect
the ultimate delivery of service. First, there is always a danger that the
parties will shortcut this phase, because it involves a significant amount
of time and effort, and also because some of the data needed to establish
the parameters of the documents may not be readily available. When the
parties do not devote enough attention to this phase, the result is often
inaccurate statements of work, inappropriate service level agreements,
poorly defined interface procedures, and inadequate consideration of
contract or business issues. All of these things contribute to service
problems that may not manifest themselves until the later stages of the
engagement, but which will surely cause trouble when they do appear.
The Transition In phase marks the beginning of the outsourcer's
involvement in operations. In this phase, the outsourcer begins to perform
all of the activities required to fully assume the outsourcing project.
New procedures are implemented, outsourcing and client staff exchange
required business and technical knowledge, metrics programs are rolled out
and responsibilities slowly shift from the client camp to the outsourcer
camp. The transition in period is a time of flux. Things rarely work right
the first time. Unanticipated issues arise, negotiations must be
re-opened, and adjustments must be made to the outsourcing agreements.
In practical terms, the transition in period is a "shakedown
cruise," where all of the theoretically correct specifications,
procedures and processes developed during the planning phase are tested.
This phase offers the parties a unique opportunity to see how well every
item works in reality, to expose and correct all problems, and to test
their ability to work together to resolve issues. Every problem that is
found and corrected in this phase is one problem that will not appear
later during the operation phase.
The parties can expect to encounter numerous issues during the
transition in phase. First, any mismatches in expectations will be exposed
as the actual working relationship begins to shape up. The amount of
management overhead required to shepherd all of the activities, tasks and
personnel issues to conclusion may surprise the parties. The time required
for the outsourcer to achieve full responsibility for service will always
turn out longer than what the client had hoped. Metrics issues will arise
when the parties discover that initial metrics settings are off, some
metrics are harder to collect than expected and that certain metrics do
not provide the desired information. Staffing issues will take center
stage. Staff acquisition scenarios will bring high turnover and
disruption. Staff provision situations will involve knowledge transfer
issues, and contention over the release of resources. Work product and
procedural problems will arise, ranging from mismatches in hand-offs, to
poorly designed procedures, to work falling between the cracks, to
obstacles that prevent timely implementation of improvements. All of these
issues and challenges will test the issue resolution procedures defined in
the outsourcing documents, and the flexibility of the contract to permit
the types of adjustments that will need to be made.
Once operations begin to stabilize, and productivity levels begin to
return to normal, the parties will enter the Operation phase. This
phase is the longest of the engagement. The outsourcer will perform its
daily, routine work according to the terms of the statements of work. In
addition, the outsourcer will implement environment and infrastructure
improvements in an attempt to boost its performance and productivity. By
this phase, the metrics program will be fully implemented, and the
outsourcer's performance will be monitored and adjusted. The parties will
deal with normal changes in scope and performance, and will escalate and
resolve any high priority issues that cannot be handled through normal
channels.
During the operations phase, service will be the overriding concern of
both the client and outsourcer. Many things will impact service, in both
subtle and obvious ways. The basic terms of the contract, particularly
pricing terms, will have a significant affect on service. In a time and
materials contract, all financial risk is shifted to the client. The
outsourcer will be less inclined to make large-scale productivity
improvements, since greater efficiency will reduce its billings.
Conversely, in a fixed price engagement, the outsourcer has assumed all
financial risk. The outsourcer will look for every opportunity to become
more efficient, since greater efficiency translates to larger profits.
Risk-sharing arrangements, where the outsourcer and client share in any
benefits attained, can make it financially attractive for both parties to
become more efficient, but are harder to manage if benefits cannot be
quantified. Finally, if the outsourcer is constrained by the client from
making the necessary productivity improvements in the proper timeframe,
then the outsourcer may lose money on the engagement and be disinclined to
provide good service.
Service levels will likely fluctuate during the operation phase. The
metrics reporting program will reveal both good and bad performance
trends, and the outsourcer and client will have to make appropriate
adjustments. Some service level issues will be quite noticeable, and the
solutions obvious. Other service level issues may be more pervasive, or
more difficult to diagnose and correct. These issues will require a root
cause analysis, so that the parties can resolve the true, underlying
problem, rather than just treat the symptoms.
At the close of the outsourcing relationship, the parties will enter
the Transition Out phase. This phase may occur naturally and
voluntarily, as planned by the parties. Termination may also be triggered
when a party invokes a bail-out clause in the contract. Depending on the
type of termination, the atmosphere and activities of the transition out
phase can vary greatly. Continuity of service will be a primary concern.
As work volumes wind down, so may the outsourcer's service, as many of its
financial incentives will drop precipitously or disappear altogether. In a
transition under duress, the outsourcer will likely be uncooperative, and
do little extra work to help prop up service levels during the transition.
Precisely because the parties cannot know in advance the type of
transition out phase that they will face, they should attempt to define as
many details of this phase as possible during contract negotiations, when
relations are amicable.
Strong planning is the cornerstone of a successful outsourcing
relationship. Although service will vary during the course of an
outsourcing relationship, the more planning and attention that is devoted
to service topics up front, the smoother operations will be. This Executive
Report is intended to help companies anticipate and plan for the
inevitable service issues that will occur, so that they can rise above
them and derive the maximum benefits possible from their outsourcing
engagements.
