Managing Common Outsourcing Transition Pitfalls

Change is difficult. Transformational change, such as the change associated with Business Process Outsourcing, is exponentially more intricate. In fact, the complexity of managing that change is a major reason that enterprises decide not to outsource business functions. According to a 2011 survey by HfS Research and the London School of Economics Outsourcing Unit, 78 percent of enterprises cited the disruption to business as an important factor when making the decision not to outsource.

The pitfalls of a poorly planned and executed transition are many, and the operational, financial, and relationship implications are significant. Standing in the way of solid execution of an outsourcing transition are a number of common challenges, including limited process documentation, the lack of transition metrics, insufficient monitoring of vendor resources, and failure to plan for unexpected events. Understanding how to identify and address these challenges increases the likelihood of outsourcing success.

Document Processes

In an ideal situation, enterprises operate with global standardized processes and systems, with local variations only existing to accommodate legal, regulatory, or statutory requirements. However, it is much more common for enterprises to have a complex, heterogeneous set of processes and systems. Enterprises often do not have the luxury of standardizing processes prior to outsourcing, as there are change management and system configuration obstacles to overcome, cost savings delays, and resource shortages.

To enable a successful transition in a non-standard environment, process documentation becomes essential. The effort to create Standard Operating Procedures, capture process exceptions, and document "tribal knowledge" should begin well before a transition, when knowledge is often lost through attrition. This process documentation will serve as the foundation for both knowledge transfer (as training materials) and operational performance (as reference materials), and can be captured effectively with commonly available tools.

Develop Transition Metrics

Enterprises often believe that the performance metrics committed to in the contract will be sufficient to manage provider performance through the life of the relationship. However, these metrics are typically established to measure stable operations, as opposed to performance during the transition period. Transition metrics typically require daily, or even hourly, reporting and should provide visibility to the health of the operations, specifically during the period prior to stabilization.

Identifying "leading indicator" measurements throughout a business process will allow enterprises to recognize the risks before they affect performance and disrupt business continuity. Enterprises should also define a limited number of key transition metrics to provide insight into implementation success. Additionally, transition management should identify any down-stream impact of a transition metric "miss," so that affected stakeholders can be informed and any required adjustments can be made.

Monitor Service Provider Staffing and Turnover

One of the key benefits of outsourcers is their ability to manage large-scale recruiting, hiring, training, and retention efforts in offshore locations, where an enterprise does not have the staff or infrastructure to accomplish such a resource ramp-up. They often insist that the enterprise doesn't need to be concerned with these efforts, as they rely heavily on outsourcer proximity to the labor market and proven human resources practices. However, experience shows that carefully monitoring service provider staffing and turnover is critically important to the initial and ongoing success of any BPO initiative.

Ideally, the contract will define the education, skills, language capabilities and levels of experience required for each outsourced position. However, it is also essential to ensure staffing requirements are actually being met by the service provider during transition. For example, enterprises should seek to interview and approve candidates for positions that require specific skill sets and validate that service provider team members hired possess the experience and skills outlined in the contract. Additionally, to help prevent service provider employee turnover from disrupting a BPO transition, enterprises should consider a careful and gradual reduction in the number of enterprise resources during the transition phase.

Prepare for the Unexpected

Preparing for potential transition challenges in advance will position an enterprise to proactively and collaboratively address common issues and increase the speed to stabilization. However, while outsourcing transitions follow a script, some ad-libbing is required as it is impossible to anticipate every possible situation and issue. In such situations, an enterprise's most effective tool is a team of dedicated, experienced resources tasked with, and capable of, identifying root-causes and engaging stakeholders to effectively resolve the issues.

Issue resolution requires a comprehensive approach, extending beyond assigning an action item. It often includes activities such as refining process documentation, re-administering training and making required system changes. For fast-track issues, the transition team will need to escalate issues as necessary to the applicable stakeholder groups to ensure proper attention and resolution.

An outsourcing transition is a complex, challenging event that places a tremendous demand on people, processes, and technology. Dealing with the common transition pitfalls identified above will help to ensure the outsourcing implementation is short in duration, causes as little disruption as possible, and sets the stage for a successful outsourcing relationship.

Brad Lillis is a senior associate with Pace Harmon, an outsourcing advisory firm providing guidance on complex outsourcing and strategic sourcing transactions, process optimization, and supplier program management.