Success in outsourcing depends as much on effective people management as process management, says Tony Barker, CSC's director of marketing, UK financial services.
Outsourcing in the financial services market may finally be coming of age. Financial services organisations continue to struggle with capital adequacy, operational costs, and the need to improve shareholder return. Most industry analysts are predicting strong double-digit growth in outsourcing over the next few years in the sector as a result, particularly for business process outsourcing (BPO). As recent contract awards have shown, companies that may have thought long and hard in the past about turning over the management of just small parts their IT operation to services vendors are now outsourcing whole back office and customer facing processes. And those that aren’t yet doing so are at least seriously considering this as an option, even where processes previously considered core functions are involved.
Experience has shown, however, that a fair number of the outsourcing arrangements entered into in the past have failed to fully meet the expectations of either customers or service suppliers. So despite an increased willingness to consider all forms of outsourcing, the majority of financial services companies are still approaching the subject with a huge degree of scepticism and caution. The importance of integration
This caution is probably justified if one compares experience in an area with clear parallels, that of mergers and acquisitions. Many outsourcing contracts are, in effect, acquisitions – the outsourcer acquires a portion of the client’s business operations and supplies the same, often enhanced, services back to the client – so this is a valid comparison.
According to some financial analysts, more than two thirds of mergers and acquisitions fail to live up to expectations in terms of financial and operational benefits. Interestingly, research has shown that the primary issue with most problematic mergers and acquisitions has not been a flawed strategy, but a failure to successfully integrate the individual businesses. This is a lesson that should be noted by outsource suppliers and their clients alike.
Historically both outsourcers and their customers viewed the implementation of outsourcing contracts as one-off events, and the transition of staff and operations as something that had be achieved as quickly as possible.
Today, more than ever, high expectations are being placed upon outsourcing contracts. As a result both clients and outsourcers are beginning to realise that a speedy transition on its own will not create the level of business integration critical to the long-term success of the outsourcing engagement. Integration requires a best practice approach
From experience with hundreds of outsourcing engagements over the past several years, CSC believes that 80 per cent of the integration process necessary can be standardised and repeated via a best practice approach, and has made a significant investment in developing a repeatable, sustainable programme. This type of programme allows integration teams to focus their critical attention on those areas that are truly unique to a particular company or contract, and enables them to contain overall integration costs and risks accordingly.
A wide-ranging and efficient integration programme is critical to a successful outsourcing arrangement for three reasons:
- It helps prevent the loss of key staff knowledge and a potential productivity decline by dealing with 'people' issues promptly and sensitively
- It minimises disruption and risk to the client’s business by ensuring a seamless transfer of resources and services
- It frees-up senior management time on both sides to focus on the strategic issues that will increase the return of mutually beneficial long-term value to their organisations (beyond simple cost savings for the client, and the additional revenue stream for the supplier).
The four main stages of integration that CSC identifies are people, stabilisation, relationship and transformation. The first three stages involve the movement of people and services between companies – frequently referred to as ‘transition’ - with the fourth, often parallel, stage being the implementation of the technical and/or process improvement solutions that ultimately allow each party to achieve their strategic objectives.Minimising Chinese whispers
People are the most valuable asset for most organisations. For this reason alone, it is essential that the integration programme contain a detailed communications plan designed to provide employees with as much information as possible, as soon as possible. As soon as a company shows any signs of considering outsourcing as a business option, the rumour mill will crank into operation, with the end of humanity predicted by the time the news circulates to the fourth floor! The initial aim of the communications plan is to help prevent the loss of key personnel and the maintenance of productivity before, during and after the transfer of people and processes.
With early, frequent and accurate communication, it is far easier to get staff to become committed members of the new team. A combination of communication channels should be used to ensure the greatest possible impact, and could include e-mails, question and answer seminars, workshops, social events, freephone advice lines and an integration-specific web site.
The communications plan should form part of a comprehensive organisational change management sub-programme, assisting employees through the practical and emotional aspects of the change process that will underpin the transfer of operations and responsibilities.Keeping on an even keel
An in-depth understanding of the client’s business should obviously be the number one priority for any outsourcer, as this is critical for ensuring a transfer of work with no disruption in service. Stabilisation of the service will only be achieved by understanding the current work environment, management systems and business processes, and limiting any initial changes to those that are really essential for the work to take place within the outsourcer’s own operational infrastructure.
As with any change process, there will be personnel who decide that the brave new world isn’t for them and decide not to transfer. The integration programme should include a knowledge transfer methodology to ensure that information critical to successful service delivery is not lost.
Also, as part of the stabilisation stage, an analysis should be conducted by the outsourcer to assess the operational and cultural impact of the changes they will introduce on the remainder of the client’s organisation. If necessary, additional communication and training materials should be used to bridge any gaps.Managing the relationship
For outsourcing to be truly effective, the client-outsourcer relationship has to move to a new level of co-operation, trust and communication. The most successful outsourcing engagements are those where the client and outsourcer work together to develop solutions that allow both parties to meet their respective financial and operational objectives.
It is therefore imperative that management procedures are put in place that will permit and encourage this partnership. The refinement and finalisation of reporting criteria, relationship and governance models, contractual agreements around invoice structures, and service level agreements, are all necessary perquisites for management alignment.Transformation
It is generally during the transformation stage that the benefits of a sound integration process become most evident. By getting the people and service issues firmly under control, the implementation of the technology and process improvement solutions that will deliver the long-term operational and financial benefits for both parties is greatly expedited.
Primarily project-orientated, the nature of the transformation stage will vary greatly from contract to contract. It will encompass a variety of elements, including perhaps help desk and data centre consolidation, IT architecture standardisation, application rationalisation, technology refresh, systems integration, and process improvement and transformation.
But whatever it includes the transformation stage is certainly one that should be seen as being open-ended, with both client and outsourcer committed to a process of continuous improvement for mutual benefit.
Indeed, viewing all four stages of integration as open-ended, and adopting a systematic approach to integration that minimises the costs and risks of an outsourcing engagement will ensure that the expectations of both the client and the outsourcer can be achieved.