Investing in Transition Plan 278071

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G00278071

Investing in Transition Planning Will MaximizeSuccess for Managed Services OutsourcingDealsPublished: 11 September 2015

Analyst(s): Ruby Jivan, Frances Karamouzis, Neil Barton

When transitioning to a managed services delivery model, changemanagement planning is critical to success. Sourcing managers shouldestablish "go/no-go" criteria, including well-defined roles for the retainedorganization, and get stakeholder sign-off prior to initiating the transition.

Key Challenges■ Many outsourcing engagements take a long time to reach a steady state due to the client's lack

of change management and outsourcing readiness, resulting in challenges in the productionenvironment and difficulty meeting agreed-on service levels.

■ Outsourcing requires retained organization planning, including the definition and communicationof new roles and responsibilities needed during and after transition. Failure to do so oftenresults in duplication of effort, which may reduce or negate the value of the outsourcingendeavor.

■ Outsourcing success requires IT service managers to have competencies in leadership.Awareness of a siloed mindset and a culture of blame when overseeing delivery outcomes willrequire motivating the collective teams to meet business expectations.

RecommendationsSourcing managers working with IT service managers should:

■ Define transition activities, including change management actions and outsourcing readinesscriteria, in the sourcing strategy document for people, process and technology areas, andensure these are signed off on before initiating knowledge transfer.

■ Document and gain consensus with all stakeholders on IT service lead and service providerdelivery lead roles and responsibilities, and tie both roles to common business success keyperformance indicators (KPIs) to drive collaboration and team effort.



■ Conduct joint collaboration sessions and informal gatherings during the transition effort withbusiness subject matter experts (SMEs), IT service managers and corresponding serviceprovider teams to build rapport. Know the culture (when using offshore services), and developcollaboration work plans for operations, setting a tone for the long-term partnership.

Strategic Planning AssumptionBy 2017, buyers will have shifted as much as 50% of their sourcing portfolio to managed servicesmodels.

IntroductionGartner research reveals that, in 90% of enterprise buyer scenarios, time and resources in theweeks and months prior to the outsourcing deal start date are consumed with two key efforts. Thefirst is the evaluation and selection of the service provider (including long lists, shortlists, RFPs,reference checking and vendor scoring). The second effort is the pricing and contract negotiations.By far, the most overlooked and underserved effort is change management planning. Gartneranalysts estimate that this is the single largest cause of failed outsourcing projects and poor userexperience, resulting in misperceptions of the sourcing organization's capability to manageoutsourcing deals.

The three main sources of missteps in the transition process include:

1. Organizations assume their service provider will deliver a complete transition plan and program

management plan.1

2. Organizations underestimate the magnitude and impact of the change management efforts thatwill be required.

3. Organizations fail to recalibrate competencies and define the retained organization that will berequired for the new normal that will be responsible for ongoing management and governance

(including risk, performance and vendor management).2

As illustrated in Figure 1, Gartner provides research on building a comprehensive transition plan (see"IT Vendor Transitions Require Careful Planning and Management to Minimize Disruption").

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Figure 1. Components of a Comprehensive Transition Plan

Source: Gartner (September 2015)

This foundational, best-practice research concentrates on the components of an effective transitionplan and the client's responsibilities in transition planning. In this research, we will concentrate onchange management planning that is critical to the success of the transition and buildingrelationships during the transition to ensure the success of ongoing operations.

Analysis

Define and Confirm Change Management Action Plan

Service providers often provide an overview of transition planning during the sales process.Although their approaches for defining and executing the transition plan may be comprehensive andbased on thousands of hours of experience, the client cannot simply use a provider's plan "as is"and expect a successful transition. Each organization has a unique starting point of collectiveknowledge, experiences and culture within its IT department and end-user community. Thus, it iscritical that the client organization ensures that service provider assumptions are correct andrealistic. Furthermore, service providers develop transition plans from their own perspective. Theseplans concentrate on knowledge transfer, rather than the client's internal readiness and changemanagement execution. The client organization must work with the service provider to develop atransition plan that meets both parties' needs.

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In their proposals, providers usually state the responsibilities that they assume a client will takeduring transition. Yet many clients do not budget for or assign resources to the transition phase, nordo they take the time to develop go/no-go criteria to ensure organizational readiness beforeembarking on the transition plan. Lack of planning on the client's side usually delays transition, andtherefore increases the time required to achieve business outcomes from the outsourcingengagement.

Change management requires even more care when transitioning from one managed services dealto another, because responsibilities must be coordinated not only with the client's retainedorganization, but also with two separate providers. This is especially so when the scope of the newprovider's services are different from those of the old provider.

Any time a service scope is transitioned to an external service provider in a managed servicesdelivery model (see Note 1), it is critical that the sourcing team and IT organization come together towork on the following:

Organization Readiness — Define Retained Organization: Examine the delivery organization toclearly define the retained roles and new accountabilities. Since the provider takes on jointresponsibility for day-to-day operational delivery, the client organization needs to identify theretained roles; assess and select the competent resources; and move their resources to strategicactivities of business relationship management, demand management and service management.The retained organization structure and competencies should be addressed, and resources withappropriate skill sets should be identified to oversee the provider delivery (see "RetainedOrganization Planning Is Critical to Successful Application Outsourcing").

When assessing and selecting service managers, it is critical not only to evaluate competencies, butalso to communicate the new roles and responsibilities and incentivize the retained organization tomake the outsourcing deal and the provider successful. For example, a senior developer assignedto a service management role might have the domain skills to oversee enhancements and ticketresolution. However, if he does not have the necessary relationship management or vendormanagement competencies, his tendency may be to tell the provider how to perform its day-to-daytasks, thus defeating the managed services delivery model. Additionally, if his new role is not well-defined, and there is no incentive for the retained team to make the vendor successful, he maychoose not to delegate the work for fear of becoming redundant and losing his job, or may simplyquit. Even worse, he may attempt to compromise the service provider's performance in hopes ofgetting the work brought back in-house. To prevent this type of behavior and ensure the success ofthe outsourcing program, Gartner recommends developing an incentive structure for the retainedorganization, payable on successful completion of the transition action plan and achievingoutsourcing business outcomes. For more information on the 10 competencies required for theservice managers to ensure success, see "Ten Competencies and Key Activities for MasteringMultisourcing."

Process Readiness — Ensure a Well-Defined Scope of Work and Service ManagementProcesses: It is critical that the scope of work (SOW) is well-defined, and outcome expectations aremutually agreed-on and documented in the contract (see "Toolkit: Outsourcing Application ServicesStatement of Work Template"). The role of the client in a managed services model changes fromtelling resources how to perform a task to telling them what outcomes are expected through




prioritizing demand (see "Enhancing Sourcing Demand Management Can Improve StakeholderEngagement and Influence"), monitoring outcomes and providing end-to-end governance (see"Joint Governance for IT and Business Process Outsourcing Will Enhance Service Delivery"). Thus,it is important to clearly define and document service management processes for prioritizing work,escalations, reporting, cross-supplier integration and ensuring the tools the provider will use are inplace.

Technology Readiness — Identify Technologies Needed and Timeline to Readiness: Since themanaged services provider is responsible for ongoing service delivery and has financial riskassociated with missing service levels, it is critical that any client tools used for monitoring andreporting are identified, and plans are in place to implement and configure these tools based oncontractual commitments. The implementation and configuration of these tools should be part ofthe go/no-go checklist to determine the readiness to move the transition to a steady state. This willensure that, during the steady-state (see Note 2) period of transition, the provider is able todemonstrate SLA compliance and provide accurate reporting (see "Top Three Service-LevelManagement Next Practices").

Recommendations:

Sourcing managers working with their IT service managers should:

■ Define and document the process, organization and technology readiness activities required toinitiate transition and use these as go/no-go criteria for transition. For example:

■ Organization Readiness

■ Retained organization's competencies and structure defined and staffed

■ Personnel incentivized to make the deal successful

■ Stakeholders' expectations realigned for new service delivery environment

■ Process Readiness

■ Service management processes defined, communicated and used by all service trackleads

■ Clear governance structure documented and communicated

■ Technology Readiness

■ IT Service management (ITSM) systems and tools defined and ready prior to thecompletion of the transition (including ticketing, reporting, monitoring and so on).

■ The right SLAs are agreed on, and the ITSM tool is configured for SLA reporting.

■ Build incentives into the performance objectives of the service managers to make the providerand the outsourcing program successful.




■ Ensure that service managers have both the domain skills and service management skillsnecessary to create a collaborative and diverse team environment.

■ Always keep a balance between stakeholder expectations and supporting the provider inmeeting delivery outcomes.

Define and Communicate the New Roles and Responsibilities, and Tie Them toService Management KPIs

In a managed services outsourcing engagement, there are usually corresponding client and providerservice managers who must work together to meet service delivery objectives. However, manyclients don't ensure internal service managers have a clearly defined role, leading to either a steeplearning curve or the internal service delivery manager duplicating the work of the service provider,instead of managing it. The lack of defined expectations and communication exacerbates the

problem, resulting in a blame culture and relationship breakdown.3

Once the roles and expectations are defined, tying both roles to common KPIs ensures a teammindset and collaboration between client and provider to meet business and outsourcing programoutcomes. Table 1 is an example of the roles and responsibilities that should be clearly defined toset expectations and KPIs that can be jointly undertaken to enable a successful outcome and fostera team mindset.




Table 1. Example of Roles and Expectations for Client and Provider Service Managers and Common KPIs

Performance Area andCommon KPIs

Client Service ManagerResponsibilities

Provider Delivery ManagerResponsibilities

Governance

■ Demandmanagement — Xmonths' forward-looking demand planprovided to serviceproviders

■ Effectiveprioritization ofenhancements usingthe contracted hours

■ Ensure, quality of theenhancements —that is, no problemsin production

■ Percent processenhancement andimprovementprojects identifiedand completed

■ Leads monthly andquarterly governancemeetings to drivecontinuous performanceimprovement with theprovider

■ Ensures that quarterlymeetings provide time forthe provider to discussenhancement andinnovation projects, andfor the steering committeeto provide decisions onproject proposals

■ Keeps joint governance(multiservice provider)quarterly meetings thatconcentrate on businessoutcome delivery and KPIs

■ Provides feedback onteam collaboration andsuccesses

■ Co-leads monthly andquarterly governancemeetings with servicemanager, ensuring qualitytime is spent on forward-looking demand andcontinuous improvement

■ Ensures that quarterlymeetings includeenhancement andinnovation projectdiscussions andapprovals

■ Ensures that joint-governance (multiserviceprovider) meetingsconcentrate ondemonstratingcollaborative effort andsuccesses in businessoutcome delivery

Efficiency

■ Expectedproductivity (3% to5% productivity yearover year) isachieved

■ Quarter-over-quarterimprovement inservice delivery anda reduction in SLAmisses

■ Percent reduction inrepeated incidents/tickets through root-cause failure

■ Co-leads daily/weeklycalls with on-site/offshoreprovider track team toreview the status ofservice tickets

■ Supports the providerduring incidents inengaging with SME/enduser and takesaccountability for serviceissue communications,while the provider is heldresponsible for activities tobe completed

■ Leads daily/weekly trackmeetings to keep abreastof incidents/escalation,and ensures that onshore/offshore teams areactively resolving issues

■ Conducts a middayreview with onshore/offshore teams to getupdates on critical ticketsand escalations, andcommunicates proactivelywith the client SME anddelivery manager




Performance Area andCommon KPIs

Client Service ManagerResponsibilities

Provider Delivery ManagerResponsibilities

analysis and cross-vendor collaboration

■ Percent utilization ofagreedenhancement hours

■ Leads weekly/bi-weeklymeetings with businessSME and provider trackteam to review andprioritize minor changes/enhancement requests,and ensures thatrequirements are well-documented beforesubmitting to the providerfor estimation

■ Coordinates demand fromSMEs and develops X-month forward-lookingplan for changes

■ Escalates effectively/proactively to bothinternal and clientleadership, and has arecommended solution/option available

■ Participates in bi-weeklyenhancementprioritization meetings tounderstand the team'sworkload, challengesclient effectively asneeded and ensures thatagreed-on timelines canbe met

■ Identifies root causefailure analysis andactions that must betaken to eliminaterepeated tickets

Relationship Management

■ Year-over-yearimprovement inengagement health-check score (see"Toolkit: OutsourcingHealth CheckAssessment")

■ Customersatisfaction SLAPercent ofescalations (to thegovernance board)not handled at thefirst level

■ Acts as a liaison andshield provider fromunreasonable demandsand unsubstantiatedmistakes

■ Acts as a promoter of theoutsourcing program, anddemonstrates "one-team"behavior when dealingwith end users andbusiness stakeholders

■ Proactively and informallymeets with client trackleads and deliverymanagers to developrapport and understandconcerns

■ Acts as a mentor andguide to the onshoreteam, and supports theoffshore team witheffective communicationduring escalationmanagement

■ Ensures that seniorleaders are kept aware ofthe engagementsuccesses and challengesso there are no surprisesin quarterly governancemeetings

Source: Gartner (September 2015)




Utilize Transition Time to Build a Collaborative Relationship Between the Providerand the Retained Organization

Many outsourcing engagements include the offshoring of transactional and repeatable activities totake advantage of labor cost arbitrage, global delivery coverage and ease of scalability. This oftenresults in a diverse team with multicultural resources working in different time zones and speakingdifferent languages who are, nevertheless, expected to act and work as one team.

Since transitions typically last four to six months, clients and providers should conduct jointworkshops and activities to build the relationship and plan out how the service management teamwill operate after the transition. For example, when the provider team is on-site for transition kick-offplanning, schedule an informal team get-together to facilitate introductions over a cultural meal.Both teams should participate in ice-breaker activities, where they introduce themselves and shareabout their family, interests and achievements. Plan for success celebrations when milestones aremet, such as knowledge transfer sign-off or moving into a steady state.

Those who are working off-site during the transition should be included via videoconference forstatus meetings, as well as milestone celebrations. Onshore teams should be mindful of thescheduling of these sessions to ensure maximum off-site team participation.

Transition newsletters are also a good way to share accomplishments, provide updates on transitionactivities and celebrate milestones. This can also be a good forum to celebrate and announcebirthdays and company anniversaries.

Before completing the transition, both client service managers and provider delivery managersshould develop a collaborative working plan to ensure that the relationships and rapport developedduring the transition continue into ongoing operations, and to enable new team members to bebrought into the fold as offshore teams expand. The key to collaboration across organizational andgeographic boundaries is to implement initiatives in the following three areas, so that people andthe enterprise alike realize the benefits (see "Degrees of Separation: Strategies for Collaboration").

■ Remote working practices: Establish remote working practices by managing technology andby creating rules of engagement that ensure that all involved know what to expect from eachother.

■ Development of integration abilities: Develop integration abilities by recognizing that workingacross boundaries requires special skills that involve self-discipline and working with others.

■ Leadership of change and cultural sensitivity: Lead change and cultural sensitivity by payingclose attention to the easily overlooked human factors of cross-boundary collaboration.

Service managers on both teams, therefore, must develop collaborative ways of working, using allthe technological tools available (instant messaging, screen sharing, Web/video conferencing andso on) to ensure that the teams are engaged, developing good working relationships and buildingcamaraderie. Understanding and promoting awareness of the cultural drivers and motivations ofeach team can provide an additional dimension for service managers to help improve delivery.




Recommendations:

Sourcing managers should assist the IT service teams to:

■ Develop cultural awareness from the start of the engagement. Make sure that transition teamsthat come on-site for knowledge transfer have sufficient time to get to know each other andbuild rapport, and use some sessions to develop ideas on how to improve teamwork.

■ Get feedback from both teams on how interactions can be improved, and put some of the ideasin motion so they are ready for steady-state implementation.

■ Build collaboration into operational activities; for example:

■ Agree to host regular town halls when client leads are visiting delivery centers.

■ Develop integrated teams to target opportunities for innovation.

■ Consistently reward teams versus individual heroics.

■ Develop team competitions to instill a culture of collaborative, continuous improvement.

■ Measure, reward and celebrate collaborative team success.

■ Publish monthly newsletter to share success stories and team news.

Case StudyA midsize pharmaceutical Gartner client outsourced its ERP application maintenance support to anexperienced service provider in a managed services commercial model using onshore and offshoreteams. The transition was expected to complete within three to four months, and the clientexpected to be in steady-state operations within six months. Nine months after transition, theservice provider was still struggling to meet SLAs, and the client's retained organization continuedto manage the service, resulting in a quick deterioration of the relationship and the retainedorganization blaming the provider.

After a couple of inquiry calls with a Gartner analyst, the client requested that Gartner conduct ajoint workshop to understand the root cause of the failure and help identify actions needed. Usingthe Gartner "Toolkit: Outsourcing Health Check Assessment," and conducting interviews with bothclient service managers and provider delivery team, the Gartner analyst determined that the clientdid not define and communicate the new roles and responsibilities for its retained team, nor did itmake stakeholders aware of the new retained organization structure. In addition, the client failed todocument and communicate operational and governance processes, and did not have the ITservice management system in place to capture ticket service levels.

The results of the assessment were shared at the workshop, and both teams were put to work toidentify and prioritize the key challenges in people, processes and technology for each service area,with action plans assigned to both parties. The engagement leaders from the client and the provideragreed to make the personnel changes necessary to put the appropriate competencies in place,and defined the timeline to complete the process and governance documentation and address




communication plans with stakeholders. A two-month follow-up call with Gartner showed that themajority of the areas had reached a steady state, with one area still in progress under theimprovement plan. Both parties were happy with the progress, and the relationship between theteams has improved significantly.

Gartner Recommended ReadingSome documents may not be available as part of your current Gartner subscription.

"Toolkit: Orchestrate Detailed Multisourcing Service Integration Roles and Responsibilities to MeetBusiness Objectives"

"How to Prepare for Staff Transfer in Outsourcing Deals"

"Toolkit: Outsourcing Contract Transition and Transformation Plan"

"Toolkit: Outsourcing Application Services Statement of Work Template"

Evidence

1 "IT Key Metrics Data 2015: Key Outsourcing Measures: Outsourcing Profiles: Overview" Figure 6shows the maturity approach to outsourcing, with 66% of outsourcing buyers either beginners orusing a tactical approach to sourcing.

2 Gartner analysts took 269 calls on the topic of outsourcing transitions and transition planningduring the past 12 months. Inquiry calls on this topic are predominantly from very large firms (44%of calls), government (20% of calls) or small enterprises (10% of the calls). The U.S. geographyalone accounts for 50% of all inquiry calls on this subject, followed by EMEA and Asia/Pacific.

3 Based on client inquiry data, 269 inquiries were made from January 2014 through July 2015regarding application outsourcing roles.

Note 1 Managed Services Delivery Model

The managed services delivery model has the following attributes:

■ Scope-based services delivery is used where the delivery risk to agreed outcomes is sharedwith the provider.

■ The provider assigns and manages its resources to ensure the agreed SLAs are met.

■ Performance is managed through negotiated SLAs, with specified outcomes and deliverables.

■ The model has financial risks and rewards for the provider.

■ The model requires joint governance among the provider, IT and client teams.

■ The contract includes plans for continuous improvement and partnership.




Note 2 Transition Phases — Steady-State Phase

Phase 1: Transition Planning — Provider performs due diligence and develops a transition planwith client transition team (approximately four weeks).

Phase 2: Knowledge Transfer — Approximately 12 to 14 weeks.

■ Transition Execution — Provider resources are on-site, reviewing procedures and documentingthe as-is process. The provider resources watch the client resources perform the tasks(approximately eight to 10 weeks).

■ Parallel Run — Provider resources take over operations, while the client resources superviseand provide support/guide (approximately four weeks).

Phase 3: Steady State — Provider resources manage operations, with minimum direction from theclient. SLAs and metrics are gathered monthly and reported, but no penalties are assessed(approximately eight to 12 weeks).

Phase 4: Ongoing Operation — Provider manages operations, meeting service levels, andpenalties are in force.




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Investing in Transition Plan 278071

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