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Th 2010 Outsourcing

The O i World
W ld
Summit

A Toolkit for BPO Success


Stephen Hunsberger, PhD

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Application
pp Development
p Pain Points

• Vendor Related Issues


• Milestone commitments – use the project workbook approach and getting the
contract off to a good start
• Contract violations – use the quality approach to defining test cases and document
payments around the successful completion of use cases
• People
P l related
l t d issues
i – ensure contract
t t hash skills
kill defined
d fi d and
d that
th t it makes
k the
th
contract invalid if the skills are not fullfilled
• Incomplete Deliverables – same using the 2 week review process
• Customer Related Issues
• SME commitment – have a customer contract outlining the commitments required
for this effort – violations
• Customer Review and Signoff
• Defect definition as part of the quality managers responsibilities
• Internal
I l IT Related
R l d Issues
I
• Requirements Definition – use cases for functional specifications and supplimental
specifications
• Internal Staff issues -

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BPO Related Pain Points

What are the pain points between expectations and partner's Given that delays can
performance?
p reflect poorly upon
project managers, it is

Analysis
easy to see why
“slower than expected
execution” would
yield a higher
percentage of issues
than other areas.

2008 Source: TechWeb Survey 475 US and Canadian Organizations

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Agenda of Key Items

• Marketplace
p Dynamics
y
• Risks and Pain Points
• BPO Framework
• Requirements Management
• Financial Model Development
• Partner Performance
f

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BPO strategies are increasingly a part of every corporate agenda…or it
soon will be
Percent implementing offshore strategies before 2007 vs. by end of 2009
(75% are large companies)

Corporate Wide

R&D

Product Design

IT

Engineering

Software Development

Marketing & Sales

Call Center

Finance & Accounting

Human Resources

Procurement Before 2007 By 2009

0% 10% 20% 30% 40% 50% 60%


2009 Source: Duke University/The Conference Board Offshoring Research Network 2007/9 U.S. Survey

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HR, Tech Support and Finance Top the List of BPO Areas

Is your organization engaged in any of these types of BPO The high interest in HR
activities? outsourcing highlights
the growing trust
c stomers are placing
customers

Analysis
in their BPO providers,
as these processes
touch the assets that
are most vital to the
success of any
organization: its
employees.
A failure to properly
execute good service
can damage the
reputation of a
company, especially
when it comes to the
recruitment and
retention of talented
workers.

2008 Source: TechWeb Survey 475 US and Canadian Organizations

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However, room for improvement is evident as only 26% would
consider their BPO initiative(s) successful …

How successful were you in your BPO initiatives? Two-thirds of those


respondents
d t qualify
lif their
th i
success as “marginal”
rather than “successful”

Analysis
It was unsuccessful
The criteria used to
determine what
Too soon Achieved “successful” means
to tell varied between
some benefits responders.

It was
successful

2008 Source: TechWeb Survey 475 US and Canadian Organizations

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Slow Execution and Poor Customer Service Cited as top BPO
Partner Performance Issues

What are the pain points between expectations and partner's Given that delays can
performance?
p reflect poorly upon
project managers, it is

Analysis
easy to see why
“slower than expected
execution” would
yield a higher
percentage of issues
than other areas.

2008 Source: TechWeb Survey 475 US and Canadian Organizations

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Despite BPO benefits, organizations are faced with a number of
inherent risks

Key BPO Risks

Financial Risks Security and Compliance Risks Service Quality Risks


• Unanticipated transition costs erode • Poor adherence to security • Inconsistent service quality
savings regulations
• Lack of effective measurements
• High support costs reduce net • Undocumented controls over and SLAs to monitor service
savings sensitive data quality

• How does the BPO provider’s security • What are the appropriate
• What is the cost to provide secure
policy protect sensitive customer data? service level metrics to manage
connectivity to BPO partners?
service quality?
• Are the BPO provider’s Business
• What is the expected level and
Continuity Plans consistent with internal • Do the BPO vendor’s current
cost of ongoing support?
company standards? assets support future service and
• How
H will
ill lilicensing
i costs
t change
h it requirements?
capacity i t ?
given that BPO provides may not
have access to the same scale-
driven discounts?

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Enabling successful outcomes requires strong Governance and
Project
j Management
g disciplines
p throughout
g the BPO Lifecycle
y

Define Approve
Select Transition Manage
Case for Business
Partner(s) the Process Performance
Change Case

1. Understand Business 6. Internal / External 10. Assess vendors 15. Create Transition Plan / 20. Collaborate for
Objectives / Needs Measurements – capabilities Project Plan Continuous
Benchmarking Improvement
11. Define SLAs 16. Review Process and
2. Assess Pain Points & 7. Gap analysis Implement 21. Manage changes, SLAs,
Opportunities 12 Solution Definition
12. Reengineering Efforts new reqs., and contract
8. Establish Success
13. Create RFP 17. Implement Training 22. Re-evaluate / Measure
3. Build Model (financial / Criteria - Use / Test Program success criteria
process) cases development
14. Execute Selection
Process 18. Develop scorecard 23. Evaluate Back-Sourcing
4. Build Support for BPO 9. Approve Business Case potential
Strategy 19. Manage Transition

5. Define Scope / Scenarios

Covered
in Today’s
Team Profiles Presentation
• Senior Executives • Senior Executives • Vendor Management • Department • Department
• Organizational • Target Departments • Department Management Management
Change • Finance & IT Management • Organizational • End Customers
Management • Organizational • Finance & IT Change • Senior Executives
• Finance & IT Change Management • End Customers Management • Finance & IT
• End Customers • End Customers • HR
• End Customers

Project / Program Management & Compliance

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Deeper
p Dive: Understandingg Business Objectives
j / Needs

Define Approve
Select Transition Manage
Case for Business
Partner(s) the Process Performance
Change Case

1. Understand Business 6. Internal / External 10. Assess vendors 15. Create Transition Plan / 20. Collaborate for
Objectives / Needs Measurements – capabilities Project Plan Continuous
Benchmarking Improvement
11. Define SLAs 16. Review Process and
2. Assess Pain Points & 7. Gap analysis implement 21. Manage changes, SLAs,
Opportunities 12 Solution Definition
12. reengineering efforts new reqs., and contract
8. Establish Success
13. Create RFP 17. Implement Training 22. Re-evaluate / Measure
3. Build Model (financial / Criteria - Use / Test Program success criteria
process) cases development
14. Execute Selection
Process 18. Develop scorecard 23. Evaluate Back-Sourcing
4. Build Support for BPO 9. Approve Business Case potential
Strategy 19. Manage Transition

5. Define Scope / Scenarios

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Decreasingg Costs Is the Top
p Driver for BPO Services

What are the primary and secondary business drivers for BPO adoption is tied to
BPO services within your organization? much more than cost
savings yet that is the
savings,
primary business

Analysis
driver.

If the BPO providers


don’t succeed on cost,,

A
they may not get the
chance to prove their
merit in terms of other
important drivers, such
as adding business
value
l or creating
ti
business
transformation.

2008 Source: TechWeb Survey 475 US and Canadian Organizations

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Identifying and managing BPO requirements effectively drives
success…similar to typical
yp IT development
p efforts run byy Project
j Managers
g
• On the top level are stakeholder needs. Usually, a
project contains five to fifteen of these high-level needs.
On the lower levels are features, use cases, and
supplementary
l specifications.
ifi i On
O different
diff levels
l l off these
h
requirements are different details. The lower the level, the Needs
more detailed the requirement is.

• Use cases describe functional requirements, and Features


pp
supplementary y specifications
p describe non-functional
items. In addition, every use case maps to many scenarios.

• Before creating a test case, you need to Scenarios


identify all of the scenarios for the given use
case. A scenario is an instance of the use
case It describes one specific path through
case.
the flow of events. Use Cases, Sup.Spec
• While doing scenarios and test cases, you can give
feedback to use case designers and refine
requirements.
q This can helpp shift some tasks earlyy on Test Cases
in the process, and eventually contribute to the team's
ability to finish the project sooner.

Note: Identify test cases in contracts to ensure conformance to requirements and have
pa ment terms based upon
payment pon passed test cases

Shared Services & Outsourcing Summit Page - 13


Deeper
p Dive: Build Model ((financial / process)
p )

Define Approve
Select Transition Manage
Case for Business
Partner(s) the Process Performance
Change Case

1. Understand Business 6. Internal / External 10. Assess vendors 15. Create Transition Plan / 20. Collaborate for
Objectives / Needs Measurements – capabilities Project Plan Continuous
Benchmarking Improvement
11. Define SLAs 16. Review Process and
2. Assess Pain Points & 7. Gap analysis Implement 21. Manage changes, SLAs,
Opportunities 12 Solution Definition
12. Reengineering Efforts new reqs., and contract
8. Establish Success
13. Create RFP 17. Implement Training 22. Re-evaluate / Measure
3. Build Model (financial / Criteria - Use / Test Program success criteria
process) cases development
14. Execute Selection
Process 18. Develop scorecard 23. Evaluate Back-Sourcing
4. Build Support for BPO 9. Approve Business Case potential
Strategy 19. Manage Transition

5. Define Scope / Scenarios

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Determine Appropriate BPO Model & Assess Implications

BPO Model Attributes Characteristics Considerations1

• Retain key
• “Transactional”
Transactional
“analytical” roles
roles transferred
A – “Pure Labor • Provide access to
• Processes and
Arbitrage” applications
Technology remain
• Minimal process
“unchanged”
improvement
B – “Pure • Retain functional • Modify processes to
Software As roles accommodate “best
A Service • May retain some IT practice” processes
((SaaS)”
) roles and technologies
g
• Process, roles and
responsibilities
• Partner with
clearly defined
vendor
• Need strong
C – “Pure
Pure BPO
BPO” • Transition all roles
governance
• Higher level of
• Achieve significant
process maturity
benefits & ongoing
improvements

Hybrid models are likely based on firm objectives


Source: IT Planning Associates LLC, www.itpallc.com 1Key BPO Risks (i.e., Financial, Security & Compliance and Service Quality) apply

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Identifyy process
p areas that will meet the business objectives
j

Recent BPO Process Focus / Targets Organizations are


broadening their BPO
experience beyond

Analysis
Technology Help Desk
and Customer Care
processes into those
that involve higher
skilled and therefore
higher cost local labor

Source: 2008 TechWeb Survey 475 US and Canadian Organizations

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Drill deeper within a Process Area to determine which specific sub-
process(es) would meet the Business Objectives
Finance & Accounting Example

High Typical Retained Processes

Corp.
Svc. &
Mgmt

Example
Decision
ue Added

Support Typical Outsourced Processes

Financial

E
Valu

Planning
& Analysis
Accounting
& Reporting
Initial Candidates

Revenue
Basic
Cycle
Disbursements

High Complexity of Interaction Basic

Source: HCL Consulting

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Analysis of Candidate Positions for BPO Outsourcing – continuing
drilldown example
p
Significant analysis is
No. Total required in determining
Scenarios
the roles that can be

sis
Candidate Burdended1
outsourced within a

Analys
Department Job Title Positions Salary
selected process,
Conservative

Credit & Collections Admin. Staff Associate 4


Billing Associate 2 consider:
Collections Associate 5 • BPO Objectives
Contract Associate 3 • Impact to firm’s
Credit Reporting 2 • customers
Acctg Associate 24 • stakeholders
Aggrressive

Principal Staff Associate 2 • Maturity of current


Senior Staff Associate 4 processes
Team Leader 1 • BPO Vendor
47 $4,021,031 Landscape
Coll. Acctg Cash Application Assoc
Credit & Coll 4 • Skills
Team Lead 1 • Employee
General Accounting Accounts Payable Associate 4 retention
Payroll Associate 3 • Language
Sr Payroll Associate 1 • SLAs, etc.
Sr Staff Account 6 • Geographic Scope
Staff Accountant. 4 • Scale / number of
Supervisor / Financial Acct. 1
roles to be
Team Leader 1
outsourced
25 $2,758,157 • Ability to re-deploy
72 $6,779,188 partial FTEs
• …

1
Based on payroll, assumed 4% COLA increase and 28% for all benefits/overhead

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Develop and Refine the Financial Model Throughout the BPO
Framework – Example
p Duringg “Define Case for Change”
g
Prior Finance Scenario (72 Positions – Aggressive Scenario)
High-Level Outsourcing Financial Model Core team develops
Outsource Scenario: Aggressive
2008 2009 Finance
2010 Scenario
2011 2012 2013
several scenarios,
Positions Outsourced 72 each scenario varies

Analysis
Baseline
Baseline Cost of Positions Considered for BPO Transaction
$ 6,779,188
, Costs
, - Fixed
6,779,188
, , 6,779,188
, , 6,779,188
, , 6,779,188
, , 6,779,188
, ,
Balance of other Finance Positions $ 1,788,357
Legal 1,788,357 1,788,357 1,788,357 1,788,357
$ 1,788,357
275,000 i scope &
in
Consulting 550,000 assumptions,
Total Baseline Cost (Total Finance Dept. Cost) $ 8,567,545
Due diligence - site8,567,545
visits 8,567,545 8,567,545 8,567,545 8,567,545
40,000
Outsource Scenario: Aggressive Finance Scenario
Transaction Costs - Variable providing adequate
Severence Cost - Finance72(see note 4) 1,450,000
Positions Outsourced
Transaction Costs - Fixed Retention Bonus 170,000
information to
Legal $
Transition 275,000
Costs socialize the impact to
Consulting On-site 550,000
transition team (including IT costs) 500,000
Due diligence - site visits 40 000
40,000
Change Management 125,000
the organization:
Transaction Costs - Variable
Severence Cost - Finance (see note 4) Ongoing Outsourcing
1,450,000 Costs 100,000 • Through
Total Outsourcing
170,000 Transaction / Transition Costs $ 3,110,000 100,000
Retention Bonus
Transition Costs
transition
On-site transition team (including IT costs)
Change Management
500,000
Revised Organizational
125,000
Costs - Low End Savings • in “steady-
Outsource FTE Cost (Replaced Positions) $ - 4,963,493
Ongoing Outsourcing Costs
Retained
100,000
Personnel Cost
100,000 100,000 100,000
$100,000
100,000
8,567,545100,0001,788,357
state”
Total Outsourcing Transaction / Transition Costs $ 3,110,000 100,000 100,000 100,000
Total Cost With Outsourcing $ 8,567,545 6,751,850
Revised Organizational Costs - Low End Savings
Outsource FTE Cost (Replaced Positions) $ -
Net Improvement 4,963,493
From Baseline 4,963,493
Operations 4,963,493 4,963,493
$ - 4,963,4931,820,000
Retained Personnel Cost $ 8,567,545 1,788,357 1,788,357
Baseline1,788,357 1,788,357
Cummulative Net Improvement from $ - 1,788,357
1,820,000
Total Cost With Outsourcing $ 8,567,545 6,751,850 6,751,850 6,751,850 6,751,8506,751,850
NPV @7% discount
NPV @9% discount
$ 6,970,000
$ 6,490,000
Scenario Summary
Net Improvement From Baseline Operations $ - 1,820,000 1,820,000 1,820,000 1,820,000 1,820,000
Cummulative Net Improvement from Baseline NPV @12%
$ discount
- 1,820,000 3,640,000 5,460,000 $ 5,860,000
7,280,000 9,100,000
NPV @7% discount $ 6,970,000
NPV @9% discount Revised
$ Organizational
6,490,000 Costs - High End Savings Annual Net Savings:
Outsource FTE
000Cost 5$ - 4 545 898
4,545,898
NPV @12% discount $ 5,860,000
5 860
Retained Personnel Cost
Break even (months):
Break-even 20.5
20
$ 8,567,545 1,788,357
$1 820K - $2,230K
$1,820K $2 230K
Revised Organizational Costs - High End Savings
Outsource FTE Cost Total $Cost With- Outsourcing
4,545,898 4,545,898 4,545,898 $ 8,567,545
4,545,898 4,545,8986,334,255 Transaction/Transition Cost:
Retained Personnel Cost
Total Cost With Outsourcing
$ 8,567,545
$ 8,567,545 From
1,788,357
6,334,255
1,788,357 1,788,357 1,788,357 1,788,357
$3,110K initial
Net Improvement Baseline 6,334,255
Operations 6,334,255 6,334,255
$ - 6,334,2552,230,000
Cummulative Net Improvement from Baseline $ - 2,230,000 $ 100K ongoing
Net Improvement From Baseline Operations $ - 2,230,000 2,230,000 2,230,000 2,230,000 2,230,000
Cummulative Net Improvement from Baseline
NPV @7% discount $ 11,150,000 Break-even:
$ - 2,230,000 4,460,000 6,690,000 8,920,000 11,150,000
NPV @7% discount NPV @9% discount
$ 11,150,000 $ 11,150,000
NPV @9% di
discountt NPV @12% discount
$ 11,150,000
11 150 000 $ 11,150,000
11 150 000 17 - 21 Months
NPV @12% discount $ 11,150,000 Break-even (months): 16.7

Shared Services & Outsourcing Summit Page - 19


Deeper
p Dive: Internal / External Measurements - Benchmarkingg

Define Approve
Select Transition Manage
Case for Business
Partner(s) the Process Performance
Change Case

1. Understand Business 6. Internal / External 10. Assess vendors 15. Create Transition Plan / 20. Collaborate for
Objectives / Needs Measurements – capabilities Project Plan Continuous
Benchmarking Improvement
11. Define SLAs 16. Review Process and
2. Assess Pain Points & 7. Gap analysis Implement 21. Manage changes, SLAs,
Opportunities 12 Solution Definition
12. Reengineering Efforts new reqs., and contract
8. Establish Success
13. Create RFP 17. Implement Training 22. Re-evaluate / Measure
3. Build Model (financial / Criteria - Use / Test Program success criteria
process) cases development
14. Execute Selection
Process 18. Develop scorecard 23. Evaluate Back-Sourcing
4. Build Support for BPO 9. Approve Business Case potential
Strategy 19. Manage Transition

5. Define Scope / Scenarios

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Metrics and Process Benchmarking are used to support a business case
whereas, Strategy is often defined as a business objective
Benchmarking can be seen as falling into three broad categories: Metrics, Process & Strategy over the lifespan
of Diagnosis, Redesign and Implementation

Type Definition Where Best used


Metrics or Businesses consider their Performance in key
Metrics Process Strategy Competitive position in relation to areas or activities
Benchmarking performance characteristics in comparison and
of key products and finding ways of
Examination services ususally drawn closing gaps in
Performance Maturity
Diagnosis Surveys Models
of Genaral from the same sector. performance
Approaches

Process Focuses on improving Achieving


Benchmarking specific critical processes improvements in
Learning and
Redesign Targets and operations. Usually key processes
External Best adapting sought from best practice
Practices - organizations that perform
Process similar work or deliver
Reengineeing similar services.
Milestones Change
Implementation and Budgets Management
Strategic It involves considering high- Re-aligning business
Benchmarking level aspects such as core strategies that have
competencies,
t i d
developing
l i b
become
new products and services inappropriate
and improving capabilities
for dealing with changes in
the external environment

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Internal Benchmarking can identify realistic goals within an
organization
g
In the 1970’s IBM issued an internal directive that all new products must Accessing which
have a superior performance to any existing products and any competitors process to

Analysis
products- thus, benchmarking was born benchmark can be
identified thro
through
gh a
Firm Impact vs a
Example of Best Practice Comparison Chart Customer Impact
Order Management Comparison across Warehouses chart
Best Practices

Assessing Processes for


5
Benchmarking
4.5
4
3.5 High
Process
3
2.5 Process

Impact on Firm
2 Process
1.5 Process

1
Process
0.5
0 Process
Order Order Order Order Transaction Payment
Low
Receipt & Verification Confirmation Processing Monitoring Processing
Entry Low Impact on Customer High

Warehouse 1 Warehouse 2 Warehouse 3 Warehouse 4

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External Benchmarking is usually done standalone or after
Internal Benchmarkingg
Identifying Industry Best Practices is a powerful focus for change. The gap External
between internal and external benchmarks can provide a starting point to Benchmarking is the
overcome resistance to change process of drawing

Analysis
meaningf l
meaningful
comparisons
Benchmark Comparison Against External between a company’s
Organizations performance and its
competitors. For
6 many companies,
these known best
5 practices can
4 become a beacon for
continuous
3 improvement in
functionality,
2
reliability, usability
1 and availability
0
Order Order Order Order Transaction Payment
Receipt & Verification Confirmation Processing Monitoring Processing
Entry

Company 1 Company 2

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Deeper
p Dive: Gap
p Analysis
y

Define Approve
Select Transition Manage
Case for Business
Partner(s) the Process Performance
Change Case

1. Understand Business 6. Internal / External 10. Assess vendors 15. Create Transition Plan / 20. Collaborate for
Objectives / Needs Measurements – capabilities Project Plan Continuous
Benchmarking Improvement
11. Define SLAs 16. Review Process and
2. Assess Pain Points & 7. Gap analysis Implement 21. Manage changes, SLAs,
Opportunities 12 Solution Definition
12. Reengineering Efforts new reqs., and contract
8. Establish Success
13. Create RFP 17. Implement Training 22. Re-evaluate / Measure
3. Build Model (financial / Criteria - Use / Test Program success criteria
process) cases development
14. Execute Selection
Process 18. Develop scorecard 23. Evaluate Back-Sourcing
4. Build Support for BPO 9. Approve Business Case potential
Strategy 19. Manage Transition

5. Define Scope / Scenarios

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Bridging the Gaps -
What do yyou do if you
y need to reengineer
g a process?
p

Is it wiser to transform a business process by … There’s no right answer


when it comes to how
you will BPO a business

Analysis
process.

But experts agree on


one thing: Before you or
your outsourcer can
improve a process, you
must understand your
process workflows.

That means it’s


important to invest time
to document and
diagram the workflows,
including roles and
responsibilities,
business rules and
policies.

2008 Source: TechWeb Survey 475 US and Canadian Organizations

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About Half Transform a Process After Outsourcing It

Organizations that attempted to transform a BPO providers have


process after outsourcing it to a BPO service taken on the job of
transforming a

Analysis
provider?
process in 45 percent
of cases.

Typically, companies
will work in tandem
with the provider to
make changes that are
often impossible to do
on their own with
overburdened in in-
house staff.

2008 Source: TechWeb Survey 475 US and Canadian Organizations

Shared Services & Outsourcing Summit Page - 26


Deeper
p Dive: Approve
pp Business Case

Define Approve
Select Transition Manage
Case for Business
Partner(s) the Process Performance
Change Case

1. Understand Business 6. Internal / External 10. Assess vendors 15. Create Transition Plan / 20. Collaborate for
Objectives / Needs Measurements – capabilities Project Plan Continuous
Benchmarking Improvement
11. Define SLAs 16. Review Process and
2. Assess Pain Points & 7. Gap analysis Implement 21. Manage changes, SLAs,
Opportunities 12 Solution Definition
12. Reengineering Efforts new reqs., and contract
8. Establish Success
13. Create RFP 17. Implement Training 22. Re-evaluate / Measure
3. Build Model (financial / Criteria - Use / Test Program success criteria
process) cases development
14. Define Selection Team
18. Develop scorecard 23. Evaluate Back-Sourcing
4. Build Support for BPO 9. Approve Business Case potential
Strategy 19. Manage Transition

5. Define Scope / Scenarios

Shared Services & Outsourcing Summit Page - 27


How Business Case lifecycle costs impact project value

Cumulative Cash

Benefits - TCO

Speed at which the


project reaches scale
Breakeven

Start-up costs
impact benefits
Project Launch

Cost to Scale Support Cost Time

Time to Time to
Idea Value Realization
Market Volume

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Two examples of how lifecycle costs can impact organizational
project
p j value

A llengthy
h implementation
i l i A shorter
h llaunch
h may
will slow benefits capture drive support costs

Cumulative Cash
Cumulative Cash

Breakeven
Breakeven

Time
Cost to Scale Support Cost Time Cost to Scale Support Cost

Should we reassess the


Should we adjust the project scope? business case?

Shared Services & Outsourcing Summit Page - 29


A decision to move forward is supported by the meaningful
consolidation of information directlyy impacting
p g business objectives
j

Standard Business Case


Financial Architecture Opportunity
Analysis Review Analysis
Project Valuation Project Category
• Description, rationale
Payback Period -Strategic Development
• Steering committee members
NPV -Mandated Initiatives
• Business risks
IRR -Discretionary
Discretionary investments
• T h l
Technology risks
i k
ROI
• Cost of not proceeding
-Consistency with IT architecture and data
• Project dependencies
Five Year standards and data
• Staffing requirements
Cost Benefit Analysis -Opportunities to leverage existing functionality
• Legal or regulatory requirements
•Software Capitalization -Timing issues
• Training requirements
•R&D
R&D tax credit analysis • Retirement strategy
•Cast Flow • Project plan, milestones
Benefits
Project Costs
-Capital
Sourcing Operations
-Expense Review Review
-Operating expenses • Project
j vendor selection p
process • Impact
p on existing
g operations
p
-Support
S S
Staff
ff • Opportunities to reuse existing contracts • Ongoing maintenance requirements - TCO
-Ongoing Maintenance • Offshore development opportunities • Savings and costs associated with
-Training • Lease vs. buy analysis decommissioning
-Communications • Contingency and recovery costs
• Security considerations
• Expected service quality

Shared Services & Outsourcing Summit Page - 30


Deeper
p Dive: Define SLAs

Define Approve
Select Transition Manage
Case for Business
Partner(s) the Process Performance
Change Case

1. Understand Business 6. Internal / External 10. Assess vendors 15. Create Transition Plan / 20. Collaborate for
Objectives / Needs Measurements – capabilities Project Plan Continuous
Benchmarking Improvement
11. Define SLA’s 16. Review Process and
2. Assess Pain Points & 7. Gap analysis Implement 21. Manage changes, SLAs,
Opportunities 12 Solution Definition
12. Reengineering Efforts new reqs., and contract
8. Establish Success
13. Create RFP 17. Implement Training 22. Re-evaluate / Measure
3. Build Model (financial / Criteria - Use / Test Program success criteria
process) cases development
14. Execute Selection
Process 18. Develop scorecard 23. Evaluate Back-Sourcing
4. Build Support for BPO 9. Approve Business Case potential
Strategy 19. Manage Transition

5. Define Scope / Scenarios

Shared Services & Outsourcing Summit Page - 31


An SLA Construction Workbooks is used to document,
communicate and p
provide SLA historical information

Application Development
Key considerations
Maintenance
• Choose measurements
that motivate the right Production Support
behavior
Category Measure Definition Measurement Values and Status
• Choose measurements Calculations
that can be easily
collected Performance Application Availability The extent to which a supplier 22 hours availability online As of Jan 2009, used for xyz
developed / maintained application is 2 hours scheduled maintenance applications and planned for abc
• Metrics should reflect available for use by end user in 22 hours actual uptime application in June 2009
factors that are within accordance with its intended functions
(22/22)*100 = 100%
the vendor’s control
• Set a baseline
• Less is more. Do not
have more than 2-3 Performance Maximum Duration of a single outage Maximum amount of time allotted
service levels per type of during scheduled availability for the
work supplier maintained application to be
unavailable to the end user
• Use Service levels that
evaluate both Based upon historical data,
performance and ideally
y captured
p before
quality
outsourcing begins
• Define the approach for Performance Downtime Frequency Number of events in a rolling x month
period.
the capture of data for
the SLA
Category falls into
“Performance” or
“Quality” category
Others Problem response time
Problem resolution time
Process improvements

Shared Services & Outsourcing Summit Page - 32


Some key Vendor Management and Contractual practices used to
support
pp success outcomes

PM Practices Contractual Items

• Interview key project candidates • Payment made based on a sound (peer reviewed)
• Validate Skill levels. Some Vendors project plan. This requires a very good planning
provide the A team onshore and the B process. Payment only when a deliverable
team off shore. has been accepted
• Insist an onsite PM for large projects • New Development – frequent validation of
and a part time PM for small projects work products (every two weeks)
• Review the Corporate policies and • Maintenance/BPO – Monthly score / report
Governance proceedings with the vendor cards that report activities against SLA’s and
other objectives
• Train your staff on the Methods of the
Vendor (CMM, CMMI, Six Sigma, etc.) • Removing or replacing personnel are subject
to a successful interview and an appropriate
• Review the contract with the Host staff amount of notice
and ensure that each of the staff be
sensitive to any changes within the
contract

Shared Services & Outsourcing Summit Page - 33


Your success is dependent on your partners success. Treat them with
respect with a seat at your key meetings

Example Steering Committee Charter

Purpose of the Steering Committee


• The Steering Committee provides a stabilizing influence so organizational concepts and directions are established and maintained with a
visionary view. The Steering Committee provides insight on long-term business strategies. Members of the Steering Committee ensure
business objectives are being adequately addressed and the project remains under control.
• The primary function of the Steering Committee is to take responsibility for the feasibility, business case and the achievement of outcomes.
The Steering Committee will monitor and review the project status,
status and make recommendations for corrective action when neededneeded.

Primary Functions Membership list and contact information


• Monitoring and review of the project at regular Steering Committee • Internal and vendor contacts
meetings
• Providingg assistance to the pproject
j when required
q Meetings
• Controlling project scope as issues force changes to be considered, • Frequency
ensuring that scope aligns with the agreed business requirements of • Minutes from last meeting
project sponsor and key stakeholder groups • Review of actions arising from previous Steering Committee
• Communicate vendor issues as arise meetings.
• Resolving project conflicts and disputes, reconciling differences of • Review Project Status
opinion and approach • Overall Status
• Formal
F l acceptance
t off project
j t deliverables.
d li bl • Vendor Update
• Scope status
Approval Responsibilities • Schedule status
• Change Controls • Budget status
• Risk Mitigation Review • Reason for deviation from green
• Knowledge of Business Case Content

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Deeper Dive: Define SLAs

Define Approve
Select Transition Manage
Case for Business
Partner(s) the Process Performance
Change Case

1. Understand Business 6. Internal / External 10. Assess vendors 15. Create Transition Plan / 20. Collaborate for
Objectives / Needs Measurements – capabilities Project Plan Continuous
Benchmarking Improvement
11. Define SLA’s 16. Review Process and
2. Assess Pain Points & 7. Gap analysis implement 21. Manage changes, SLAs,
Opportunities 12 Solution Definition
12. reengineering efforts new reqs., and contract
8. Establish Success
13. Create RFP 17. Implement Training 22. Re-evaluate / Measure
3. Build Model (financial / Criteria - Use / Test Program success criteria
process) cases development
14. Execute Selection
Process 18. Develop scorecard 23. Evaluate Back-Sourcing
4. Build Support for BPO 9. Approve Business Case potential
Strategy 19. Manage Transition

5. Define Scope / Scenarios

Shared Services & Outsourcing Summit Page - 35


Consistent objective measurements through scorecards allows Partner
rankingg and proactive
p management
g

Company Vendor Scorecard 1 = Poor 4 = Excellent Items Completed / Major Milestones Accomplished
xyz vendor
Project xyx
Quality of Vendor Personnel …….
Flexibility - Ability to react to change 1 2 3 4 ……..
Training - Independence and thoroughness 1 2 3 4
Post-Sales Support - Responsiveness to post-sales support 1 2 3 4 Defects
1 2 3 4
Innovation Contribution
2 6
Frequency of continuous improvement suggestions 1 2 3 4 100%
3 7
Resulting savings fom continuous improvement suggestions 1 2 3 4 80%
4 5
Share of savings given back 1 2 3 4
1 2 3 4
60%
5 4 Series2

Price Competitiveness
40% 6 4 aA Series1

20% 7 4
Relative prices versus comparable vendors 1 2 3 4
0%
1 2 3 4 5 6

Service Quality
Complaints per Product Invoice Accuracy
< 1% 100-99% Personnel
1-3% 98-94%
4-6% 93-88%
Person xyz was replaced with Xzy
> 6% < 88%
On-Time Delivery Cycle Time Improvement
Planned vacations are as follows:
100-90%
100 90% > 50%
89-80% 30-49% Change Controls
79-70% 10-29%
<70% <10% xyx Approved for $123
Time before Failure Warrenty Claims abc still under investigation for $345
> 2 x planned rate 0-2%
2 x planned rate 3-5%
Met Plan 6-10% Issues / Risks
less than planned rate >10%
None

Shared Services & Outsourcing Summit Page - 36


Partner Service Improvement Plans and Annual Partner Reviews
provide a vehicle for communicatingg feedback
p
Vendor Information

Partner Service Improvement Plan (SIP) Vendor Contact


Contract Expiration
Scorecard Period
V d L
Vendor Logo
Month Requiring SIP
Explanation of event requiring SIP SIP Participants

1. Vendor failed to respond to one Severity 1 incident …. SIP Information


2. Vendor issued invoices that had been previously paid for Categories of Deviation
including.. Contractual
Non-contractual
Proposed SIP resolution Vendor / Client meetings
Account Management
1. Vendor identified the issue and provided a process improvement
Fiscal Management
to prevent further outages
Projects
2. Bills were identified to cross in the mail
Operational Support and Service

Grading Key
A=5
Vendor
Vendor Annual Review FY2009 Average
3.5 B=4
C=3
D=2
F=1

Account Fiscal Management and Operation and Sr. Leadership Overall


Vendor Contractual Implementations
Management Billing Service Support Assessment Average
Vendor Logo 4.2 4.5 3.1 2.1 3 4 3.5
Vendor Logo

Shared Services & Outsourcing Summit Page - 37


Have open minded communications and share risk / reward to align
interest

Moving to an Interdependent Model to avoid failure relies on a shared vision


and strategy with both parties' willingness to do their part in achieving the
vision.

Shared Services & Outsourcing Summit Page - 38


KEYS TO SUCCESS AND REASONS FOR FAILURE

Success is derived from the following key Failure usually occurs when companies:
practices:
• Implement with weak senior management
• Secure senior management support
support
• Implement a change management
program to reduce employees’ resistance • Focus on implementing technology and
• Create a customer-focused culture consolidation of p
processes,, rather than
• Execute quickly with well-planned improving the processes
interim goals and checkpoints • Reduce costs too quickly
• Establish an ongoing performance
management tool • Focus on technical skills at the expense of
• Manage
M customer expectations
i customer service
• Ensure adequate skills (or engage 3rd • Fail to continuously measure and improve
party) experience in the various aspects performance
of BPO

Shared Services & Outsourcing Summit Page - 39

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