Transition: Six Factors Determining Success or Failure
In the world of outsourcing and managed services, the term ‘transition’ has become associated with complexity. It is viewed as a distinct phase in the customer – provider relationship – and a phase where things often go wrong. Why has it earned that reputation and how might it be improved?
Transition occurs immediately after contract signature and before services go fully live. Depending on the nature of the service, it may involve tough and painful actions – for example, the reallocation or elimination of resources, transfer of work and introduction of new technologies and procedures. As with all major change programmes, there will be resistance and potential for discord. But these issues could be overcome. Unfortunately, there are other factors – all avoidable – that make such transitions especially painful and prone to failure. This article, based on extensive IACCM research, will explore six of those factors and ways they can be avoided.
The number one issue identified by customer teams is the lack of consistent and qualified leadership . Executives frequently underestimate the impact and implications of outsourcing or managed services contracts. They fail to appreciate the politics, the emotions and the tough decisions that must be made. Their teams are frequently led by people without the right leadership qualities (they are managers, not leaders) or by executives who simply cannot allocate enough time and oversight. In the opinion of experienced teams, this is the number one weakness in both the pre-award and post-award phase. They need someone who understands and can influence strategy, who is able to create and maintain the vision and goals of the initiative and who has rapid access to senior executives when required. All too often, they get a senior functional manager who understands the existing operations and probably has a sense of the services required – but is emotionally attached to the old ways, the old people and old relationships.
Transfer of responsibility
Weaknesses in the transition team are a frequent source of problems . Research shows that neither side is good at maintaining continuity between the 'deal team' and the 'delivery team'. This is especially true of providers. Very often the transition/delivery personnel are introduced only in the very final stages of the deal set-up. 'Best practice' companies try to ensure that key personnel are involved for at least 6 weeks prior to contract signature. Without this, they are not familiar with the negotiations, they may disagree with some of the commitments made, and have had no chance to influence outcomes. Depending on the quality of the records, they may find themselves effectively renegotiating large parts of the deal, or spending time on clarification of requirements, goals and commitments.
Why does this happen? One key reason is that many customers are driving such a hard bargain on price that it is simply unaffordable for the vendor to commit resources before the deal is won. This is a classic example of the price-versus-value debate; and in this instance, both sides lose out.
Unclear or contradictory goals and/or requirements
Many customers are very confused about their goals. They specify that they want one thing (e.g. increased value, innovation), but negotiate another (e.g. cost reduction). Some 25% of customers recognise this weakness; nearly 50% of providers feel it to be the case. Without consensus in the customer organisation, it is obviously very hard for the provider to plan or resource effectively. Research shows that outsourcing typically does deliver cost benefits - but frequently disappoints customers longer-term because of failures in quality, added value or innovation. Glance at the typical measurements or governance system put in place by the transition team and you will find many deals focus on the wrong things.
Negotiation focuses on wrong topics
Outsourcing and managed services are in many cases strategic relationships. Treating them as commodities means that the customer must accept far more responsibility for outcomes (yes, you do get what you pay for). Many negotiations are soured by confrontations over pricing and risk . This can be especially true when third parties are involved and not given clear direction - or even worse, are directed to terrorise the provider. Good negotiations will have focused on clear requirements and a robust on-going governance system, rather than getting bogged down by debates over liquidated damages, liabilities and indemnities. Adversarial negotiations sour the relationship and frequently fail to create a relationship framework. This results in a revenge / recovery environment, where neither side trusts the other and each is unwilling to impart information or show flexibility. If you spend too much time planning for failure, guess what you get?
Insufficient focus on cultural compatibility
Given the weaknesses outlined above, it is perhaps no surprise that many relationships have not adequately considered the extent to which the organisations are compatible. Do they share similar values and culture? Do they have the necessary complementary skills? Do they have a record of investing in relationships (or do they prefer an environment of blame and dispute)? Too often, the transition teams are the ones to discover that there really is no good relationship fit - and they are then left trying to meld incompatible organisations. Often, the relationship should be rapidly unwound - before it becomes a lose-lose deal. But not many transition teams have the courage or authority to make that decision. Perhaps they should.
Too much ‘agree to agree’
Compounding the imprecision of requirements is the scenario of 'agree to agree'. Under pressure to get the deal closed, or because of the time spent on battling over prices and risk terms, many negotiation teams find themselves deferring major aspects of the contract and relationship to be resolved by the transition team. This causes major hold-ups - not least because transition teams may lack the skills and authority to resolve the issues. And of course, this team then runs out of time - so transition planning is compromised. Often such situations result in wide-scale adoption of the old customer process - which leaves both sides exposed to probable failure and disappointment.