PATH Act Changes to FIRPTA
Out with the Old, In with the New: Commercial Flexibility & Revenue Expectation in IT Outsourcing Agreements (Part 2 of 2)
Out with the Old, In with the New: Commercial Flexibility & Revenue Expectation in IT Outsourcing Agreements (Part 1 of 2)
Global Sourcing Partner Sees Bright Future for Outsourcing
Done Deal: Now What?So the deal is done and now the hard work begins. Hopefully, you already have a great communication strategy in place to explain what is expected from the deal, a high-level transition plan that lays out milestones and dependencies, and an internal/retained organizational structure to work with and manage your supplier(s).
As you shift from negotiation and contracting to implementation, what are those key actions you can take to make this supplier relationship work better from the start and deliver the outcomes you expect? Here is our short list:
Create a Detailed Transition Plan with Accountability
Once the deal is signed, everyone wants to start the transition implementation. The reality is that most transitions aren't ready to begin right after the deal is signed. Typically, that's because the people needed to do the detailed transition planning are not involved in the deal before it is finalized. While it takes discipline to resist the urge to plunge into transition activities, the time spent doing effective upfront planning pays huge dividends later in the process.
The planning process will undoubtedly uncover issues of which the client or supplier were not aware. Those discoveries should not be considered bad things if they are uncovered during planning. In contrast, they can be very bad things if they are discovered well into transition.
Doing the detailed planning and, if necessary, adjusting the milestones enables the client to get a more firm (realistic) commitment to the milestones from the supplier. If the milestones are subsequently missed, there can be no excuse that they were set before detailed planning. Clients are then well-positioned to firmly enforce the milestones and thus ensure the supplier is held accountable for a timely transition.
Finally, detailed planning is an opportunity to work together and build teamwork. It is an opportunity for early joint success (i.e., getting the plan done), practical common sense problem solving and reaching compromises as issues arise. It can, and often does, set the tone for the entire transition and future relationship – so don't discount the time and importance of the planning effort.
Acquire Quality Supplier Transition and Account Teams
Outsourcing contracts following best practices will give the client extensive rights with respect to certain key personnel on the account, often the top 5% to 10% of the resources and/or the relationship managers and delivery executives. We consistently have found across all types of outsourcing relationships that the quality of that top team is critical to both the transition and long-term performance of the supplier, and the overall health of the relationship.
We strongly encourage clients to take full advantage of the key supplier personnel provisions and ensure they are getting the best team they can from the supplier. Accepting resources that are just "OK" or "good enough" will likely lead to unacceptable performance by the supplier, strained relationships and the need to exercise the client's right to remove key resources at an inopportune time. Getting the right supplier team up front is worth the client's time, effort and focus, and should be a high priority.
Insist on Interaction Models and Process Documentation
When a function is performed internally by client staff, a large number of processes and communication protocols are informal (i.e., not written down, just assumed) and allow for a certain amount of flexibility based on the relationships between people and/or departments. These are "intra-actions" within the same overall organization.
When an outsourcing takes place, many of the intra-actions become interactions and the informal way of conducting business no longer applies. The people may all change, so the informal routines and unwritten methods walk out the door. The informal performance standards (assuming there are any) become formal, economically important performance standards that can depend on timely interactions between parties. In short, the entire environment is transformed into one that is dependent on structured processes and procedures, and clearly defined expectations.
Taking the time up front to document how the two organizations are going to work together is critical to long-term success. We call this documentation "interaction models," and we have found that the clients who take the time to document key interaction models, especially for high-friction areas (e.g., incident management, project initiation and service requests), are far less likely to have operational performance problems later on.
We also find that while outsourcing contracts typically call for the supplier to generate process documentation or playbooks to document the day-to-day processes the supplier will follow, most suppliers don't do a particularly thorough or effective job producing and customizing the material, and clients typically lose interest and do not insist on a high-quality product. Plus, the supplier playbook often focuses more on the supplier processes and needed inputs, as opposed to the joint interactions. We encourage our clients to ensure the contract at least starts this documentation process and provides a road map (including tables of contents and sample documentation) for its completion. Clients must use these as the supplier's standards for the complete procedures documentation.
Don't lose interest. The client is typically paying a large amount for transition – either up front or in the ongoing fees. If the client fails to insist on a well-documented set of interaction models and procedures, then the client is losing a valuable by-product of the outsourcing that can be used to better manage the relationship. Also, if properly updated by the supplier over time, this documentation can be used as an effective tool for understanding the environment and transitioning to a different supplier or in-sourcing in the future. Conversely, allowing the supplier to get away with anything less than a quality product hurts both parties during the relationship and creates a "stickiness" that leaves the client captive to the supplier.
Enforce the Contract's Governance Structure and Meetings Schedule
Governance is talked about a lot as the key to successful relationships. It is not a silver bullet, but it is important. Usually an outsourcing contract has some general structure describing how governance is going to work. Ideally, it not only addresses the executive-level meet and greets, but also addresses the operational meetings and communication protocols needed to get real work done. Even if it is well conceived, it usually does not contain all the final details as to how, when, where and who is necessary to make it work. Also, what was conceptually designed in contracting doesn't always work in reality.
What is key to any governance model is a) there is one, b) it is formal and documented, and c) it is maintained and executed. We often find one or more of these simple requirements lacking a year or two into an outsourcing relationship. If the governance model in the contract doesn't work, then fine, change it. But don't abandon the concepts. And keep it formally documented. In a relationship between a client and supplier, if expectations aren't written down there is not common understanding and commitment, and often they may as well not exist. We have a straightforward governance matrix we use with our clients to allow them to easily manage and update the governance process as the relationship evolves over time.
That is a short list, but we have found that getting off to a good start requires clients and suppliers to invest the time and energy to make sure these areas are well executed. From there, a successful long-term relationship can be achieved.