Transition-Out Services: Lay the Foundations Early in the Relationship

Transcription

1 January 2011 Transition-Out Services: Lay the Foundations Early in the Relationship by Peter Dean, Director, TPI CONTENTS 2. Introduction 2. Why Create a Transition-Out Plan? 3. Start Early Start Simple 4. Iterative Nature of Transition-Out Plans 5. Form of Transition-Out Plans 6. Early Transition-Out Decisions 7. Conclusion

2 INTRODUCTION The transition phase of an outsourcing contract, where service delivery is passed from one party to another, is one of the most intensive and highest risk periods of sourcing activity that a client can undertake. CIOs review their contracts when a transition out of services is pending and many discover too late that their contracts mention little about the timing or level of support an existing provider is obligated to provide during a transition. Service delivery contracts should include provisions for transition-in and transition-out arrangements. Designed to achieve an orderly transfer of services at the commencement of the contract, a transitionin arrangement is usually a short-term objective and often a priority. Transition-out issues are often inadequately addressed, making what is a challenging activity that much more risky. CIOs find themselves unable to give maximum focus to a new service provider as they must ensure that adverse business impacts are avoided. have diverse, potentially conflicting objectives and outcomes that will create tension. This paper addresses what CIOs can do during the original contracting phase and early stages of the relationship to ensure that any necessary transitions will take place as quickly as possible, with minimal business disruption and minimal risk. WHY CREATE A TRANSITION-OUT PLAN? All relationships have a beginning and an end. Service providers have no incentive to outperform minimum contractual requirements when they are transitioning away from an existing agreement. And, unfortunately, many service providers don t start preparing a transition-out plan until they are notified that a client plans to terminate their contract. The time to lay the foundations for transition-out activities is during the original contract negotiation. This may feel like planning for failure before you even start, but there is no better time to fully consider the obligations and expectations of all parties. Outsourcing is a set of mutually dependant relationships. The parties involved in a transition of services from one party to another will often include two or more of the following: An incumbent service provider who has just lost a significant revenue stream A client who may be assuming some of the service responsibilities in-house A new service provider who has just invested a large amount of time, effort and funds to secure the services During the transition phase, each party will have different obligations. But importantly, all parties will The service transition period is one of the highestrisk activities undertaken in the sourcing life cycle and often must be completed as quickly as possible. It is critical that a transition-out plan be prepared early and that all required information is readily available. A transition of services can typically take anywhere from three to 12 months. In large and complex environments, this timeframe can be even longer. The more that parties can agree upon and plan up front, the less time they will usually need to spend 2

3 at the end of the contract period negotiating criteria and finalizing the transition-out plan. Comprehensive early iterations of the plan will also help ensure that any timeframes required for the actual transition can be as short as possible, minimizing potential business disruption and risk. To start to mitigate this risk, CIOs should ensure their original contract addresses the minimum requirements for the creation and maintenance of a transition-out plan. This plan becomes the detailed rule book for doing the transition-out in a pre-established and organized way. It will clearly and precisely describe what is to be done upon termination, including the exact nature of the transition-out assistance you will need to receive from your incumbent service provider. Having details of the operating environment documented and maintained so they are accessible also facilitates the early and effective planning of a market-based transition-out of some or all of the services to an alternative provider. It is advisable to start building this plan during the transition-in of services to the new provider. This timing allows you to rely on the existing people who have the greatest knowledge of the information and processes required to deliver the services. After a transition-in has concluded, both the people and the information could be with the new service provider. When an organization is contemplating a transitionout, early access to pre-established termination assistance will reduce risk. An up-to-date transitionout plan will provide timely access to selected transition services and critical information before having to serve notice. START EARLY START SIMPLE An early-stage transition-out plan is useful because it will articulate what parties can do at the beginning of their relationship to mitigate the risks associated with a transition. In particular, it will go some way to minimizing risks associated with a later souring of the parties relationship (which typically occurs if the incumbent loses a tender or has a contract terminated), as the parties will have already established the essential framework for a transition. Key Points 1. Ensure outsourcing agreements address the creation of a transition-out plan up front. 2. Identify what you will need and what you will need to do to successfully transition away from services. 3. Include the transition-out plan in the contract and prepare it early in the arrangement. 4. Review and update the plan regularly. At an early stage, the parties can pre-agree upon a wide range of important matters for the transition of services, such as appointing a project manager to coordinate the transition. The ultimate plan implementation then takes place within the parameters of what has already been agreed upon. Furthermore, by specifying what the finalized transition-out plan will include, an early stage transition-out plan forces parties to consider what information would be required to effectively transition services. Clients can then ensure that providers maintain up-to-date inventories of all of the equipment, software, licenses, sub-contracts, and the like, because they know that this information will be required at the time of the actual transition. The timing of a transition-out plan can vary. When the services being outsourced are business critical or highly specialized, or when a complex transition is envisaged, then the plan should be prepared very early. When it would be easy for the client to change service providers, when a low risk would be associated with change, or when services being 3

4 outsourced are commodity services (i.e., services you can buy easily), then an early transition-out plan will generally not be as important. In these cases, the parties are more likely to leave the development of a transition-out plan until after the outsourcing arrangement has stabilized. In some situations the transition-out plan can be a relatively simple template with basic content. In most cases it will be more detailed and have a highlevel approach, with various activities and sources of information. In either case, it is essential that the client and the service provider review and refresh this plan over the course of the agreement. There is no typical transition-out plan. Similarly, there is no standard process by which plans must be prepared and who must be involved. It is important to recognize that generally even a best practice transition-out plan will still be inadequate for the actual execution of transitioning services to a new service provider. The transfer of outsourced services will require a further step the new provider will usually prepare its own, separate transition-in plan that is based on the information in the incumbent s transition-out plan. If a transition-out plan is to be prepared early in an outsourcing relationship, before a new service provider has been identified, then it will be necessary for the parties to make a range of assumptions. These assumptions should then be clearly specified in the transition-out plan. If they change over the course of the relationship as more information is available (for example, the identity of the new service provider) then the assumptions can be replaced with facts and the plan modified accordingly as part of a regular iterative review. Furthermore, where a detailed transition-out plan has been prepared prior to the appointment of a new service provider then the new service provider will be more readily able to tailor its plans for receiving the transitioned services. Of course, when an existing provider knows more about the possible new service provider, for example, that services would be transitioned back to the client who has limited processes in place to perform these services, then the transition-out plan can be more closely tailored to the specific situation at an earlier stage. THE ITERATIVE NATURE OF TRANSITION- OUT PLANS A transition-out plan that is prepared early in an outsourcing relationship will inevitably require further updates over the life of the agreement. Consequently, the plan is an iterative document that should be refined and kept up-to-date throughout the parties relationship. If a transition-out plan is developed on an iterative basis, the early versions of the plan will usually be high-level and will often only contain: The guiding principles under which the parties will cooperate to manage a transition The broad areas that the finalized transition-out plan will cover The types of information that will be required to further develop the plan Where the outsourced services are business critical, CIOs should ensure that transition-out plans are formally reviewed at least annually. When the nature of the outsourced services changes frequently, corresponding components of the plans should be reviewed frequently. In these cases it is critical to ensure that necessary information, such as client data, asset information, key personnel, contracts to be novated, and operational procedures, is as current as possible and can be readily located. 4

5 FORM OF TRANSITION-OUT PLANS Transition-out plans will, by necessity, make a number of assumptions about the nature of the new service provider and how this provider will receive the transitioned services. The great benefit of a transition-out plan is that when an outsourcing relationship ends when, understandably, an incumbent may be reluctant to assist the client or new service provider, or may even actively obstruct the transition the parties will already have done most of the groundwork required to advance the transition-out plan. They will have agreed upon the overall content of the plan, as well as its governing principles, and ideally, before they are notified of the impending termination, the incumbent will have put flesh on the bones of the plan. A strong transition-out plan will: Identify the principles under which the transition will be conducted (these would also underpin the preparation of the plan) Document each party s disengagement responsibilities (including, in broad terms, the new service provider) Outline the areas to be included in the finalized plan (including the deliverables to be achieved in those particular areas) Specify the data sources required to finalize the plan (as well as where data can be obtained) Propose high-level work breakdown structures (WBS) describing in more detail the broad deliverables The best transition-out plans include an acknowledgement that the scope, delivery methods and nature of the outsourced services will change over the term of the contract, and that the transitionout plan will need to be continually revised to reflect these changes. The transition-out plan must be sophisticated enough to allow a new service provider to plan and adapt the way in which it accepts the transition of the outsourced services. This is particularly important when you conduct a competitive tender process to select the new service provider. Typically, a bidder will be required to price the cost of the transition into the business proposal. This is an important aspect of comparing the bids that you will receive. The more information that bidders have about the incumbent s proposed transition of services ideally, including a detailed transitionout plan the more accurate they can make their proposals for the costs of transition. In the best scenario, your existing service provider will provide quality service until the conclusion of the existing agreement. Unfortunately, your provider will be challenged by an impending termination and will naturally shift focus to existing customers and continuing revenue. At this point managing service outcomes using the relationship lever is problematic. So what levers can be inserted into contracts at the beginning to increase clients leverage later on? Consider defining a reasonable and appropriate fee structure for termination assistance services. These fees should reflect the service providers costs and should be paid upon successful completion of transition objectives. If the service provider has triggered termination through breach of agreement, fees should be determined differently. 5

6 EARLY TRANSITION-OUT DECISIONS The following matters could usefully be included in a transition-out plan at an early stage in the parties relationship: Establish a Model for Commencing a Transition-Out The parties involved can establish a model that defines and establishes the rules, principles, governance, and key roles, as well as the number of concurrent work stream that would be necessary to support transition-out activities after a service provider receives notification that an agreement will be terminated. Establishing these elements early would provide a solid basis for the early kick-off of the transition-out activities. An example of the type of model for transition-out that the parties could agree upon appears below (Fig. 2) Document initial view of requirements Verify contractual obligations Perform gap analysis Negotiate the gap with the client Develop commercial ground rules Agree at executive level Form executive control group 1.5 Develop SOW & QA Receive notification Commence exit due diligence 4.1 Perform BAU gap analysis Perform IP audit 4.2 Agree what is required for disengagement Collate valid list of resources 4.3 Initiate work in BAU 1.6 Formal notification to subcontractors Define roles and responsibilities 5.2 Develop & execute communications plan 5.3 Define governance model Issue SOW with ground rules SOW approved Review subcontractor contracts Initial notification to subcontractors Identify subcontractor dependencies Commence disengagement execution Figure 2 Example model for commencing a transition 6

7 Agree Upon Key Transition-Out Decisions The plan should establish key transition-out decisions that will need to be determined when the transition-out model is implemented. Examples of typical questions that will need to be answered for this type of decision, assuming either a full or partial termination, include: What functional areas will be changed by the transition-out activities, why are they being changed, and what notifications will need to be provided? What are the critical implementation dates for the transition-out activities? Who will perform the future support functions for the services? Which personnel and sub-contractors will be needed? Where will they need to be located? Which assets will be needed to provide the services after termination? Which assets will have to be purchased, sold or transferred? What assets will need to be relocated? What project team structure and governance model, including third-party sub-contractors and transition-out support, will be needed? Identify the Data Required for Transition-Out The plan should specify the types of data that will be required for transition-out, where the data is located, and how frequently it will be updated. Work Breakdown Structures (WBS) The plan should set out high-level work breakdown structures (WBS) agreed upon by all parties for the transition-out. CONCLUSION CIOs must ensure that their outsourcing services agreements address the minimum contractual requirements for the creation and maintenance of a transition-out plan. A carefully thought-out plan will identify what information you will need and what you must do in order to successfully transition services. It will become the detailed rule book for executing a transition in a pre-agreed and organized way. A best practice transition-out plan will: Be prepared early in the outsourcing arrangement Be regularly reviewed, updated and expanded Contain, in as much detail as possible as early as possible, the information required for the incumbent to transition back the services CIOs must ensure that the plan is iteratively refined and updated over the life of the relationship. At some future point, if it is necessary for the services to transition to another party, this transition can occur rapidly, with minimal business disruption and with lower risk. LOOKING FOR A STRATEGIC PARTNER? TPI s CIO and shared services experts can help you achieve your organization s goals through objective advice, knowledge of your industry and experience with arrangements from simple to complex. Looking for a strategic partner? Contact Peter Dean, Director, TPI, at peter.dean@tpi.net or

8 ABOUT THE AUTHOR: Peter Dean, in his role as a Director, brings to TPI clients extensive internal and external information technology sourcing expertise. He is an experienced professional who has more than 30 years of experience with a broad set of IT disciplines in small and large organizations. Peter has extensive strategic IT planning and management experience, along with practical experience in planning, leading and communicating change. He brings a strong commercial focus to TPI s engagements, with significant experience as an external service provider. Peter also brings a solid background in financial services to TPI clients, having held senior technology roles in major banking, insurance, and superannuation organizations. Peter has assisted TPI clients in IT service model design, sourcing strategy, assessments, transactions, and transition management. Peter has led a sourcing strategy development and target IT services model design for an Australian financial services organization. At an Australian government department, Peter conducted independent Value for Money assessments of supplier proposals on a major change program, for which he provided strategic advice to maximize program outcomes. Peter led a competitive tender for Application Management and Managed Services for an Australian media and entertainment company. The sourcing transaction enabled the client to transition from a project implementation service mode to establishing an operational environment with critical service requirements for stability, system performance, and online throughput. Prior to joining TPI, Peter held senior technology positions within a number of Australian based financial services organization including the National Australia Bank where he developed both the initial offshore outsourcing pilots and at the ANZ Bank, providing governance and oversight of all major business projects globally across the group. Peter is tertiary qualified, with a graduate diploma of management and an MBA from Deakin University and holds an ITIL V3 Foundation certificate. ABOUT TPI: TPI, a unit of Information Services Group, Inc. (ISG) (NASDAQ:III, IIIIU, IIIIW), is the founder and innovator of the sourcing advisory industry, and the largest sourcing data and advisory firm in the world. We are expert at a broad range of business support functions and related research methodologies. Utilizing deep functional domain expertise and extensive practical experience, our accomplished industry experts collaborate with organizations to help them advance their business operations through the best combination of business process improvement, shared services, outsourcing and offshoring. For additional information, visit Americas Stephen Kopp Partner & Managing Director CFO Services, America stephen.kopp@tpi.net EMEA Denise Colgan Marketing Director, EMEA +44 (0) denise.colgan@tpi.net India Sid Pai Partner & Managing Director, TPI India +91 (98800) sid.pai@tpi.net Asia Pacific Arno Franz Partner & Regional President Asia Pacific +61 0(2) arno.franz@tpi.net