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Outsourcing – Managing for Success

Stuart Payne, Morgan Chambers

Copyright © 1999 Morgan Chambers plc

Copyright © 1999 Morgan Chambers


Agenda

Recap – why outsource

Building a Sourcing Strategy

Risks and Risk Management Strategies

Effective Contracting

Supply Management – best practice

Copyright © 1999 Hewlett PackardCopyright © 1999 Morgan Chambers


Reasons why Organisations Outsource

Commercial

Service

• cost reduction• transfer of fixed costs to variable costs• cost transparency• quantifiable service• improved service

Resource• access to a wider resource pool• access to specific technical skills

Strategic• enabling management focus on core

business and supporting step change

Quality• processes & procedures• best of breed

Technical• provision of step change technical

advancement


Supporting Organisational Change

Mergers/Acquisitions/Disposals

Speed to Market

Upsizing/downsizing/rightsizing

Geographic considerations

Increasing Shareholder Value

e-Solutions



Key Drivers – UK Experience

based on FTSE100

8%

17%

37%

7%

18%

13%

Access to Skills / Technology Change Enabler Cost savings

Focus on Core Business Other Quality / Service Improvement



Achievable Savings - industry examples


0%

10%

20%

30%

40%

50%

60%

DataCentre

WAN /LAN

Desktop AppsMgmt

Consolidation'stretch'Typical Savings


Typical Concerns re. Outsourcing

….It is expensive! ….I will be locked in to a long term contract! ….I will lose control of my affairs! ….It is risky and can go horribly wrong! ….My staff will all leave!


Main Risks in Outsourcing

Poor alignment with business goals

Lack of Preparation

Supplier Capability

Inflexibility

Ineffective Management



Risk Mitigation Strategies

Clearly define objectives and need

Run a formal and appropriate Supplier selection process

Provide the Supplier with a full check list of requirements

Communicate (sponsors, influencers, end-users)

Establish an effective Supply Management Team



Understand your Organisation

DifferentiatingExpertise

Support withstrategic consultanciese.g.

Board of Directors

e.g. Project Managers

OUTSOURCING MANAGERS

ProfessionalExpertise

Support withspecialist

consultancies

GenericExpertise

Support withoutsourcing

e.g. Programmers

Clerks

The

Val

ue In

divi

dual

s A

dd to

the

Com

pany

Incr

ease

s


A Sourcing Strategy Process

Stage 1 - Initiation

Stage 2 - Information Gathering

Stage 3 - Capability & Criticality Review

Stage 4 - Sourcing Options

Stage 5 - Final Report and Strategy

COSTS

ORGANISATION

BUSINESS DRIVERS

Critical success factors

PERFORMANCE

MARKET


Sole-source vs Competitive tender?

Unique Solution?

Established/trusted business partner?

Time of Essence?

Independent VFM check if sole-source adopted


The Contract-Allow the Supplier Flexibility

Don’t be too prescriptive in how services are delivered

Focus on the end view of service



Contract Fitness for Purpose

• Services• Assets• People• Pricing

• Term• Exits• Change• Improvements

Detailed supporting documents, operating documents, procedure

manuals etc.

Appendices, SLAs, rvice

Descriptors, etc.

Future blueprint

Schedules

‘Hygiene’ level

UNDERPINNING BUSINESS RELATIONSHIPS

Contract


The Contract-Always Remain in Control

Define clear procedures for managing the Supplier

and the Agreement

Ensure that there is escalation in place

Build in effective recourse

Oblige the Supplier to run a CIP

Secure rights to service ‘configurables’

Retain publicity rights



A WIN-WIN SITUATION IS IMPERATIVE!


People & Innovation

Finance

The BusinessPerspective

Processes and Services

Effective supply management

Relationship Management

KPI / CIP ManagementKPI / CIP Management

Staff Awareness for Customer Focus

Staff Awareness for Customer Focus

Sourcing Strategy & Business Case

Sourcing Strategy & Business Case

Customer SatisfactionCustomer Satisfaction

Finance ManagementPrice Reduction Opportunities

Contract ManagementContract Management

Change ManagementChange Management

Service ManagementService Management

Legal FrameworkLegal Framework

‘‘The service does not provide what the business really needs’’

‘‘We don’t work well as as team and their people don’t add value’’

‘‘Not delivered on time or to the specification and it also did not work

any way’’

‘‘Too expensive and does not provide value for money’’

Finance ManagementFinance Management

Risk/Reward Schemes

Finance ManagementPricing Strategy

Assets & Liabilities

VFM Analysis

The Outsourcing KPIs


Key Tasks

Transition Measurement

/Reporting ‘Soft’ services Timely meetings Remedial plans No second- guessing Penalties - realism Quick wins/big hitters

Plan changes Check alignment SLA trade-offs Continuous

improvement

…Remember the contract and your business goals!!!


Sourcing Relationships can be complex ...

OutsourcingManagement

Team

Supplier

End Users

BusinessManagement

Executive

SpecialistAdvisers

Customers

Media

SupplierSupplier

ServiceIntegrator


Relationship Management

Establishing relationships at all staff levels within a

Customer / Supplier outsourcing scenario is critical

to the overall success of the relationship and the

customer’s perception of the quality of the services

being delivered



Key Tasks ….

Define Suppliers’ points of contact - ensure adherence

Establish unambiguous roles and responsibilities for the Customer, End-Users and Supplier

Regularly review in-house staff skills and numbers

Promote a continuing bond between Supplier staff and End-Users

Make the morale of supplier staff a customer concern

Sort out personality conflicts

Retain right to veto key staff

Ensure awareness, understanding and commitment from all parties

Define clear escalations

Involve end-users in performance assessment



Contract Management functions

PartnershipManagement

Contract

Managem

ent

Com

mer

cial

Man

agem

entTechnical

Managem

ent

Ser

vice

Inte

grat

ion

ProcessManagement



Leverage Mechanisms – (if things don’t always go as expected)

Escalation Penalties Unbundling Bad press Termination

Service reviews Planning CIP Gain shares Up-sell Good press Benchmarking

MORE!

WAR!



The Outsourcing Value Proposition

Outsourcer economies

Added benefits

$$$ $$

Http:// Outsourcing – Managing for Success Stuart Payne, Morgan Chambers Copyright © 1999 Morgan...

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