Contract signing is a major milestone in outsourcing engagement but things exists only on paper. Transition phase, from incumbent vendor or internal IT staff, sets the tone of the relationship. Your governance processes, performance measurement and reporting mechanisms are established during the transition phase.

The selected vendor is tasked to perform detailed knowledge transfer on client’s application, environment and operating processes. Tremendous time and commitment is required to plan and execute any outsourcing or managed service transition without significantly impacting the business.

Smooth transition also results in building mutual trust and respect that leads to stronger long term relationship. The quality of resources and processes brought to the table during this stage is a good indicator of how your vendor’s service delivery quality will shape up.

A poor service transition can result in a false start to a relationship and will require significant effort to make amends.  Following are the reasons for the transition failure:

• Poor due diligence and project planning
• Failure to understand the scope by the service provider
• Poor rebadging and Onboarding process
• Lack of access to client SMEs
• Aggressive Go-Live date
• Poor transition governance
• Unclear exit criteria
• Lack of tools, skill, prior transition experience
  

Effective planning, due diligence and proper communication across all the stakeholder’s is the key ingredient for the transition’s success. Recommendations to make the transition phase successful

• Switch from people dependent model to process dependent model
• Always perform the risk analysis and define the risk mitigation measures
• Involve all stakeholders in transition to create the right level of attention. Treat the transition as a “normal” change program with high impact
• Be open to all unanticipated challenges that arise in outsourcing engagements. Both the parties should bring challenges faced by each other and be supportive to each other

A well executed service transition a strong exhibition of vendor capability and resourcefulness and goes long way in building enduring partnerships.

Considering an alternate vendor is now becoming a norm for older deals (3-7 years) or ones that were not signed through structured competitive vendor selection process. The service delivery and pricing models have evolved over a period of time. Also the clients outsourcing for the second time are more aware of what they want from their vendors and have developed capabilities to manage vendors over a period of time.

 

A lot depends on the engagement scope and client's priority - however any good deals signed will have some variation of these aspects

• Flexibility of skills on a set forecast
• Productive hours instead of FTE concepts
• Focus on relationship management, governance and transparency
• Greater involvement with offshore teams - recognition and rewards
• Credits and penalty on performance
• Infusing CoEs and Vendor innovation
• Pay for performance/Outcome based models
• Retaining key incumbent vendor employees  

 

Switching to new vendors also comes with realization that the relation with the incumbent is beyond mending. A lot of focus is made to implement the lessons learned from broken deal and to start new relationship at the right note. Clients also focus on streamlining internal processes that would result in making the vendor more effective and efficient.

 

In the times of economic turbulence and financial crisis many organizations start  evaluating options to outsource for the first time or expand on their existing sourcing strategy.

In today’s competitive market, vendors are constantly evolving their delivery and pricing models to differentiate themselves. The final vendor you select depends on the context of your outsourcing engagement.  If you only evaluate vendors of similar size and competency then you choose to limit your options. 

Companies are realizing the initial vendor mix has a major impact on how their final outsourcing engagement gets structured.  It is important to understand the capabilities and values-adds that the vendor can bring to table.
In our vendor selection process, we recommend considering a diverse group of vendors from the following big buckets:

• Global player
• Tier 1 giants
• Tier 1 Contenders
• Indian Pure Plays

 At the end of the day, the fit and not the size will determine the success of your outsourcing engagement. The supplier selection process should be designed to find the best partner and not to preclude the right fit solely on size considerations.

Over the past few years many companies are exploring global sourcing to reduce overall spend, conserve capital and increase efficiency.  Some of the first time outsourcers face challenges and frustrations associated with managing outsourcing and shared services engagements. It is not too late - and certainly not too early - to establish long term relationship with your strategic vendor.

Outsourcing and offshoring changes the responsibility for executing IT services from the internal IT department to external service providers. Your strategic partner should not only provide solutions for the most pressing business problems but also contribute by sharing their ideas, insights, industry knowledge and technical expertise.

The first step is to identify potential IT vendors with whom you should have a closer partnership. Next, invest time and resources on developing long-term agreements and shared sense of partnership and respect. Successful outsourcers leverage their vendor’s capabilities and realize maximum value from the initiatives.

A marathon mindset is required to build partnership approach:

• Look for a value beyond labor arbitrage or rate negotiations with vendors
• Build better vendor governance frameworks grounded in process and supported by tools
• Review strategic vendor’s new capability and how it aligns with company’s roadmap
• Share information with vendors: business plans, priorities, or technology road map
• Be explicit about expectations and provide regular feedback
• Explore ways your vendor can put more skin in the game and drive innovation
• Communicate incremental benefits to the internal team

Building higher-value relationships is a two-way street. We need to establish a strong foundation of trust and closer relationships that will deliver greater impact than mere transactional relationships.

“It is difficult to train for a marathon; but it is even more difficult to not be able to train for a marathon”.

In the earlier days of outsourcing much importance was given to cost savings and meeting SLAs. Now a vendor meeting these criteria would have a par game at best.  

In today’s maturing global sourcing environments the clients and suppliers are taking the game to the next level. The clients need to continually explore ways to deliver cost savings, enable innovations and create business value. They are developing long term relationship with their strategic suppliers to achieve this intent.

It is important that you select a supplier who has a good game, but it’s even more vital that the supplier works on improving it. They should have skills to stay on the green but when required navigate the hazards well also.

Once you have the right player onboard you should have means to monitor and manage the performance. Increasingly, mature clients measure their suppliers on the overall outsourcing engagement objectives. These cover both hard and soft metrics and key performance indicators:

• Financial Management: Plan vs. Spend, Blend rates, On/offshore ratio
• Resources and skills: Attrition, Experience level, Capacity Planning and Leakage
• Service Management: Uptime, SLA performance
• Solution Management: Percentage on time, Percentage under budget
•  Value adds: Innovation, Center of excellence utilized

In a relationship management driven approach, clients are also measured on how their internal processes contribute towards making the supplier's delivery more effective.

The outsourcing engagements should focus on creating a win-win relationship. Take the relationship as it is and invest time and energy to make it better and get the score below par.  

“Play the ball as it lies, play the course as you find it, and if you cannot do either, do what is fair”.

In the recent 2Q11 Global TPI Index, which measures commercial outsourcing contracts valued greater than $25 million excluding public sector, it was reported: ·     

 

• The total contract value of outsourcing agreements signed during the first half of 2011 dropped roughly 18 percent, driven down by Americas (down 50%)

• The Total Contract Values is lowest reported for second quarter in the past decade

• The total number of outsourcing contracts signed, however, was virtually unchanged-- down 1 percent compared to last year.

The trend shows that the number and value of large contracts and mega deals are on a decline.

The dominance of smaller deals is due in part to companies' reluctance to make the larger investments required for bigger contracts. The lack of big bang outsourcing contracts is also a sign of outsourcing saturation. The penetration of vendors into the largest of the Global 2000 organizations in each industry group is high. Hence, the scope for new large IT transactions coming to market is lower.

Growth is more likely to come from mid-market IT and business process outsourcing, which will produce smaller transaction values. Also there is a growth in restructing of existing contracts. 

Smaller deals also point to outsourcing customers' continued preference for multi-sourcing arrangements over single-sourced deals. Companies like the many-partnered model because it allows them to access specific skills and can provide some internal market competition for services.

In multi-sourced model organizations can effectively run a competitive bid process for certain projects to ensure they are getting some elements of the external market competition, rather than limited choice.

While internal competition for new projects can benefit outsourcing customers, they're increasingly asking their cadre of IT suppliers to cooperate as well. Providers understand this and are increasingly effective in working together for their clients

Maintaining control and oversight of delivery and ensuring that the business users are getting what they need, whilst the value is extracted from the original transaction, can present a real conflict. However, managing the multi-sourced environment continues to be a challenge for some customers.

The mature organizations were taming their tactical issues and focusing on the more strategic aspects of managing the relationship. While the lesser organizations are struggling to cope up with basic vendor management functions such as contract and invoice management.

An RFP process is used to procure products and services by soliciting competitive proposals from vendors. Through this process vendors are screened and evaluated on basis of best value solutions. They compete with other qualified vendors to win potential client business.
In this high stakes game even small oversight can result in vendors being eliminated early in the evaluation process. Some of the common mistakes made by vendors are:

1.    Not grasp client’s scope or requirement
2.    Not adhere to specific requests in the RFP documents

      a.    Not responding to evaluation criteria and RFP objectives

      b.    Missing the timelines or procedural details

3.    Improper solution or sizing: Not review and analyze the provided annexure
4.    Pricing not competitive or too aggressive

Vendors can increase their chances of being short selected for next stage if they have better understanding for client’s requirements and RFP context. The RFP process may allow for clarifications/ questions/ client interface. If used judiciously, this can validate solution assumptions and relevant offerings.

RFP submission and evaluation are time bound and hence it becomes imperative that your solution and its benefits are well articulated. Vendor can get better conversion rate for RFPs if they focus on the following:    
1.    Make your response pointed and concise:

      a.    Volume of information is not equivalent with quality of response

      b.    Tailor your solutions: Do not use much of boiler plate information

2.    Highlight your differentiators and value adds
3.    Proof read your response: Spell checks do not catch errors in language and grammar
4.    Add an executive summary to give a succinct view of your solution
5.    Be aware of your  competition: Tweak your solution based on other vendors in the field

The client wants to select a partner(s) who can work with them for a longer period of time. Your RFP response should position you as a vendor of choice.

Companies traditionally have realized their financial objectives of outsourcing yet there remains instances of company- service provider conflict. Some of the exiting challenges:

• Lack of transparency
• Ineffective reporting
• Poor communication plan
• Continuous improvements 

There is a growing awareness among companies that service provider relationships should to be actively managed to realize the benefits of outsourcing. The companies clearly recognize the need for dedicated Vendor Management Office (VMO) to manage their strategic outsourcing, offshoring, and service delivery programs. However, the maturity of their Vendor Management capabilities remains low.

• Complexities of managing outsourcing service providers’ post deal execution are underestimated and poorly managed
• Manage multi-sourcing transactions across a number of service providers
• In addition, governance and change management mechanisms in transition and transformation programs have also become more complex to manage

There is a growing demand for services that can help organizations ascertain the maturity of their Vendor Management models and/or help them design, build, and implement leading-practice.

Companies often draw on the assistance of third parties that can provide specialized functional know-how and the industry-leading operating practices, processes, models, and tools necessary to create flexible, scalable Vendor Management frameworks that can effectively and efficiently manage outsourcing relationships.

The growing complexity of today’s outsourcing environment demands new skills in order to effectively manage an outsourcing program. Effective management of an outsourcing program now requires specific cross-functional skills and experience, specialized toolkits and disciplines, an enterprise view of the outsourcing program, and the ability to manage and integrate a large number of service providers (where required) to deliver an enterprise service.

Companies are increasingly investing in broad tools, systems, and processes for Vendor Management, as well as building Vendor Management organizations that can provide the resources to more efficiently and effectively manage their service providers and achieve their outsourcing objectives.

Based on: The Outsourcing Vendor Management Program Office (VMPO): Art, science, and the power of perseverance: Deloitte Consulting LLP (2011)

Most of our clients visit their vendors at least once a year (scope re-baselining/ annual planning). More proactive ones make at least 1 additional visits spread 6 month from the earlier visit. Second visit is more focused around operational or capability issues. Here the other client team members accompany the vendor relationship managers (ADM, testing etc).  At times there is single visit but meeting is split by tracks. This all depends upon the years of relationship with vendor.

In earlier phase of relationship we recommend one visit every 6 months. Also we recommend to include a few new members (who were not directly involved in vendor selection process), as this gives them firsthand experience of vendor capabilities.This also gives offshore delivery team an opportunity to showcase their progress and acts as a good bonding experience. Reward and recognition play a big time in this integration.  

Once there is sufficient trust and transparency in partnership annual visits also work very well along with monthly rhythms, relationship scorecards and governance meets.

The demand side is steady - growth and expansion of the overall IT service sector is here to stay. Recent surveys, analyst reports and leadership meets have confirmed this trend. The clients are more mature and are looking at increased capabilities and breadth of service from their vendor partners.

Global vendors and tier one pure plays are restructuring themselves to be even more competitive. Acquisitions, leadership rejigs and investment into future have been flavor of the season.

In this evolving competitive scenario how do Tier 2 vendors stay relevant
* Are they serious contenders or relegated to "Niche Provider" / alternate vendor tags
* Do they have strong differentiators
* Is this backed by strong strategy and leadership
* Can they give big boys sleepless nights by delivering outrageous value

Or are they consider themselves just another acquisition target?

I would really love to hear your thoughts and insights on this discussion