Charles Arnold, Principal, KPMG LLP
The contract is signed, and the ink is almost dry. It’s taken a lot of time and effort to find the right supplier and negotiate the deal. But now, it’s finally done and the value can ensue.
Not so fast. The most critical time in the lifecycle in any outsourcing arrangement is just about to begin: the transition.
The transition is the period between the actual signature of the agreement up to and until the arrangement reaches “steady state.” It’s usually never shorter than 3 months, but it can be as long as 24 months depending upon the complexity of the agreement. During this window of time, the supplier has to learn what the client is doing, take over the responsibility for doing it, then stabilize their own operations where they’re delivering up to value.
While many clients might think the hard part is over, it’s really just beginning. While some of the responsibility for the success of the transition can be put on the supplier, there are some very critical steps that need to be taken by the client to help ensure success. These can be broken down into three main areas.
The spirit of the contract
Reality hits in the first 30 days. Indeed the letter of the contract is important, but the true value lies in the spirit of the relationship. Both sides must agree to the value that was intended in the transaction, what’s supposed to happen, when, how, etc. Consensus should arise around definitions, payments, risks, deliverables, and how to stay ahead of everything. When both parties get down to the work, you might need to change the scope a bit, assess any new risks, ramp up the supplier team, and plan the project.
This first 30-day window is where both parties need to come together and align. If the pieces don’t fit tightly and neatly together during this window, it’s difficult to bring them together afterwards. It’s easy for work streams to veer apart and have both parties go down their own paths without necessarily correlating it back to the value the agreement was meant to achieve.
The transition plan itself
The supplier is planning to shadow the client’s organization to learn how it works, to transfer knowledge, and to ultimately staff up their own people. This is what the supplier is basing its entire staffing and financial plan around. Even so, this is not the time for clients to say, “Well, it’s their transition,” and turn a blind eye. Arguably, this is the most critical time for client involvement as the client still “owns” the operations. Helping ensure the linkage is effective and carried forward is always the client’s responsibility.
Internal change management, communications and stakeholder alignments, as well as organizational and other changes, are the client’s responsibility too. To that end, the transition management office should be aligned with all those responsibilities and should clearly articulate them strongly and often. This office is responsible for readiness assessments, milestones, execution, and sign off.
Also, the governance team is a long-term organization that needs to exist throughout the entire lifecycle. In fact, creating this team before the contract is signed or at least once it is signed will help carry through the spirit of the relationship, keeping all eyes focused on value.
The tipping point
Once the plan is articulated and everyone hits the ground running, it becomes clear just how big the transition activity is, how many tasks need to be accomplished, and how many people it’s going to take. This visibility can become overwhelming—even frightening. At that point, one of two things can happen. Clients and suppliers can turn on each other and escalate issues or they can band together to work through issues. Because, there will always be issues. If they can pull together collectively rather than adversarially, they can set a great tone for the relationship and the value going forward.
And hear more about issues related to transitioning in the KPMG Advisory Institute podcast: Transitioning to Outsourcing.