There are two major schools of thought that pervade approaches to transitioning services to an outsourced or an offshore provider which drive debate among practitioners of outsourcing as strongly as any business doctrine and are divisive across the business world. These can broadly be categorised as follows:

  • Lift and Drop – the principle of taking a service or function ‘as–is’ and transitioning it wholesale into the receiving organisation without any reengineering or improvement to the extent possible, with speed of transition and continuity of service being the watchwords.
  • Fix then ship – this approach dictates that you should not outsource or offshore a mess and instead the target function should be redesigned and reengineered to be a) optimal for the services required and b) suitable for outsourcing or offshoring.

As Elixirr engages with our clients, we often find that those left holding the service recipient end of the outsourcing ‘stick’ in an outsource arrangement, are strong advocates of the ‘Fix then Ship’ philosophy and these beliefs usually come through negative experience of the ‘Lift and Drop’ approach. The anecdotes have common themes: ‘the service standards declined’, ‘we had no ability to change the existing processes’, ‘we were told the vendor could deliver best practice but we haven’t seen the process improvements we hoped for’, ‘when we asked our vendors for changes the costs were prohibitive,’ we had no transparency of costs’, ‘once we outsourced we lost control and didn’t get the responsiveness we used to have’. So are those with the scars of outsourcing-gone-badly right to say the golden rule is ‘do not outsource a mess’? In our experience, this is not necessarily the case. There are powerful arguments put forward by the ‘Lift and Drop’ school of thought too:

Speed to benefit

First and foremost among them is speed – you want business results this financial year and not after you have spent 3 years grinding out the efficiencies from a non-core process internally. A supplier will be financially motivated to drive the results faster – it is their bottom line.

Skills and Capability

The second reason is capability – increasingly the real experts at business and IT processes are the outsourcers who have the scale and years of process industrialisation to bring to bear, not the organisations for whom these processes are a cost line. Would you diagnose yourself then go to the doctor to ask them to apply the diagnosis? In our experience, an internal transformation approach to outsourcing typically never arrives at its intended destination – the scope becomes reduced, the benefits limited to what an organisation can deliver internally and very often a huge amount of management bandwidth is consumed over long periods of time on functions which are, typically, not the core business of the organisation.

Maximising the benefit

Finally an outsourcer would argue, not without reason, that they are best placed to know how to transform the process to extract the most benefits – especially when it comes to process management, systems and economies of scale – they will change the process to how they want to run it rather than being handed something which is sub-optimal for them; again this really comes down to a trade-off between the level of control, separation and customisation the customer feels they need from a particular service. So why do the negative experiences persist? If the outsourcers are the experts why do so many corporations repent the approach they took and advocate internal transformation?

In our experience this often comes down not to failures in the methodology but to more basic failures in strategy and execution:

  • The way the commercial engagement is structured and linked to the business strategy for outsourcing/offshoring
  • The way the transition of services is managed

Let’s address the first topic, and in our opinion the most critical. What is the strategic intent of the outsourcing arrangement and how does it need to support the business strategy? Companies often misinterpret the failings of an outsource arrangement as being attributable to the fact that the function was not ready for outsourcing and should have been reengineered or improved first. In reality, this is typically a failure to realise what was needed at contractual outset; if you want control and flexibility, build that into the service measures. If all you care about is low cost, don’t expect the vendor to bend over backward to deliver world class-service. As in all things, you get what you pay for. It is possible to outsource an immature function but you should accept that the vendor / captive service provider will have to overcome the inherent issues in the existing processes just as your company would – this requires understanding of the priorities from the outset (cost vs. service vs. flexibility), strong working relationships and strong service management processes to manage through the changes.

Much of the perceived issue can also come around the process applied to transition the services. If the process is being moved without the people who currently perform the tasks, the service provider (whether internal or external) will focus heavily on knowledge transfer and process documentation. This makes sense and if this is done to the right quality this will help inform future re-engineering opportunities too. It is also vital, even in a lift and drop, to ensure process handoffs and delineations of responsibilities are clearly defined. Equally important however is the baselining of services and costs. Are the right things being measured? Is everyone clear on what will be delivered back and what any contracted improvements will be measured against? Do you as the customer have the right retained capability to manage these services – a customer cannot abrogate responsibility for a service just because it is outsourced or offshored – they should be actively involved in the transition process ensuring it is fit for purpose and they are part of the design and sign-off of the services baseline.

In conclusion

A Lift & Drop approach can be the most effective method to transitioning services – It allows the transformation to be done by those who will own the process and it can bring quicker benefits and greater economies of scale but there are key considerations both before and during transition that anyone considering outsourcing or offshoring a function must ensure:

  • Strategic intent and future requirements are reflected in the commercial agreements
  • The transition focuses on all the key deliverables and including clarity on baselining services and costs accurately
  • That the ‘sending’ organisation actively takes responsibility and engages in the transition process and that the transition leaves in place the right retained capabilities to manage the service