The Outsourcing LifeCycle Does Not Start With the Service Provider!

The outsourcing approach and process is not linear. It happens in cycles. Some portions of the cycle such as procurement receive intense focus while others are slammed into with dramatically negative consequence. As a buyer of outsourcing, you will avoid major pitfalls by working all phases intentionally. Even those phases that you may want to avoid need to be anticipated early (e.g. negotiating how to disengage).

The cycle includes

1.  Strategy
2.  Vendor Engagement and Procurement
3.  Transition and Transformation
4.  Steady-State Operations
5.  Disengagement/Re-engagement

If you are going through this for the first time, you need to plan for all phases. Previous buyers of outsourcing will recognize that business conditions can accelerate or slow the cycle (e.g. merger/acquisition, business changes, vendor issues).

Outsourcing does not start with the service provider; ultimately, it is all about you, the buyer of services! Each phase should reflect that.

Outsourcing Strategy

Everyone starts with a decision to examine or pursue outsourcing. It goes back to our Four Horsemen of Outsourcing. You have a need and somehow outsourcing comes into view as an option. But why doesn’t it start before that? Why doesn’t corporate strategic-planning examine its initiatives for the same needs that one or more of the Four Horsemen deliver?

Use your corporate strategy as the starting point. Look at your evaluations of what your own strengths and weaknesses. Review what you face in threats or opportunities. Then frame your motivations for outsourcing in the context of strategic initiatives. That is the best place to start – with strategy and planning. Then the inclusion of outsourcing within strategic initiative(s) drives a view of the value you need to gain. Doing this first enables you to pick from the right set of potential service providers with a well-ordered set of criteria, expectations, and cautions that support your strategy.

Service Provider Engagement and Procurement

Once the strategy frames your outsourcing engagement, then the procurement portion of the cycle begins. Many folks have jumped right into procurement when they allow a service provider to nudge or shove them with proper deliberation. Vendors do so to control the conversation, your decision, and their outcomes. Recognize that outsourcing, and, to a lesser degree, out-tasking, is a significant decision. Make sure you have full knowledge of your needs, boundaries, and urgencies that you must address with any transaction.

This phase should start after your strategy fully informs your effort to outsource and before vendors are contacted about the needs you have. Even selecting vendors to participate must be sensitive to how different vendor-types will behave, interact, be motivated, and even price, what you require. (Watch for our upcoming article on vendor types.) The process of actual service provider engagement can be the most time consuming and tedious, but it need not be the most difficult. Good strategy, well stated requirements, and solid, defined objectives will make this process flow through a good procurement methodology.

Transition and Transformation

Many advisors, and even many managed service providers, have expressed to us directly that the time between a contract signature and a state of steady operation is not a phase. We argue that it is because it affects you the customer, dramatically. There is potentially a lot of change. If you are going into outsourcing to reduce cost you will likely reduce labor cost, and possibly reduce staff populations. If you are going into outsourcing to add capability or capacity, new faces or skills are going to be introduced into the fabric of your business. Of course, if you are going into outsourcing to catalyze any type of change, and that must be managed to keep the business humming. (Watch for the series on transition and transformation that will be starting shortly here.)

There are essentially two sides to this phase. Everyone experiences the transition side. Transition is the sequence and process that you go through to bring the service provider into your business. It includes everything from making space for a vendor cabinet to providing network access and charge-back codes. It is what sets up the governance of your future on-going relationship and the presence of the vendor within your support systems and value-chains.

Transformation is any activity that actually serves to effect change in the target services. For example, if you have simply moved staff from your books to a service provider and operations continue with little change after that, you have very little transformation occurring. But, if you engage a service provider, who in the course of this phase (or even longer), migrates your infrastructure to the cloud from a company data center, then you have major transformation occurring. So, measure how this phase causes change. If you hired the service provider to catalyze change, you will have a transformation component.

If you were wondering, each of us has been part of organizations that have vacillated on the definition of this phase (or even if this phase really exists). We have been part of procurements where third-party advisors defined it still differently. The “discussion” on the definition can be extraordinarily vigorous. So, our advice is select your definition, recognize that the introduction of a service provider has two facets – the knitting of the provider into the business, and the level of change their unique service delivery approach to your requirements will cause. Set the definition, state it up front, stick with it, and make sure your own staff, any consultants, and the vendors know this is your procurement, not theirs.

Operations and Delivery

Operations and Delivery of the services you have negotiated are the point of the contract. And, if all preceding phases have been executed well, and the service provider is one of integrity and true interest in your success, Operations should go well also. Some types of outsourcing such as application development or systems integration have something more like transformation occurring during this phase. But if that is steady and intentional by you and the vendor, we tend to call that Operations. Sometimes however, services are simply dramatic and invoke change by their nature (e.g. ERP implementations). As a result, we recognize that the nature of your objectives for outsourcing can actually shift the sizes of these phases. They aren’t ever planned to be of similar duration or cost. They reflect strategy, procurement, enablement, implementation, and completion for whatever outsourcing domain you are entering.

Dis-Engagement or Re-Engagement

Most folks don’t look this far forward in the lifecycle. And frequently the folks who started with the outsourcing procurement are not even present during operations. Those who do may actually experience reengagement (renewal). Very few experience disengagement. Some of the reasons that disengagement is such a rare experience; instead, your path through the lifecycle enters renewal after renewal. That can occur when you discover that those ahead of you in the outsourcing process did not prepare during early phases for the end of a contract . Honestly, if the vendor has been doing a good job for you, you may find that ripping them out will have serious consequences for your value chain.

To be clear, an outsourcing service that becomes a critical component of your business may be what you needed when you started. But there are vendors that exploit this dependency. For example, a service provider that has migrated your entire server and storage estate to their data center has you pretty tightly in their grasp. Some may start reducing staff with some consequent reduction in your service quality. Whatever the reason, anticipated or not, this phase has to have its solid preparations back in the procurement phase of outsourcing. The contract is your ultimate protection including the ability to repatriate assets and people and reassemble your own services. (We will talk more about the service provider objectives when we discuss engagement and procurement).

Repatriation/disengagement can be tough. We plan to talk about it more here and include comments from some of our best friends that specialize in it. For now, we want you to recognize, that whether you are renewing your contract, going to someone new, or bringing something back in-house, you are very nearly back at the start of the outsourcing life cycle because you have to evaluate how well the relationship(s) have met your original strategic goals and motivations. As you make that calculation, you must also start the formation/reformation of the next cycle’s strategic objectives.

The processes in this phase can overlap and input directly into the strategy phase. The unique elements are those that plan for the movement from the original set of objectives to the new ones. They must now include any reconstruction of your own capability .

Breaking the Cycle, or Cycling Back!

We plan on discussing our methods for dealing with each of these phases including what our planning embraces. Watch for more here as we ramp up the discussion. Join the conversation or send us your questions. Our hope is that we can share what we have seen and enable anyone who is looking at outsourcing to go into it with awareness of what you are headed into and with knowledge of the variety and behaviors of outsourcing service providers.