Most organizations, understandably, develop tunnel vision at the beginning of their outsourcing journey when the prize is getting the right deal done. But what next? What happens when the ink is dry on the paper and clients can relax in the knowledge that they have negotiated a good value sustainable deal with a reliable supplier? The answer is – don’t relax. Translating that deal into successful day to day operational reality is vital from an organisational, and often personal, point of view. The current global economic downturn makes keeping transition costs to budget and realising the benefits of outsourcing even more important. And the cost of getting it wrong? Delayed transition to outsourced service Business case not achieved Increased cost and resource burden Poor client / supplier relationships End-users and stakeholders opposed to new ways of workingExperience shows that lack of strong and focused client-side transition management activity is a common contributing factor to deals which never got off the ground properly. Research shows that governance and relationship issues alone can account for a 40-50% value leakage on the average outsourcing contract (See Figure 1). Common symptoms are delayed transition, which erodes the business case, leads to messy and inconsistent communications and compromises ability to properly manage the people and processes involved in and impacted by the outsourcing initiative. Resources on both sides become stretched and liability for additional costs incurred tests relationships, often leading to a blame game. All of these things are real blocks to true realisation of both tangible and intangible benefits of the outsource engagement. You get one chance to lay the right foundations to prevent that value leakage from occurring – the transition phase. As the transition phase sets the scene and tone for what is often a five or seven year relationship, damage done during this stage tends to last. The bottom line is that once value has been lost, whether in terms of relationships or hard cost, it cannot be clawed back. Plugging gaps to try and stop the value leakage once it has begun will never yield such good results as a well executed transition – prevention after all is better than cure. So where should transition management effort be focused to ensure that those best laid plans set out during negotiation and contracting really come to life? Priority focus areas do vary by client – but some common themes have emerged. Programme Management – The first issue here is that clients don’t often see the need to engage a full time transition project manager until it is too late. Don’t assume that laying out a robust plan during negotiation and having a supplier side transition manager will suffice. This is a basic requirement if success is to follow. The second issue is a little more difficult. Whilst seasoned project managers may be fairly accessible, direct experience of the outsourcing transition process is harder to come by, but immensely valuable to managing an outsourcing transition effectively. Experience brings vital knowledge and lessons learned. Why is change management so important? What tools and coaching does a retained organisation need to operate within an outsourcing arrangement? What are the technology requirements, and where does ownership sit, where are the key hand offs? The list goes on. Your supplier will have assigned a Transition Manager to be dedicated full-time to your service transition, this is their core business so they know how important putting a skilled and experienced individual in that role is. Make sure that you do too. Change Management – Why all the fuss about change management? Surely it just happens as a result of all of the other activities going on during the transition? Change management can broadly be described as driving cultural change through communication and education. That communication and education can take different forms. The right form for your organisation needs careful assessment and tailoring through detailed stakeholder and communications channel mapping. This type of activity provides a foundation for the whole transition. If it is not done properly you will not achieve operational readiness. In other words all of the tools, systems and processes necessary to outsourced service delivery might be in place, but if the business does not know how, or is not willing to use them the transition will fail. You need leaders and HR business partners to champion the change so they need to be prepared for and bought in to the inevitable changes in their roles in order to go out there and sell the new world to others. A clumsy communication and education approach can put a bad taste in the end-user’s mouth for a long time. And of course change management really comes into its own if any existing staff are due to TUPE transfer across to your supplier. Professional and appropriate handling of this population is absolutely critical to the success of your deal. Retained Organization – Your retained organisation will be the internal face of the new outsourced world. They will be expected to manage the deal, own end to end processes, champion the solution, adopt a one team mentality and continue end-user education among many others. They may also be expected to deliver on these goals working with a large offshore labour component, which brings a cultural challenge most will have not faced before, and are thus ill prepared for presenting a unique coaching challenge. So what is the best way to build a successful retained organisation? Pick the right people to form it. Many clients simply look at those currently providing the in-house service, and keep the most competent ones on to make up the retained team. This is an easy mistake to make, and is not necessarily the right answer. The skills profile of a strong retained team member is not a direct fit with that of an in-house team member. A good helpdesk manager does not necessarily make a good contract manager. An outsourcing contract is a complex legal document – will your retained team have the necessary skills to understand and interpret it? Key relationships, processes and hand-offs will be designed through the transition phase. The retained organisation is key to this, and crucial to the ongoing smooth running of the deal. Governance – Not having a robust governance structure mapped, established and in place from the moment of contract signing can have far reaching consequences. Through working closely to negotiate a deal, all clients and suppliers begin their partnership aligned with each others strategic goals and how the deal fits with each. However, take your eyes off this even for a short period, and misalignment can set in incredibly quickly.   Misalignment in turn is a contributing factor to relationship breakdown. Equally, if there is insufficient, inefficient or ineffective governance in place from day one, your organisation’s ability to achieve timely and effective resolution of transition issues is significantly eroded, and the transition process itself jeopardised. The right governance teams need to include empowered decision makers and people who know the contract and schedules inside out from day one. There are many ways to really bring an outsourcing partnership off paper and into life – think about what will work for you. Start as you mean to go on, think about how to discourage negative styles of interaction such as ‘throwing the book’ each time an issue occurs. Risk Management – Whilst it is true that entering into an outsourcing arrangement can introduce a certain element of risk sharing, it is not a strategy for absolute risk mitigation. In fact there are specific risks involved in making an outsourcing transition. They need to be identified, assessed, tracked and specific mitigating actions put in place. Develop a clear method and make sure that you have the right stakeholders and decision makers carrying out those mitigating actions to plan and schedule. Making sure that you manage risks during such an important, and often groundbreaking, transition may sound obvious. Perhaps so obvious that some clients take this for granted, and as a result focus less on management of their outsourcing risks than they ought to. Transition timelines are most often tight, and it only takes bad management of a handful of those key risks to derail the process. The success of all of the elements discussed above is fundamental to transition success. The derailment of just one can seriously impact ‘time to value’ and the foundation of your partnership with your service provider. Organisations going through this type of transition are generally doing so for the first time; whether due to it being their first outsourcing/offshoring experience, their first outsourcing experience with a particular process, or perhaps they have outsourced the process before but this time is with a new supplier. It therefore stands to reason that the client may not have all of the tools, experience, expertise and benefits of lessons learned necessary to maximise chances of success. But not managing the transition properly is just too big a gamble. Make sure that you manage the biggest risk of all by making sure that you equip your organisation properly to transition. This worthwhile investment will contribute to building a positive supplier partnership and will shorten the overall time to value, enabling you to achieve the ultimate goal of sustainable bottom line savings.