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CIOs need to rethink how they're managing outsourcing transitions

The old rules for managing outsourcing transitions no longer apply. Here are three nontraditional approaches to help ensure maximum benefit when switching outsourcing providers.

When transitioning from one IT service provider to another, the CIO's foremost goal is to maintain a stable, cost-effective and efficient IT environment. As the IT landscape has become more mature with flexible, scalable solutions and specialized offerings, more companies are finding that many of the traditional rules that previously governed outsourcing transitions don't always apply.

Here are three progressive approaches that will help CIOs ensure a stronger steady-state IT environment when managing outsourcing transitions.

  • First, rethink how to manage the relationship between the incumbent resources and the incoming service provider.
  • Second, allow for some steady-state scope flexibility (for both application scope and support activities) instead of locking in requirements immediately.
  • Third, don't contain transition issues only within the company's technical team -- instead, also involve business stakeholders so they, too, have a vested and strategic interest in solving them.

With these methods in place, IT teams are better positioned to maximize the benefits of today's ever-evolving and digitized IT environments.

1. Rethink relationship between incumbents and incoming provider

The traditional thought process in managing outsourcing transitions has been to replace incumbent resources with new service provider resources as soon as possible to glean faster savings and maximize the time for a new service provider to connect with internal teams (for a better understanding of the company's corporate culture, etc.) A quick transition, it is thought, will also mitigate the effects of poor morale from the departing resources.

Nate BunivaNate Buniva

However, this traditional approach overlooks the value of incumbent resources when changing outsourcing providers. The institutional knowledge these resources have gleaned from serving in their roles for several years can be an incredible asset for the incoming team. As they already know the company's corporate culture, systems, processes, etc., it would be a huge loss to dismiss these resources prematurely.

To be sure, it is important to identify which of the incumbent resources are deeply familiar with your organization's critical IT applications, infrastructure, systems and so on. Once identified, CIOs should consider extending the contractual end date for these resources to several months beyond the program "go-live." The negotiation should be done early in the transition process.

Gordon WongGordon Wong

For managed services where specific resources cannot be extended, the company should consider extending the overall existing contract. Even a period where the company is double paying for services could be an investment in the stability of the transition and steady-state services.

The relationship between departing incumbents and incoming supplier resources can be a delicate one for CIOs to navigate; however, by closely monitoring the relationship with daily huddles and providing guidance to both parties, CIOs can take advantage of this additional investment to achieve a far smoother transition. The arrangement offers incumbent resources more certainty in their short-term future and can help preserve their motivation; knowing they are needed beyond the go-live for additional support should foster a more productive relationship when training and working with the new service provider. The cost of this "insurance" generally has a negligible financial impact compared with the cost of business disruptions resulting from ill-managed outsourcing transitions. We recommend the investment in retaining key incumbents should be included in business cases/financial modeling.

Post go-live, incumbent resources can provide value in two areas. First, they can lend their experience and leadership for critical incidents or other emergency situations where the new supplier lacks experience -- further mitigating risk of business disruption. Second, they can help reduce existing backlog or support the new suppliers in other day-to-day management activities, so the new supplier(s) can focus on providing support more efficiently and effectively.

2. Managing outsourcing transitions: Be flexible on scope

Many project managers believe the key to a successful go-live is to lock in the steady-state scope immediately as it sets the focus of the project. After all, no one wants to manage a moving target. However, many CIOs have benefited from adopting a more flexible scope when managing complex outsourcing transitions, specifically in the IT applications environment. Because most IT environments consist of highly complex systems with multiple communication linkages, mapping out all the integrations and dependencies can be difficult. By keeping the scope flexible, companies and their service provider(s) can adjust the scope as they learn more about the environment including:

  • Are the right systems being prioritized?
  • Is the sequencing of the transition optimal (i.e., will something break if the transition is performed out of order)?
  • Should certain systems be de-scoped (based on complexity, pending retirement, inflight projects)?

There is no other time when a support team performs a better comprehensive in-depth review of the environment than during a transition period, which is why this information should be fed back to the planning team to refine the scope. To implement this practice, the project manager must work closely with finance to ensure that the financial objectives are met with each scope refinement (generally an issue when reducing scope, as it oftentimes leads to reduced savings).

3. Engage the business in problem-solving

Engaging the non-IT stakeholders (generally including customer-facing business units) throughout transition is another progressive method for managing expectations. However, because transitions can be turbulent, CIOs and other IT stakeholders generally try to contain the issues within the IT organization to prevent further anxiety, instead of focusing on driving benefits to the business. They may believe that managing a transition is stressful already and that allowing external IT stakeholders to see the day-to-day issues will further exacerbate the issues. Although this method allows IT stakeholders to manage communications in a controlled environment, it does not take advantage of the business process knowledge that non-IT stakeholders maintain.

For this reason, companies are beginning to engage senior business leaders throughout each phase of transition, with some companies even assigning accountability to the business. Further, IT should work with the business to ensure a common understanding of expected business outcomes, which may include reduced business downtime and a higher degree of self-service (resulting in quicker response and resolution times). Involving key business leaders can provide tremendous IT outsourcing transition value by:

  • Clearly articulating the business impact of risks and issues (e.g., downtime for System A may not be an issue because it impacts a warehouse with excess inventory levels, but downtime for System B is a critical issue because it impacts a warehouse with limited inventory).
  • Defining mitigation strategies through adjustments to business processes (e.g., business leaders can adjust certain components of a business process to be performed manually as a mitigation for systems downtime).
  • Defining test cases and performance results that matter most to the business.
  • Managing communications and expectations to the rest of the business (as the non-IT stakeholders can serve as change management champions for the transition).

In addition to a successful transition, this strategy facilitates a stronger sense of partnership between IT and the business.

IT outsourcing transitions have followed via traditional approaches for decades, all with varying degrees of success. However, progressive methods such as utilizing incumbent service providers, allowing scope flexibility and collaborating with non-IT stakeholders can yield better results with the right approach. Before embarking on a new IT outsourcing transition, consider these techniques to achieve a stable transition and efficient steady state.

About the authors
Nate Buniva is an associate and Gordon Wong is a director at Pace Harmon, a leading business transformation and IT outsourcing advisory services firm providing guidance on complex transactions, process and operational optimization, and provider governance. Wong and Buniva provide pragmatic and insightful advice that helps Pace Harmon's client base of Fortune 500 and other large enterprises optimize performance, productivity and cost.

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