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Backblog—Outsourcing
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Top 5 Ways to Maximize Leverage in Renewals February 10, 2010 By consider the source Categories: General Outsourcing Effective contract negotiations leverage comes from developing viable alternatives that are financially, technically, and tactically feasible and desirable; and from being ready, willing and able to execute against them. Here are the TPI Top 5 tips for maximizing leverage in your contract renewals: 1. Start early; don’t rush. The more time you have before expiration, the more options you have to introduce competition, move some or all of the services, and hold firm on your requirements. 2. Do your homework. Collect market data to understand where your service provider relationship stands against current market standards for pricing, service level agreements (SLAs), services and terms and conditions. 3. Realign with reality. Chances are that not everything you planned for in your original agreement is still valid. 4. Remove the fog. Think about the top three to five areas where you and your service provider regularly disagree. Typically, these revolve around two primary areas: 1) scope of services (What is the service provider supposed to do, and should it be in the base price or a change order?); and 2) governance (How do we manage change, performance issues, innovation, etc.). 5. Play out your hand. After you’ve gone through the preparation phases of collecting market data, understanding your current environment, weighing your options and clarifying expectations, you have almost all of the components necessary for a solid strategy for entering into renewal negotiations with your provider. There’s one last critical step … make sure you have executive alignment with all possible outcomes. Read this entire TPI Top 5 TPI’s seasoned sourcing experts can help you achieve your global sourcing goals through objective advice, robust market data, knowledge of your industry and extensive experience with sourcing negotiations. Debora Card Associate Partner ─ Research, Analytics & Intelligence, TPI phone +1 586 677 8351 0 Comment(s) · del.icio.us · Digg it · Furl · reddit · Email Considerations for Emerging Technologies in Your Sourcing Strategy December 16, 2009 By consider the source Categories: General Outsourcing There are a number of commonly accepted models for the adoption of emerging technologies and the most effective manner for the organization to consider, test and deploy them. Generally there is a “trigger event” followed by building expectations, then disappointment and eventually a period of more pragmatic expectations and realizable productivity. Here are the TPI Top 5 considerations for how the technology adoption cycle may impact your sourcing strategy: 1. Rationalize technology adoption with your service provider integration strategy. More enterprises these days are employing smaller, more segmented sourcing transactions (along “tower,” region or business units), and hence managing three, four or more outsourcing relationships versus one large one. While there are clear advantages to such a strategy, there are also inherent governance challenges. Make sure you consider expectations for your sourcing partner(s) for their role in adopting and deploying new technologies and have contractual mechanisms in place to enforce these expectations. 2. Leverage SOA investments to rapidly integrate new services. Although service-oriented architecture (SOA) is one example of technologies featured in most views of emerging technologies, it is well along the “slope of enlightenment” and is already embedded inside many organizations. For those with a reasonably developed SOA strategy in place, you would do well to consider how to leverage this architecture to more quickly plug in selected technologies and how to deploy them in the form of services for a quick return. This is, after all, one of the reasons for embarking on the SOA journey. 3. Take a long-term view toward innovation. Clients frequently have inflated expectations of provider-driven innovation as they enter a new sourcing relationship. After all, “they do this all the time, so they should be the experts.” As a practical matter, innovation is difficult, and service providers may be much more consumed with driving down delivery costs than identifying opportunities for real innovation. Look at your governance mechanisms and how you will manage expectations for your sourcing partners to identify, test and introduce new technologies into your organization. Be realistic, and don’t give away the “family jewels” as far as business-driven opportunities for innovation. Consider an “innovation steering committee” comprised of a cross-section of business/user representatives that emphasizes “influential and visionary” contributors as much or more than seniority. 4. Don’t forget “end of life” strategies. Nearly as important as your adoption strategy of emerging technologies is having a clear strategy on retiring “end of life” technologies. For example, cathode ray tube (CRT) monitors are expected to reach end of life within a year or two. Such an installed base may represent a significant investment in physical retirement and disposal of the asset (especially considering today’s “green” movement) as well as replacement cost. Make sure you have practical alternatives baked into your sourcing strategy for end of life strategies. Schedule timely reviews with suppliers of technology assets and build deployment and retirement plans into your agreements. 5. Consider the impact of “transformational” technologies on your sourcing relationships. Emerging technologies may be viewed as “transformational” or “modestly impactful.” “Transformation” itself could arguably be considered a form of “hype,” but in the best of sourcing relationships it can have a real and measurable impact on resource consumption and spending (e.g., server consolidation). Be sure your sourcing relationships have appropriate safeguards built in to protect against punitive revenue commitments. TPI’s experts can help you achieve an objective assessment of your strategy for managing technology change. We provide objective, risk-balanced, and forward-oriented strategies for sourcing relationships. Contact Fred Croxton, Director, TPI. Fred Croxton, Director, TPI consider the source 0 Comment(s) · del.icio.us · Digg it · Furl · reddit · Email Leverage Outsourcing Governance to Reduce Value Leakage from Your Outsourcing Contracts November 23, 2009 By consider the source Categories: General Outsourcing Outsourcing governance is the business of ensuring that all of the potential value of an outsourcing contract is actually achieved. During our 20 years of helping companies maximize the value of their outsourcing contracts, we have identified these TPI Top 5 observations related to the mission-critical governance function: 1. Outsourcing governance is still maturing, and companies continue to have significant difficulty harvesting the value from their contracts. Outsourcing as an industry is mature, yet clients worldwide are still struggling to effectively manage their outsourcing agreements. In a study of companies that had recently outsourced to multiple service providers, 84 percent of respondents stated that they did not have what they regard as a mature governance model (Financial Times, July 2009). Additional research by the International Association of Outsourcing Professionals (IAOP) cites that, “. . . 63 percent of companies surveyed believe they lose an average of 25 percent of contract value due to poor governance.” And TPI’s own research indicates that between 5 and 30 percent of the expected value of outsourcing transactions is lost through ineffective governance. In a typical outsourcing agreement this equates to roughly US$600,000 per year of lost value for every US$10 million in annual contract value under management. 2. Early, comprehensive governance planning and design is critical to long-term success. Implementing an outsourcing governance organization takes time, and the first 18 months of any outsourcing agreement is critical. Without an effective outsourcing governance group in place early to guide the relationship, value leakage is inevitable. Most companies begin this process too late, thus their ability to manage the contract in those critical first few months is compromised. 3. Outsourcing takes more than evaluating service provider performance to be successful. In the early days of outsourcing governance, clients limited their activities to reviewing service level data generated by the service provider and checking their invoices for accuracy. Today’s best run outsourcing governance groups understand the interdependencies between all of the governance processes across four key disciplines - performance, financial, contract and relationship management. They constantly measure the effectiveness of the key governance processes and identify opportunities for continuous improvement. 4. Separating decision making and relationship activities from supporting governance tasks unlocks new levels of efficiency. As is the case with most back-office functions, there are aspects of outsourcing governance that can be performed by a third party more effectively and efficiently than can be accomplished in-house. TPI advocates that clients never abdicate responsibility for decision making and that they should maintain the relationship with their service providers. However, there are many support functions that can be considered for outsourcing (i.e., performance analysis, invoice verification, and contract administration [including management of the governance library]). TPI is delivering these services to clients today through a combination of onsite and offshore support models. 5. Technology enablement is becoming a necessity for efficient outsourcing governance. What started out as a set of executive dashboards summarizing performance and financial data has evolved into the need for higher-order management tools. Today’s outsourcing governance organizations require integrated tools that go beyond dashboards to detailed reporting capabilities; automated workflows for key governance processes; automated data feeds from service providers and a comprehensive governance library. While many aspects of the outsourcing industry are quite mature, for many reasons clients’ abilities to effectively manage their service provider relationships remains an area where significant opportunity exists to reduce value leakage and maximize beneficial results. TPI’s Governance Services experts can help your organization ensure that all of the potential value (financial and non-financial) of your outsourcing agreements is actually realized. Contact John Pirtle, Partner, TPI, to learn more. John Pirtle, Partner, TPI consider the source 0 Comment(s) · del.icio.us · Digg it · Furl · reddit · Email Organizational Change and Risk at the 2009 PMI Global Congress November 5, 2009 By consider the source Categories: General Outsourcing I attended the Project Management Institute’s Global Congress this month, in Orlando, Florida. I am particularly interested in Organizational Change Management and Risk Management, so I selected sessions primarily focused on these things. Many of the sessions focused on what I call “voodoo” change management – communications, feelings, and so forth – but not an operational expression of change. Though there was one outstanding and remarkable presentation by an interesting team from the State of Oregon and George Fox University. I think their work provides some very practical and operational insight on how change management should be integrated into both project and outsourcing management. What the State of Oregon Department of Human Services Process Center of Excellence has done is take a look at all the thinking in organizational change management, codify and examine it, and create a methodology that shines the cold light of operations on the problem of providing concrete actions to bring about effective change – especially when the change is not one that stakeholders will ever like or embrace. Outsourcing presents such a challenge. I’ve been bothered for years by the lack of completion in most change management methodologies. While it’s clear that changes have to be communicated and winning hearts and minds is important, the hard fact of organizational change is that sometimes it’s hard to like the change regardless of how it’s packaged. So there has to be a more operational expression of change. A way to ride herd on the outcomes, often over several years, is to ensure that the change really “took.” This takes an organizational bent of mind, a will to see it through, and a strong methodology that supports this kind of institutionalization of change – something that corporations sometimes lack. It’s refreshing for an American to think that a state government would support and nurture such an obvious and valuable approach. Like so many major advances in project management, this United States Government contribution to the ongoing discussion of project management is published. Go take a look at their review of change management methodologies for an instant primer on change in management thinking, and what is missing: States Of Change: An Inquiry Into The Nature Of Organizational Change.There’s a lot to mine on this subject. I realized (paradoxically, I suppose) that innovation could only thrive in an organization where change management was actively practiced – I’ll write about that in the future. I felt that our Service Management & Governance operating model methodology was validated. Outsourcing is the kind of change that challenges organizations; it’s good for the corporate entity, but hard for people. Walking that tightrope has implications for both the human capital of a company, and its bottom line. Cynthia Batty, Global Competency Lead, Service Management, TPI 0 Comment(s) · del.icio.us · Digg it · Furl · reddit · Email Keeping Your Healthcare Sourcing Strategy Moving Forward (with Confidence!) During Turbulent Times October 27, 2009 By consider the source Categories: General eHealth Outsourcing Today’s global economic conditions are unprecedented for decision makers in healthcare. For example, every part of the United States healthcare business model is undergoing significant and unpredictable change; and we’re not even close to the finished model. Despite these turbulent times, healthcare payers and providers who are embarking on or are in the middle of major strategic business projects are wondering how to align their sourcing strategies amid this constant, multidirectional change. There is no time like the present for healthcare payers and providers to capitalize on chaos to improve operations and prepare for the new healthcare environment. Here are the TPI Top 5 actions you can take in the near term to drive contractual flexibility, increase speed of value realization and maximize the value derived from your sourcing relationships. 1. Reduce the number of key service providers and then increase leverage with those that survive your vetting process. 2. Renegotiate current contracts to reflect the changing environment. Consider the future benefit streams of your contracts and “pull them forward” contractually to realize their value sooner. Seek to consolidate multiple contracts with the same service provider to improve leverage across business units. 3. Now is the time to establish (or fine tune) rigorous Service Management & Governance oversight processes to ensure maximum value realization from your current contracts. 4. Look outside the traditional healthcare market for sourcing ideas and executable models. Examples of other industries that have proven track records in sourcing include banking and financial services, manufacturing and telecommunications, all of which have been successfully sourcing non-core functions for decades. 5. Establish an enterprise-wide sourcing advisory council to document and propagate your organization’s sourcing philosophy. For example, consider the bigger picture of sourcing as not just “outsourcing,” but as the application of resources form every potential source to solve your business challenges. Now is the time to re-assess your sourcing strategy and re-evaluate your current sourcing relationships. Reset the performance bar, define/refine what innovation means to your firm and make sure to measure service providers’ execution of their contractual obligations. TPI’s experts can help healthcare organizations produce an objective assessment of your current sourcing strategy and develop a roadmap for your future strategy with objective, risk-balanced, and forward-oriented solutions for maximizing value during these turbulent times. Take charge; set direction. Contact David K. McCament, Director, Healthcare Payer / Provider, TPI, to learn more. David J. McCament, Director, Healthcare Payer / Provider, TPI consider the source 0 Comment(s) · del.icio.us · Digg it · Furl · reddit · Email Mind Your P's and Q's to Control Outsourced Costs September 30, 2009 By consider the source Categories: General Outsourcing Historically, the general focus of our outsourcing clients has been to use an RFP process to get the best price for the services that they procure. The primary driver is to improve the economics of the cost center involved in the outsourcing effort. However, in a price times quantity model ("P x Q”), most of the money to be saved lies in the “Q” dimension, not the “P” dimension. Unless your price points are way out of line, P improvement in most engagements is in the 10-20 percent or higher range. Your greater cost reductions will potentially come from the Q end of the equation. Consider these TPI Top 5 tips for understanding and managing Q in your outsourcing environment: 1. Get into the habit of Q (consumption) reporting. Pareto's 80/20 rule often applies to heavy users of outsourced services. By reporting usage statistics, especially to the top 20 percent of users who drive volumes, you may reveal areas of consumption that have little to no business value and encourage heavy users to reduce their Q footprint, thereby lowering your overall costs. 2. Avoid “The Tragedy of the Commons." Many costs centers do not charge back to users. The reasons can vary, from corporate accounting policies to allocations that add no value. However, failing to drive cost to the “cost-causers” will lead you into “the tragedy of the commons" trap. That is, people will use resources without regard to moderation if it appears to them that the activity is "free." By formally or informally showing your services users the costs of their activity, they will act more rationally in their business decisions. Properly designed outsourcing contracts are designed to give you an elastic cost model that facilitates doing exactly this. 3. Understand the power of Q ratio analysis. Convert your business drivers into relevant business ratios such as calls/user, storage/customer, IMACs/user, requests/agent, etc. When you look at the taxonomy of these ratios against your entire business, areas of Q reduction will become apparent. Also, Q ratio analysis will allow you to benchmark your organization and set reasonable objectives. 4. Install a capacity model. Once you have a framework for understanding your Q's by source and by use, then you can begin some top-down reductions to pressure out Q volumes that are really unnecessary. For instance, aim to reduce the monthly capacity in the aggregate by 5 percent. Do not restrict any users, per se; just put in a priority demand management system, set some factory-capacity- style limits, and see what comes of this process. The first 5 -10 percent reduction might come easier than you think. 5. Set up a demand reduction incentive plan. If reducing 30 percent of your volumes translates into a 20 percent cost reduction, offer up a challenge to the user or organizations that can control these volumes. If they achieve 30 percent or more reduction, then hand out positive incentives such as budget relief, bonus kickers, comp time, etc. TPI’s experts can help you achieve your organizational goals through objective advice, knowledge of your industry and experience with arrangements from simple to complex. Contact Tom Young, Partner & Managing Director, TPI, to learn more. Thomas Young, Partner & Managing Director, Media, Telecommunications and Financial Services, TPI consider the source 0 Comment(s) · del.icio.us · Digg it · Furl · reddit · Email Globalization and Signs of Optimism September 25, 2009 By consider the source Categories: General Outsourcing Economists may call it a “V” shaped, “W” shaped or any other shaped recovery of economic growth, but the reality is most providers have expressed signs of optimism recently about the business scenario going forward. Further, there seems to be a consensus that the downturn has hit bottom and that there is no looking further downward. While it might be arguable whether these signs of hope are misplaced just yet, there is one lesson the leading service providers have clearly learnt – the market for their services is not just in the western or developed economies. Service providers have taken action and improved their focus on markets outside their traditional markets of demand during the last few quarters. These actions not only reflect their sales targets in new regions and economies, but also their new, more globalized delivery network. I am talking about markets such as Latin America, Asia Pacific (other than Australia), Central, Eastern and Northern Europe etc. In my view, this was going to happen anyway, but the recessionary conditions over the last 12 months have added pace to this impending change. We, at TPI now notice Tier I providers competing neck-and-neck for business in more and more regions and countries The day is not far when the Tier I providers will be serving the needs of industries, consumers and governments across the entire globe and rise to become true global service corporations. Dinesh Goel, Partner, TPI consider the source 0 Comment(s) · del.icio.us · Digg it · Furl · reddit · Email |
