managing outsourcing for sustainable value- addressing the missing pieces of the puzzle chief...

Managing Outsourcing for Sustainable Value-Addressing the Missing Pieces of the Puzzle

• Chief Executive, Business Catalyst International

• Chairman, International Association of

Outsourcing Professionals, Australia

• Member of IAOP Research Committee

This presentation is in 5 parts…This presentation is in 5 parts…

Q & A - Discussion

Achieving Sustainable ValueBy Addressing the Missing Pieces

The Missing Pieces of The Puzzle

Don’t Change The Game, Fix It

The Maturing Outsourcing Framework

Where We’ve Been…Where We’ve Been…

• Complex contracts - Financial engineering

- Asset transfer - Wholesale staff transfer - Large transition cost

• Bundled service offering – opaque economics

• Single vendor or prime vendor

• Long term contracts: 7 to 10 years with some as long as 15 to 20 years

• Commodity Sourcing – low bidder wins?

• Great honeymoon, lousy marriage

• Lost control and flexibility

• Benefits and value escape

• 50% restructure contract

• 30% missed expectations

Traditional Outsourcing Model

Results

Headlines from Previous World Outsourcing Summits…

Headlines from Previous World Outsourcing Summits…

• The traditional legacy outsourcing model failed to deliver sustainable value and has been problematic

Fantasyland benefits for many have not materialized


Q & A - Discussion


The Missing Pieces of the Puzzle



Key Elements of The Maturing Outsourcing

Management Framework Key Elements of The Maturing Outsourcing

Management Framework

Relationship ManagementContract Management

Governance

Change Management

Service Delivery/Account Management

Performance Management

Commercial Mgt

• Expectation Gaps

• Issue Management

• Blame Game

• Questionable Value

Soundness of the Commercial Deal is Soundness of the Commercial Deal is Fundamental to Success…Fundamental to Success…

Soundness of the Commercial Deal is Soundness of the Commercial Deal is Fundamental to Success…Fundamental to Success…

Proper Due DiligenceProper Due Diligence – deals awarded – deals awarded on sales presentation rather than provider hard on sales presentation rather than provider hard

evaluation…evaluation…

BHP Billiton’s decision to Cancel a large contract

soon after awarding

The Deal is Done, the Delivery Team Struggles…

The Deal is Done, the Delivery Team Struggles…

•Contract

•Value

•Miracles

•Profit

•Client Satisfaction

•Bonus?

Good people start to leave and the vicious cycle starts…

Soundness of the Commercial DealSoundness of the Commercial DealDevelop your own business case independently Develop your own business case independently

before starting the biding processbefore starting the biding process

Soundness of the Commercial DealSoundness of the Commercial DealDevelop your own business case independently Develop your own business case independently

before starting the biding processbefore starting the biding process

Undertake in-depth Undertake in-depth financial analysis of the financial analysis of the deal to assess whether deal to assess whether

business case is realisticbusiness case is realistic

“ “ No one delivers No one delivers outstandingoutstanding value to value to

clients to clients to make a lossmake a loss for for their own business”their own business”

The Fairfax

Case study

The Outsourcing Value Debate DemystifiedThe Outsourcing Value Debate Demystified

LO

Value

Cost

HI

HI

LO

Improvem

ent

Achieved

Outcome Achieved Through Outsourcing

In-house

Outsourcing Promised Target

Expectation Gap destroys the recognition of the value gained / improvement achieved

Expectation Expectation

GapGap

While expectations have not been met,

much real value has been delivered

Former CEO Commonwealth Bank of Australia

“We are a thousand times better off than our previous

in-house function

But……..”

Better Off…Better Off…

So we are better off in most cases…but

nowhere near optimal…


Q & A - Discussion


The Missing Pieces Of The Puzzle

Don’t Change the Game, Fix It


The Missing Pieces of the Puzzle

Managing Outsourcing For Sustainable Value

The Missing Pieces…The Missing Pieces…

Power of Alignment Not Fully Harnessed in Outsourcing

Power of Alignment Not Fully Harnessed in Outsourcing

Company 1

Company 2

Only through alignment can you achieve long term success

Traditionally alignment has not been achieved in most outsourced operations

AlignmentStrategy

People

CustomersProcess

100 -

80 -

60 -

40 -

20 -

Gap Analysis

0 : No Gap

100 : Maximum Gap


Q & A - Discussion

Achieving Sustainable Value By Addressing the Missing Pieces




Lateral LeadershipLateral Leadership

• Ability to think strategically

• Deal making

• Govern partnerships

• Change management

… internal and external resources and competencies to

deliver results / outcomes to internal and external customers

Key Attributes of Lateral Leadership Critical for Outsourcing Executives and Managers

Key Attributes of Lateral Leadership Critical for Outsourcing Executives and Managers

Envisioning capabilities

Desire to manage / lead, not to do

Strong communication skills

Strong negotiating skills with a commitment to deliver for all

parties

Project management and multidisciplinary team management

skills

Marketing / selling ideas

Ability to earn cross-functional credibility and trust

Win-win mentality

Integrated Business Planning Integrated Business Planning FrameworkFramework

Integrated Business Planning Integrated Business Planning FrameworkFramework

Outsourcing is often managed as a contract Outsourcing is often managed as a contract management exercise rather than a business management exercise rather than a business

operation(s) requiring unique leadership, operation(s) requiring unique leadership, management focus and processesmanagement focus and processes

The The “Outsourcing Business Plan” is key to “Outsourcing Business Plan” is key to adopting adopting

a true business management approacha true business management approachPURPOSE: Provide means of dealing with the

evolving business needs and expectation management between the provider and the client, at

strategic and operational levels

Outsourcing BusinessOutsourcing BusinessPlan StructurePlan Structure

StrategyStrategy

FinancialFinancialss

OperationsOperations

Human Human resourceresource

CommunicationCommunicationss

Objectives, tactics, targets

Profitability, ROI, savings

Key Projects, timeline, service levels, KPI’s

State of the partnership, HR needs

Means of communicationBell CanadaBell Canada

Create Responsive Business Plans Create Responsive Business Plans

Plans need to Plans need to recogniserecognise both parties both parties need to maintain profitability over need to maintain profitability over the the long termlong term

Align business objectives between parties Align business objectives between parties – integrate these into the strategic – integrate these into the strategic business plansbusiness plans

The client needs to be involved in the The client needs to be involved in the provider’s business planning cycle – input provider’s business planning cycle – input into scope, timing, review processinto scope, timing, review process

Focus the team to pick up change signals Focus the team to pick up change signals early early - revise plans as things change- revise plans as things change

Create Responsive Business Plans Create Responsive Business Plans

Build “improvement initiatives” into Build “improvement initiatives” into planning, ensure customer feedback into planning, ensure customer feedback into planning cycleplanning cycle

Interactive process - as plans change, Interactive process - as plans change, adjust measures and rewardsadjust measures and rewards

The plan is a mechanism to reflect The plan is a mechanism to reflect changes in the business contextchanges in the business context

Ensure performance measures & SLAs Ensure performance measures & SLAs tightly support each other and are tightly support each other and are

linked to business outcomeslinked to business outcomes

Partnership vs Contractual Partnership vs Contractual RelationshipRelationship

Partnership vs Contractual Partnership vs Contractual RelationshipRelationship

Contractual AgreementA zero-sum game

Contractual AgreementA zero-sum game

ServiceProvider

A B

Partnership vs Contractual RelationshipPartnership vs Contractual Relationship

ServicesServices

Acquisition of servicesAcquisition of services

Provision of services

Provision of services

Client’s Customer Base

PartnershipA non-zero sum game of increasing value

PartnershipA non-zero sum game of increasing value

Partnership

ServicesServices PaymentPayment

PaymentPaymentClient

Both of these are operative at different aspects of an outsourcing relationship


ServiceProviderA B

Client


Operational / IT StrategiesOperational / IT StrategiesVision - Solution DesignVision - Solution Design

Professional ServicesProfessional ServicesStrategic Advice / InnovationStrategic Advice / Innovation

CIO / One-team Concept

Service DeliveryService Delivery

Projects & End-to-End Projects & End-to-End Service ManagementService Management

Professional ServicesProfessional ServicesManagement PartnershipsManagement Partnerships

Contractual AgreementsContractual AgreementsSLA’sSLA’s

In-house In-house ServicesServices

Third Party Third Party ServicesServices

OutsourcerOutsourcerServicesServices

Managing Outsourcing Integrated Team Approach

CEO & Executives

Business PartnershipBusiness PartnershipRelationship ManagementRelationship Management

ClientClient OutsourcerOutsourcer

CEO & Acct Executives

Strategic Intent & Value Strategic Intent & Value PropositionProposition

Some Practical ExamplesSome Practical Examples

Integrating IT strategy development process with the business planning process in a major Bank- from 2 separate process to one integrated process Achieved competitive edge Business managers engaged in technology decision like never

before – revolutionised the way business thought about IT

Outsourcing Account Executives to be part of the company’s leadership team attending CEO weekly meetings – NZ Energy CEO initiative

What are the Intangibles that go Missing When You Move to Outsourcing?

What are the Intangibles that go Missing When You Move to Outsourcing?

Business planning participation is significantly reduced – it’s not the same with outsiders

As relationships move from internal to external the collegial team approach is lost

Two separate cultures that need normalisation

Deep business insights are difficult to gain by the service provider

Intangibles still take a lot of organisational time and create hidden costs that are not accounted for, hence not budgeted for in most outsourcing deals

What it Takes to Operate an Optimal Business OperationWhat it Takes to Operate an Optimal Business Operation

The value of intangible activities is greatly underestimated

In-house

Business Unit

Operation

Outsourced

Operation

Tangible & Intangible

Warm & Fuzzy

Business Operations

Model

Very Tangible

Clinical, Service

Delivery Model

Organisational theory will tell you that clinical, cold operations are not conducive to:

Organisational theory will tell you that clinical, cold operations are not conducive to:

Creating value Innovation Bringing out the best in people Teamwork

The impact of the intangibles on the success of outsourcing is great

Outsourcing Can Drive Innovation to an Advanced Level

Outsourcing Can Drive Innovation to an Advanced Level

““No No organisationorganisation on its own can on its own can out–innovate all of its competitors, potential out–innovate all of its competitors, potential

competitors, suppliers, and external knowledge competitors, suppliers, and external knowledge sources”sources”

--Professor James Brian QuinnProfessor James Brian QuinnOutsourcing Innovation – The New Engine of GrowthOutsourcing Innovation – The New Engine of Growth

““No No organisationorganisation on its own can on its own can out–innovate all of its competitors, potential out–innovate all of its competitors, potential

competitors, suppliers, and external knowledge competitors, suppliers, and external knowledge sources”sources”

--Professor James Brian QuinnProfessor James Brian QuinnOutsourcing Innovation – The New Engine of GrowthOutsourcing Innovation – The New Engine of Growth

““In an information intensive business environment, In an information intensive business environment, constant innovation is the only sustainable constant innovation is the only sustainable

competitive advantage.”competitive advantage.”-Michael Corbett-Michael Corbett

““In an information intensive business environment, In an information intensive business environment, constant innovation is the only sustainable constant innovation is the only sustainable

competitive advantage.”competitive advantage.”-Michael Corbett-Michael Corbett

Outsourcing Can Substantially Enhance Your Innovation Capabilities & Outcomes

Outsourcing Can Substantially Enhance Your Innovation Capabilities & Outcomes

Innovation does not happen automatically- outsourcing or not

Need to formalise innovation program and engage your service provider(s)

Invest in the program- create a joint vision and agree on a reward structure with your strategic partners (service providers)

Amazing value is being derived from external partners by innovation-smart organisations

GM Initiative in outsourcing

business support services

Critical Success Factors

Business Case / Rationale Strategy

Vision

Alignment


Q & A - Discussion





managing outsourcing for sustainable value- addressing the missing pieces of the puzzle chief...

Documents

puzzlemanaging outsourcing

value escape

outstanding value

real value

business case

sales presentation

materializedthis presentation

optimalthis presentation