Transition Part 4 – Managing Risk

There are going to be risks involved throughout any outsourcing engagement, but they are greater during the early days of transition than at any other point in the life of the contract. No matter how well both the client and the service provider have planned for transition, there are so many variables present during the initiation which increase the risk of a negative impact on service. If there have been preliminary steps taken to establish a good working relationship, mitigation activities will have been discussed already, but the fact remains that both parties must be vigilant during the initiation of transition, and flexibility will be required. 

The nature of the contract will have a great deal of influence on the degree of risk in this stage. Of particular note is the primary reason the client has chosen outsourcing as a solution for current or anticipated issues: 

Impacts of Reasons for Outsourcing 

The transition planning of the various teams will look to the mechanics of moving services. However, as previously covered, you need to look at the strategic reasons for outsourcing.

Financial

If this is the driver for the decision to outsource, the client should be sensitive to activities which point to either anticipated savings or to increased effectiveness. It will be effort well-spent for the client to take this opportunity to begin gaining familiarity with the service provider’s processes and activities. Even at the beginning of the engagement, there should some indication of awareness by the service provider of the client’s strategies. 

Change Catalyst

If, on the other hand, you have chosen outsourcing as the catalyst for effecting change within your organization, transition is the proper time to begin evaluating their effectiveness in such areas as communications and training. Both will be required for lasting change. In some ways, this can be the most difficult objective to attain, or to measure progress. 

Capability

Many businesses choose outsourcing as a method for acquiring capabilities which they do not currently possess, without the costs, risks and stresses associated with developing them in-house. As a client who has chosen this reason as the primary driver for outsourcing, you will already have at least a general idea of what those capabilities are. Once the service provider begins to assume responsibility for service provision, there is the first opportunity for the client to begin a detailed understanding of those capabilities and for the actual impacts of those capabilities on business objectives. 

Not all of the capability enhancements will necessarily be available to you during Transition. Capabilities which can be gained through improvements in operations management will be seen by the end of Transition. The definition and deployment of new, discrete capabilities will be elements of Transformation. 

Geo-Temporal

If you, as the client, have chosen outsourcing as your vehicle for increasing your presence beyond your current geographic or political boundaries, this is the time to begin orienting yourself and your staff about the service provider’s approach and capabilities in this area. This will begin to provide information on which to base your future activities for moving in this direction. 

Is the Client Organization Ready?

The decision to outsource is usually one reached by the leadership of the client organization. In some cases, a majority of the client organization will have little awareness of these reasons. The service provider will be greeted with suspicion by the client organization, and it is imperative to overcome these suspicions as soon as is possible. The longer that negative feelings persist, the more difficult they can be to alter. The service provider should take the earliest opportunity to gain an accurate and thorough understanding to the change readiness among the client organization, and to plan activities to ensure that everybody on both sides is working toward the same objectives. 

Some mature service providers will already have begun these activities, after the signing of a letter of intent, for example. 

Common Risks 

With the number of variables present at this stage, there will inevitably be risks. For both the client and service provider, mitigation is critical. Some of the more common risks encountered during this period include: 

• Loss of key employees 
• Lack in knowledge and skills
• Some degree of service interruption 
• Security vulnerability 
• Miscommunication 

Risk Mitigation

In general, the two most effective means of risk mitigation are strong project management and governance. 

Project Management 

Most service providers will have good project management process. This is for their benefit as much as the client’s. If the schedule begins slipping or the service quality is negatively impacted this early in the engagement, the impacts can be very difficult to deal with for a long period of time afterward. As a client, it will also be to your benefit to have some say in the development of the project, and to play an active role in monitoring and managing the progress. 

A critical component for clients of project management is scope definition and agreement. Of particular importance is specific definition of the elements to be included and excluded in the Transition phase, as well as the elements to be included in the Transformation phase. Since a major focus of transition, in addition to the transfer of specific services from the client to the outsourcing service provider, is planning for Transformation, both sides will require an understanding of the “bigger picture”.  

Governance 

There are also various governance vehicles, and governance is critical to the success of not only this phase, but also for the ongoing success of the entire engagement: 

1. Steering Committee: The objective of the steering committee is to provide ongoing monitoring and guidance for the service provider, and to provide visibility into progress for the client. The steering committee includes senior management from the client and the service provider. The steering committee has the authority to prioritize execution activities and to set strategy for the phase. The Steering Committee will also ensure that all stakeholders on the client side of the house are kept informed of the current activities.
2. Project Management Office: The PMO has overall accountability for the day-to-day management of the project. This includes determining regular activities, managing minor variances to the plan, and reporting more substantial issues to the Steering Committee, which will determine appropriate responses. Regular reporting of the project performance against the plan is another integral responsibility of the PMO. The actual size of the PMO will vary greatly, according to the scope of the outsourcing agreement and the complexity of the process leading to steady state or operations.
3. Communications and Reporting: As with any activity, effective communications is critical for success. A well-defined Communications plan should be developed and agreed-upon as soon as is possible after transition begins.  A more detailed discussion of the Communications Process and Plan will be addressed in Part 6 of this series.

From a personal perspective the one tactic that I found most efficient in managing risk was the creation of a RACI chart which was agreed-upon by both the client and the service provider organizations. It is deceptively simple, but defines accountability in advance, and facilitates such other aspects as communications.

Briefly, all major activities in the transition are delineated; stakeholders from both organizations are also identified, and these elements are combined into the chart. Critically, for each activity, there is one and only one Accountable role. In addition, though, the identification of the responsible roles, consulting roles and informed role help ensure that everybody who should be involved is identified.