Lack of planning for outsourcing = planning to fail, says group

While the government's stance on future outsourcing remains unclear, there's a warning that lack of planning for procurement outsourcing projects is a critical factor in undermining success.

In a new report, Sink or Swim: Planning an Outsource Transition, procurement consultancy Efficio warns that lack of upfront planning is all too common and seriously undermine the transition phase of an outsourcing project. It argues that there must be a detailed plan to ensure timescales are "realistic" and that any additional external resources required can be identified in advance.

Notes Efficio principal Julian Catchick in the report: "There are various reasons for procrastinating transition planning, however even a minor upfront investment of time can significantly improve transition once the deal is done. The key challenge is to look beyond the immediate time pressures and to set aside time for the relevant subject matter experts (SMEs) to properly think through the requirements, the enduring organisation, and its ongoing role."

The reasons for not getting the planning right vary, but can include:

• Overlooking the importance of early planning
• Immediate focus on getting the commercial job done
• Over-reliance on the supplier
• Resource constraint
• Budget constraints
• Lack of stakeholder engagement
• Not driven from the top
• Wider political implications

Getting this wrong can have wider knock-on effects, Efficio warns: "A poorly transitioned outsource can reflect negatively on other projects within a client organisation, especially if the reason for poor transition is largely down to the organisation as opposed to the supplier. A bad outsourcing experience can, in more extreme situations, stifle other corporate strategies and an organisation will invariably pay the additional costs of stumbling (or sinking) through a transition to an outsource provider." 

However, argues the study, the benefits of effective and early planned procurement outsourcing are worth pursuing. They include: 

Service boundaries clearly defined upfront

It is necessary to define the expected roles and responsibilities within each of these service areas, regardless of who is accountable. Efficio argues that a "relatively simple, upfront schematic delineating the boundaries between the two parties can go a long way to minimising ambiguity" and can also be used to frame the scope of the tender and provide a focus during the negotiations.

SRM and vendor management structure in place

Although it can be difficult to cost-justify having a dedicated Supplier Relationship Manager (SRM), sitting within either the business or Procurement as the point of contact with the supplier, this can maximise the value of the relationship and provide the necessary control of a strategic supplier who could have a major impact on operations. Efficio recommends that a vendor management ("VM") team sits below the SRM and comprises Commercial and Contract Managers who support the SRM. It suggest: "Ideally, a VM structure and approach should be put in place within 3 months of signing the contract although agreement to do so should be discussed and agreed well before contract signature."

KPIs, governance, and reporting structure agreed upfront

Agreeing key performance indicators (KPIs) with the service providers upfront avoids ambiguity, gives suppliers time to digest and adapt to the KPIs, and enables both parties to hit the ground running once the contract is signed. 

Informed business case

Organisations often find themselves in a position where there are too many unknowns to be able to establish a credible business case. Early transition planning can eliminate some of these unknowns.

Reduction of over-reliance on the supplier

The customer needs to take an early lead in taking and maintaining control of a project. Allowing a supplier to lead and control the transition planning typically results in outcomes that are not necessarily to the benefit of the organisation. Efficio warns that this can lead to "a change control process that is undertaken by the client organisation which can cost the client up to 10% of the contract value". 

Efficio concludes: "It is necessary to build transition into an organisation's outsourcing programme plan, not as an afterthought but at the outset, noting it is an integral part of the mix and the negotiations...Transition should be planned in parallel to the commercial process. The most appropriate time to initiate the planning is once an informed outsourcing strategy has been developed. It is at this stage that the requirements are known and the boundaries between an enduring organisation and an outsource provider can be defined."

The study comes on the heels of a recent poll from Capgemini and Procurement Leaders that revealed that over a third (37%) of procurement professionals plan to outsource in the next 12 months.