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Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
Outsourcing Vendor Selection and Defining What Services to Outsource
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Outsourcing Vendor Selection and Defining What Services to Outsource

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Session Two Outsourcing Fundamentals Course further courses and information are available at the main site www.1stoutsource.com

Session Two Outsourcing Fundamentals Course further courses and information are available at the main site www.1stoutsource.com

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  • 1. Slide: 1 Slide 1More free downloads and templates at: 1stOutsource Research Vendor Selection Session 2 Royston E Morgan roystonmorgan@1stoutsource.com
  • 2. Slide: 2 Slide 2More free downloads and templates at: 1stOutsource Research Last time we saw that key to success is avoiding some of the pitfalls  Wrong function outsourced  Wrong vendor selected  Wrong process outsourced  Outsourcing a core competence  Outsourcing a critical process  And so on…
  • 3. Slide: 3 Slide 3More free downloads and templates at: 1stOutsource Research Supplier vendor procurement relations work best for commodity services  For frequent or occasional generic services – Sourcing from market may be favoured – Normal contracting and SLA‟s to monitor services  Frequent specific or proprietary services (higher specificity) – Selective sourcing from market may be best – Relational type of contracts – Constant checking for value  Occasional specific or proprietary services – Joint Governance
  • 4. Slide: 4 Slide 4More free downloads and templates at: 1stOutsource Research The Outsource Lifecycle Management Preparation NegotiationTransition Scoping Relationship Formation Relationship Maturity Relationship Engagement The Outsource Lifecycle Definition Interpretation Renegotiation Terminate Selection Reconnaissance Awareness of need to improve
  • 5. Slide: 5 Slide 5More free downloads and templates at: 1stOutsource Research Outsourcing is an operational improvement option  Problem area in terms of issues. – Operation mismatched to market requirement.  Problem area in terms of improvement. – Managers task is always to check resource balancing. – Act to minimise costs (check if market can offer advantages).
  • 6. Slide: 6 Slide 6More free downloads and templates at: 1stOutsource Research The rationale for outsourcing is to solve a business issue  Symptoms seen of poor performance. – May be generated problem due to need to improve processes. – General issues such as need to reduce organisational cost. – Structural issues.  The early stages of the outsource lifecycle is looking for improvement options. – (or correcting a problem) that points to a competitive sourcing approach. – A an early stage the correct approach allows the ways of evaluating success emerge. Note: Outsourcing is not a problem but a solution option
  • 7. Slide: 7 Slide 7More free downloads and templates at: 1stOutsource Research If we outsource to focus on core competences make sure we know what they are…  A core competence is a specific resource or capability that an organisation sees as being central to the way it succeeds.  It is embedded in the context of an organisation and often systemic and integrated.  A core competence fulfils three criteria: – Provides a direct benefit to a customer and is a process that adds value to the product or service. – It is not easy for a competitor to replicate. – It can be leveraged widely to many products and markets (has scope).
  • 8. Slide: 8 Slide 8More free downloads and templates at: 1stOutsource Research A core competency can take various forms  Technical and subject matter know-how.  Expertise in a particular business (or technology) process. – Note the cumulative nature of technology competence.  Deep knowledge in a particular market or product trajectory (is an aspect of collective learning). – e.g. lighting for Philips  Possession of a particular market entrance or relationship with suppliers and/or clients.  Pivotal position in the supply chain.
  • 9. Slide: 9 Slide 9More free downloads and templates at: 1stOutsource Research A core competence is relative to other organisations  Provides fundamental basis of added value and competitive edge.  Found in added value parts and processes of organisations.  Involves coordination and integration of technologies and processes.  No more than about six core competences in an organisation.  Need to keep these close as they form the basis of survival in the competitive environment.
  • 10. Slide: 10 Slide 10More free downloads and templates at: 1stOutsource Research We can think about those we need to keep Monitor Core Non Core Question Ability Competitors to follow or replicate Traceablebenefittocustomer Easy Hard LowHigh
  • 11. Slide: 11 Slide 11More free downloads and templates at: 1stOutsource Research Strategic sourcing balances criticality of technology, business and experience Wilcocks, Fitzgerald, Feeny (1995) In House Market Test Selective Discrete Only Outsource Core Low Low High High Non-Core Relative experience with technology vendor to client Business uncertainty Low High Process criticality of technology
  • 12. Slide: 12 Slide 12More free downloads and templates at: 1stOutsource Research Or the degree to which a process contributes to competitive edge
  • 13. Slide: 13 Slide 13More free downloads and templates at: 1stOutsource Research This leads to a basic decision at a high level about how to proceed McIvor (2005) Invest to perform internally OR Outsource Perform internally Outsource Exploit OR Keep Internal Critical to competitive Advantage Low High Non critical to competitive Advantage Relative capability
  • 14. Slide: 14 Slide 14More free downloads and templates at: 1stOutsource Research Here is a schematic of Retailers IT systems Back Office Front Office Physical distribution Warehousing Scheduling & Transport Mgt Tracking SCM Business DSS CRM POS system Store Operation Catalogue mgt Returns Mgt Labels & shelf Mgt Barcode systems In store HRM Payments Product lifecycle Mgt Loyalty Mgt Promotions AR/AP & FA Pricing & discounts Replenish -ment Order fulfilment Vender management Buying Item management Import export Demand forecasting Space planning Item management Price management Goods receipt Returns SCM
  • 15. Slide: 15 Slide 15More free downloads and templates at: 1stOutsource Research What were the core processes to Sainsbury's  Which processes were critical to Sainsbury's success?  Which capabilities do you think needed focus. – What would have been your sourcing strategy and why?
  • 16. Slide: 16 Slide 16More free downloads and templates at: 1stOutsource Research Outsourcing Stage: Scoping  Formulation of strategy – Agreeing objectives – Defining Options – Base lining – Benefits appraisal (expectations)  … input for Business Case for Outsourcing
  • 17. Slide: 17 Slide 17More free downloads and templates at: 1stOutsource Research Defining objectives (and constraints) for outsourcing  The first thing to do in any outsource approach is to agree internally what the objectives of the outsource are – … and keep asking until this is clear and agreed  Initial trigger can be cost but to be effective we need to extend beyond this  Objectives will differ by main functional group – Finance = cost – Operations = flexibility – Technology = refresh – HRM = access to new skills – …  … During initial stages of the decision gaining consensus for the broad thrust is the main task and the priority – Starts the process of agreeing evaluation criteria  Setting the objectives correctly imprint the entire process outcome
  • 18. Slide: 18 Slide 18More free downloads and templates at: 1stOutsource Research Objectives need to be SMART and Consistent  Specific, measurable, achievable, relevant and time bound. – These objectives provide evidence base to judge the outcome of the outsource process.  Objectives must be consistent. – Watch asking for increased service and low cost at the same time. – Asking for flexibility and customised service implies vendor cannot take advantage of scale effects and cost may actually rise.  Will need to be shared with the potential vendors. – Clear objectives enable the vendor to pitch perfect for the business. – Although be sure the objectives are real and will form the basis of selection.
  • 19. Slide: 19 Slide 19More free downloads and templates at: 1stOutsource Research For potential areas careful assessment of the scope has to be formulated  The areas: department processes and services. – And positioned (contextualised) within the entire organisation – People (roles) that may be outsourced. – Enables organisational interfaces to be recognised later and the service concept defined.  Detailed modelling financially is usually needed. – Discounted cash flow if talking of financial streams well out into the future. – Be careful how overheads are taken into account. – Write down assumptions about cash flows and their timings. – Ensure transition cost is accounted for (usually quite steeply).
  • 20. Slide: 20 Slide 20More free downloads and templates at: 1stOutsource Research Scope can be shown covering headcount and service Management Functional heads HR Management Payroll Records Benefits HRM Director 1FTE Functional heads 6FTE HR processes 5FTE Payroll 5FTE + 1FTE accounting Record management 4FTE Benefits and compen- sation 4FTE Functional heads 1FTE 1 FTE covering maternity 1FTE vacancy 1FTE vacancy In-house Contract Hiring & Firing Employment Personnel Staff development Accounting Payroll Records management Technical support Filing and clerking Benefits Consulting Compensation planning Staff development Process Scenario One Scenario Two
  • 21. Slide: 21 Slide 21More free downloads and templates at: 1stOutsource Research Kraljic Strategic Purchasing Model Supply or Purchasing Risk 1st generation sourcing ServicevalueorProfit StrategicLeverage Bottleneck Low – Standard Product High – Specialised Product 2nd generation sourcing Routine LowValueHighValue 4th generation sourcing 3rd generation sourcing Kraljic's purchasing portfolio model (1983)
  • 22. Slide: 22 Slide 22More free downloads and templates at: 1stOutsource Research Each block in framework has an appropriate sourcing approach.  Strategic (high value/profit, high supply risk) – Planning by developing long-term relationships, managing risk regularly and making the item in-house rather than outsourcing.  Leverage (high profit impact, low supply risk) – Using purchasing power, dual source products or suppliers.  Bottleneck (low profit impact, high supply risk) – Over stocking when the item is available (availability is one of the most common reasons that supply is unreliable) and tight control.  Routine (low profit impact, low supply risk) – Standardized products, monitoring and/or optimizing order volume, and optimizing inventory.
  • 23. Slide: 23 Slide 23More free downloads and templates at: 1stOutsource Research Plot the scope on the strategic procurement model Supply or Purchasing Risk 1st generation sourcing Servicevalueorprofit StrategicLeverage Bottleneck Low – Standard Product High – Specialised Product 2nd generation sourcing Routine LowValueHighValue Routine Helpdesk & desktop management Application management Infrastructure HW & SW 4th generation sourcing 3rd generation sourcing
  • 24. Slide: 24 Slide 24More free downloads and templates at: 1stOutsource Research Sainsbury’s outsourced most of their IT processes to Accenture  Which services added most value to Sainsbury's competitive edge?  Assess the purchase risk of the sourcing approach.  And define the procurement approach you would have used.
  • 25. Slide: 25 Slide 25More free downloads and templates at: 1stOutsource Research Preparing the business case for outsourcing  Sets down the rationale for outsourcing. – Reasons for outsourcing. – Assumptions behind the decision. – The agreed position over the benefits. – How we will approach this large business change.  Can change over time as circumstances change. – Needs to be reviewed and updated. – Can mean that case becomes invalid (what do we do then!).
  • 26. Slide: 26 Slide 26More free downloads and templates at: 1stOutsource Research Main Contents  Reasons – The reason for the outsource (problem centred).  Options – All those considered and rationale for selection. – Include desired governance and contract approach. – Financially model each option.  Benefits – Tangible and intangible benefits expected.  Risks – Quantifiable (if risk > benefit reconsider options). – Risk mitigation strategies.  Cost timescales – Include initial estimates (will update as we get closer to the deal).  Investment appraisal – DCF or Break Even Analysis (with some aspect of sensitivity analysis). – GAP analysis (Good Bad Pessimistic).
  • 27. Slide: 27 Slide 27More free downloads and templates at: 1stOutsource Research Business Case  Summarise the first three elements of the Business Case  Why Outsource?  What are the Options?  What are the Benefits expected?  … and report back
  • 28. Slide: 28 Slide 28More free downloads and templates at: 1stOutsource Research The main differences between the RFP and the RFI RFP  Small number of final vendors, 4 or less  Comprehensive  Information gathering tool on specific vendors  Asks for pricing RFI  Large number of potential vendors >5  Limited in scope  Information gathering tool on the industry  May not ask for pricing
  • 29. Slide: 29 Slide 29More free downloads and templates at: 1stOutsource Research Vendor Selection Approach  Outsourcing team defines selection criteria in advance.  Due diligence can be used as a vehicle to attain buy-in.  Key Vendor selection criteria: – Cultural/Organizational fit, – Domain experience, – Resource quality, – Technical capabilities, – Risk/reward balance.  Establish good two-way communication with final two/three before negotiation begins. – Start to develop a relationship (ensures rapport and mitigates faking).
  • 30. Slide: 30 Slide 30More free downloads and templates at: 1stOutsource Research Due Diligence Best Practices  Look objectively at vendor qualifications - stay focused on proven capabilities & real industry experience. – Most will claim specific sector experience that needs to be evaluated.  Be prepared outsourcing firms have savvy salespeople.  Get to know the people who will actually be delivering the service (not just the sales staff). – Visit vendor and perform random interviews with resources performing similar work for other clients. – Ask for several reference visits and visit without vendor.  Any industry class vendor has no problem with this. – Watch account teams gate keeping.
  • 31. Slide: 31 Slide 31More free downloads and templates at: 1stOutsource Research Due diligence validates the vendor information on processes, financials, experience and performance.  It helps you find out what the vendor can do right now.  Confirms the information in the RFP and addresses: – Company profile, strategy, mission and reputation, – Financial Status, – Customer references - from similar outsource situations, – Process expertise, methodology and effectiveness, – Quality compliance and certifications, – Technology, infrastructure stability and applications, – Security and audit controls (very important), – Legal and regulatory compliance, including any outstanding complaints or litigation (this also applies to you in their due-diligence), – Use of subcontractors (off shoring for example), – Insurance, – DR, security and business continuity policies.
  • 32. Slide: 32 Slide 32More free downloads and templates at: 1stOutsource Research Check the transition model  Analyze the delivery approach of the vendor: – Does their transition methodology integrate with your own? – Is there sufficient flexibility and contingency? – Assess how vendor manages cultural barriers. – Assess how well change is managed.  Assess level of onsite work required at existing clients for the Vendor to prepare the outsource.  Leverage internal outsourcing expertise: – Contact your industry group. – Contact competitors!
  • 33. Slide: 33 Slide 33More free downloads and templates at: 1stOutsource Research Due Diligence  You have to plan a site visit to a client of an outsourcing vendor?  Who do you need to see and what questions do you need to ask?
  • 34. Slide: 34 Slide 34More free downloads and templates at: 1stOutsource Research Negotiation best practices  Outsourcing firms are hungry – customers have the advantage (be aggressive but reasonable).  Agreements are complex – do it once and think long-term (avoid “nickel-n-dime” charges later).  Mature firms are excellent negotiators.  Get quality guarantees/penalties.  Name specific account management resources in the contract: – Interview resources first (including proposed service manager). – Guarantee for 18-24 months by name to ensure momentum.
  • 35. Slide: 35 Slide 35More free downloads and templates at: 1stOutsource Research Negotiation Best Practices (Continued)  Define the organisational resources required from Vendor: – Be specific about the skills you need/foresee, – Guarantee skillset availability at contract price, – Define experience levels required, – Tiered volume pricing by skillset works well, – Price Onsite, Onshore and Offshore separately, – Negotiate travel cost as a fixed price per week for short-term onsite/onshore assignments (do not include in hourly rate budget separately).  Define your own resource plan and check with the vendor.  Plan carefully and be as specific as possible. – Making changes later very costly.
  • 36. Slide: 36 Slide 36More free downloads and templates at: 1stOutsource Research Define your position before you start any negotiations Issue Outline of Issue Preferred Tolerable Required Term of the contract The length of the contract and extension terms 5 years then re- contract 5 years 1 year agreed extension then re-contract Maximum 6 years then re-contract Insourcing guarantee Ability to in source after contract end Transfer no cost 3 months transition support Transfer no cost 3 months transition fixed fee if for convenience Transfer no cost 3 months transition support no cost if for cause Transfer assistance Support in service transfer to new supplier Full handover cost within contract Full handover + agree fixed fee above contract service Full handover + cost above contract level Pricing structure Service payment and guarantees Service credit of 5% contracted value in period Fee reduced to delivered service level Fee reduced to delivered service level + penalty after 1 month One tool that is useful is the PTR chart to define your negotiating position
  • 37. Slide: 37 Slide 37More free downloads and templates at: 1stOutsource Research Transition Risk in Outsourcing  During the Outsource cycle vendor performance must be clarified: – In terms of protection of rights. – In measure of trust between parties.
  • 38. Slide: 38 Slide 38More free downloads and templates at: 1stOutsource Research During the Outsource selection high level choices and factors to balance Process Technology Balance Source: Adler, P. (2003) Sloan Management Review Dependency risks Spill over risks Trust Strategic Capabilities High Level considerations
  • 39. Slide: 39 Slide 39More free downloads and templates at: 1stOutsource Research Process Technology Balance  If there is uncertainty or criticality in technology. – And doubt over future value of the supported process then outsource but check vendor capability. – If a core process is dependent on the technology being outsourced vendor reliability is critical (could be better managed in house?). – If a technology is a core competence of either party source in the direction of the competence.  Focus on the core competence and its relation to other processes – and how this connects with the vendor offer.
  • 40. Slide: 40 Slide 40More free downloads and templates at: 1stOutsource Research If there is a degree of joint specificity there can be a dependency risk  Joint specificity refers to the degree to which client and/or vendor need to invest and specialise in an activity to provide the service to an acceptable level. – For example a specialised support process that cannot be shared with other clients.  If doubt over the value of a process then risk is low. – Still have to watch for dependency risk.  If a core process is critical and doubts over delivery arise may need to de-scope (likely best to keep in house anyway).  If a process could become a source of competitive advantage then keep in house (e.g. SCM but not the transport element).
  • 41. Slide: 41 Slide 41More free downloads and templates at: 1stOutsource Research During vendor assessment spill over risk has to be carefully monitored  Risk of exposure to breaches of confidentiality. – Your processes etc. become „available‟ for other vendor clients.  Risk of compliancy breaches: – Data losses such as credit card details appearing on open market. – FSA fines Norwich Union Life £1.26m for slack security at an outsourced call centre (compliancy cannot be outsourced).  Exposure to IPR or propriety secrets loss – Cases in America of outsource vendor entering market with a competitive product. – NDA‟s are also not taken seriously in some countries.
  • 42. Slide: 42 Slide 42More free downloads and templates at: 1stOutsource Research Relative Proficiency between Client and Vendor  Knowledge and know how will be transferred to the vendor as part of the outsource (assume this will happen). – Plan for retention and control (as you may have to take back) – Knowhow and how to manage and acquire?  Technology competence accumulates over time. – Apparent stability hides high level tacit understanding. – Tacit competence in how to work in a crisis can be lost. – Organisational slack taken up in outsource can cost flexibility.  A core process tightly integrated with technology can become a hostage to fortune (be very careful).  Scaling effects may not be as great an advantage. – Big clients usually have greater competence in the specific application of the technology than the vendor so… – … plan to hold onto this!
  • 43. Slide: 43 Slide 43More free downloads and templates at: 1stOutsource Research The need to retain strategic flexibility  Processes that contributes to competitive edge. – Doubtful whether to outsource?  Critical Processes – Those that are not core but highly dependent on those that are could be also candidates for retention. During the vendor assessment phase due diligence helps to focus on your own strategic demands as well as confirming the contribution of the supplier.
  • 44. Slide: 44 Slide 44More free downloads and templates at: 1stOutsource Research Reflection  You are asked to prepare a proposal to outsource research and development.  What would you say?  What controls might be needed to protect your own interests?
  • 45. Slide: 45 Slide 45More free downloads and templates at: 1stOutsource Research At the deeper levels of outsourcing trust and relationships need to be built up but … Conditional & Fragile Takes time to develop If low between the parties – Implies high maintenance – Implies high costs Develops by real interactions Learning Environment Task Process Goals Evaluation Efficiency Equity Flexibility Revision Task definition Routines Interface Expectations Initial conditions Task Expectations Interface Routines Based on cooperation in alliances Doz (1996)
  • 46. Slide: 46 Slide 46More free downloads and templates at: 1stOutsource Research The partner trust positive spiral Efficiency Equity Flexibility Initial positive expectations Heightened expectations Willingness new roles Improves initial conditions Search for better ways of working together Willingness to make irreversible commitments Desire to increase the stakes and scope of partnership Clarity of value creation
  • 47. Slide: 47 Slide 47More free downloads and templates at: 1stOutsource Research Frequent interactions key to forming successful relationship  Evidence shows frequent interactions mitigate against opportunism: – Avoids an „arms length‟ relationship. – Increases trust. – If there is trust reduces need for extensive and expensive monitoring of the contract later on.  Lots of interactions and not just in an account way. – Demonstrate real concern for business. – Demonstrate concern to get it right and take the hit when it is wrong.
  • 48. Slide: 48 Slide 48More free downloads and templates at: 1stOutsource Research Explicit communication channels needed to build trust  In a hierarchical organisation tacit knowledge accumulated over time. – Transmitted by people in the form of everyday decisions – If it works and the „guidance‟ accepted then becomes part of the body of knowledge.  Mechanisms across organisations are less explicit. – Day to day discourse not in place. – Means much more engagement needed to explicitly handle problems. – Need good channels to handle the fires that will happen in any deal to avoid creating an adversarial environment.
  • 49. Slide: 49 Slide 49More free downloads and templates at: 1stOutsource Research Reflection  You are outsourcing desk-top services and a supplier proposes a partnership model to simplify the contracting?  What could be the problems or issues?  What would you do?
  • 50. Slide: 50 Slide 50More free downloads and templates at: 1stOutsource Research During contract negotiation phase need to address Vendor transition capabilities  Evaluation of vendor HR processes and capabilities key task. – Need to prepare long term engagement between HR‟s – Vendor client team may have to be formed if large numbers transferred.  Determine/evaluate service structure of vendor. – Degree offshore/onshore and implications. – Likely implications for any transferred staff.  Set up personnel management structure/processes to manage outsource staff. – TUPE in the UK needs to be accounted for.
  • 51. Slide: 51 Slide 51More free downloads and templates at: 1stOutsource Research In summary outsourcing effects critical dimensions of the task between the parties Systems & Procedures - How people are regulated in order to get the job done Task - What must be done and why (is there a shared view across parties?) Process - How the interactions take place between the Client and Vendor Governance – Control of activity Systems & procedures Tasks Processes Change Outcomes Governance As Outsource managers we have to understand what we are changing in detail
  • 52. Slide: 52 Slide 52More free downloads and templates at: 1stOutsource Research The Service level Agreement  Purpose: – Assures service commitment to the customer has teeth. – Enables supplier to focus on what is important. – Mediates the service delivery.  With a good SLA in place there is rarely any need for things like credits. – Service credits do not compensate for consequent loss anyway. – Always a difficult problem to get compensation per se.
  • 53. Slide: 53 Slide 53More free downloads and templates at: 1stOutsource Research The Service level Agreement (SLA) in outsourcing is the key document  It helps manage the strategic relationship between the outsourcing company and the supplier.  It is an Agreement and includes: – The responsibilities of the parties (key when processes change). – The services to be delivered.  Successful outsourcing relationships focus on results.  And these results must be objective and SMART. – Specific Measurable Achievable Relevant and Time-bound. – quantifiable, and comparable against re-established criteria.
  • 54. Slide: 54 Slide 54More free downloads and templates at: 1stOutsource Research The SLA starts from considering what we actually need  Overly high specification can lead to increased costs. – We can end up paying for a service we do not actually need.  General Guidelines: – Ask for the service we need so carefully assess what is required (at least to start with). – Don‟t be too generic in the service demand performance requirement depends on the function using service. – Define terms (precisely) and include timescales. – Worst and Best case bandwidth for the service. – Consequences for service performance failure.  Go for resolution techniques rather than credits. – Include adjustments for service improvement.
  • 55. Slide: 55 Slide 55More free downloads and templates at: 1stOutsource Research Need to avoid micro management No remote management of the service. – Prevents supplier innovation. Need to let go and let the supplier manage the delivery. – Whilst you manage and monitor the outcome.
  • 56. Slide: 56 Slide 56More free downloads and templates at: 1stOutsource Research Ask for continuous improvement and put this in the SLA  Need to raise the bar as far as service requirement. – Watch being over greedy.  Best of breed is only today. – Jointly consider best in class and agree to share improvements. – Encourage active innovation.
  • 57. Slide: 57 Slide 57More free downloads and templates at: 1stOutsource Research Focus on important issues  „Less is more‟ need to have appropriate number of SLAS. – May need to consider CFA, SFA, SLA structure. CFA SFA1 SLA11 SLA12 SFA2 SLA21 SLA22 SLA23 SLA24 SFA3 SLA31 SLA32 SLA33
  • 58. Slide: 58 Slide 58More free downloads and templates at: 1stOutsource Research Reflection  There are systemic stock-outs in your store operation being blamed on your logistics provider and you have been asked to investigate?  What would you do?
  • 59. Slide: 59 Slide 59More free downloads and templates at: 1stOutsource Research Look for clarity in service definition avoid averages Average downtime < 5% Average time to resolution < 5hrs Average time to close CR < 2 weeks Average availability of LAN 95% better better better better Unplanned downtime during 0900 to 1800 <2hours in any rolling month % of errors resolution time > 5hrs 10% % of CR’ s open after 2 weeks <20% after 4 weeks <2% % availability during 0900 to 1800 Monday to Friday >98%
  • 60. Slide: 60 Slide 60More free downloads and templates at: 1stOutsource Research What to do in the case of a continuous service failure.  Prepare exit scenario and include in SLA. – Be as detailed as needed and agree criteria in the termination of services section. – Agree the precise process of invocation.  Supplier cannot agree to more than the margin. – Need to be big enough to cover cost of managing them and enough of a deterrent if you use these to force action.  Need clear process to actual service resolution else situation can perpetuate. – This is actually what is important.
  • 61. Slide: 61 Slide 61More free downloads and templates at: 1stOutsource Research Define clear boundaries and responsibilities  Measurement of performance and relative contribution is a critical issue…  … and can lead to problems if not done well. – Supplier needs to be treated fairly if performance is good. – Each task needs a RACI. – What is out of scope is just as important as what is in. – Sainsbury recriminations Accenture believed their responsibility ended with managing their IT systems whereas the customer through it broadly extended to cover the logistics.
  • 62. Slide: 62 Slide 62More free downloads and templates at: 1stOutsource Research Contents of a SLA  Terms and service conditions.  The service levels required. – Perhaps in the form of a catalogue showing how the service levels will be measured.  The process of measuring. – Who will do the measuring (perhaps independent?). – Accuracy required and measurement periods. – Cost of the measurement and how this is covered (and by whom).  Reporting procedures.  Review processes and governance.  Termination procedures. – Including guarantees for continuity.
  • 63. Slide: 63 Slide 63More free downloads and templates at: 1stOutsource Research Implementing the SLA  Keep track on agreement by careful monitoring.  Unless implemented nothing has happened.  A SLA is an agreement so… must be agreed!

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