Unambiguous Progress Assessments in Outsourcing Transitions - Carsten Schmidt

During the transition of service provisions from one service provider to a new provider, which often takes several months, sooner or later the question arises: is the new service provider sufficiently prepared to provide the services in the expected quality from service commencement date onwards?

Although the transition is a central part of a sourcing contract and all important aspects are regulated from a legal point of view (e.g. acceptance of deliverables, dealing with defects or delays, the right to withdraw from the overall contract in case something goes fundamentally wrong during transition), I have often seen companies or clients struggling with an objective and unambiguous assessment of the transition progress and subsequently not being able to take proper mitigation measures in case of deficits.

I am outlining a proven approach in this post, that provides an unambiguous, objective and repeatable measurement of the transition performance – prior to service commencement date – and thus contributes to a considerable reduction of risks in outsourcing transitions. Unambiguous measurement is also the key to tailored and specific mitigation measures in the event of deficiencies.

The dilemma of an unambiguous progress assessment

In my observation, an unambiguous assessment of the progress in outsourcing transitions is challenging because of a number of factors that appear again and again in such projects:

The largest part of project activities takes place between the new service provider and the previous service provider (incumbent), in which the customer or client is often only involved to a limited extent – most often due to a lack of capacity. I deliberately exclude the case of a “first generation sourcing” with a transfer of services directly from the company to a service provider in this article, since meanwhile only a few sourcing projects and thus transitions fall into this category any more.

Even if the client has the personnel capacity to participate in every project activity, the discussions between the new service provider and the incumbent, e.g. as part of the knowledge transfer, very quickly reaches a depth that the client is able to follow only to a limited extent and is often not able to assesses its correctness and completeness. This is because this deep expertise was outsourced years earlier and the competence of the retained organization is – correctly – primarily in the area of steering the provider.

With regard to the incumbent, the question often arises whether all necessary knowledge is passed on to the successor or whether things are deliberately withheld. In my consulting practice, however, I have seldom experienced the latter – mostly an incumbent aims at properly closing the contractual relationship.

In my experience, the incoming service provider is least able to judge whether he has all the necessary knowledge – “you don’t know what you don’t know”. The complexity of homegrown custom solutions is often underestimated and the incoming service provider wrongly assumes to have all required knowledge gathered already.

If, in such an environment, deliverables of the transition are due for acceptance or milestones are due – perhaps even linked to payments or penalties for underperformance / delays – a subjective “opinion” of the client (“I doubt they can provide the service already” ) often collides with an overly positive / soothing view by the service provider. An unambiguous and objective measurement does not seem possible.

Make progress tangible

The way out of this dilemma is to put the new service provider to the test ahead of time – and ahead of service commencement date. Similar to a pilot phase that is otherwise common in IT, it is also possible to pilot the performance of the new service provider with limited user groups as part of a transition. In the event that deficits become visible, one can react in a wide variety of ways: first of all, through support from the incumbent, who is still contractually obliged, to the temporary suspension of the pilot in the event of larger deficits and excessive impairment of the service recipients.

The unambiguous and objective measurement of this pilot – which ideally is set-forth as a key deliverable in the contract – is very simple: by applying the service level agreements that are anyway contractually agreed, the actual performance becomes unequivocally transparent.

The challenge, on the other hand, lies in a meaningful conceptual design of the pilot, which must be fixed in the contract and thus agreed at the latest during the contract negotiations. Depending on the type of service, the definition of the pilot groups and the possible gradual expansion of the pilot must be well though trough. It also needs to be taken into account that, depending on the scope of the pilot, the service provider may incur significantly higher expenses for the transition.

Conclusion

In my consulting practice, I have made very good experience with piloting the provision of services already during the transition and prior to service commencement date. With the help of the service level agreements, which are agreed anyway, an objective measurement of the performance and thus the success of the transition can be made. In the event of any deficits, tailored mitigation can be taken and the risk of service continuity issues after service commencement date can significantly be reduced.

At which point in the sourcing lifecycle is your company? Contact me and let’s talk about the value I can add in your situation.