Sourcing Speak

After more than 20 years of modern outsourcing, articles and studies still proclaim a failure rate ranging from 25 – 50%. Skeptical? Just talk to a sampling of those who have reasonable experience at managing an IT outsourcing relationship, or just do a little online searching.

It’s no secret that managing an outsourcing relationship is not easy. Unfortunately, for a number of reasons, the industry has latched onto the nebulous concept of governance as the means to do it. Do a little more searching and you’ll find a plethora of opinion regarding its meaning and applicability – reminiscent of the Saturday Night Live skit where a new product named Shimmer was both a floor wax and a dessert topping.

While there are no silver bullets, we believe there are some fundamentals that can be put in place to help avoid outsourcing failure: it begins with how the relationship was initially formed (way back when the sourcing strategy and RFP were developed), how the customer set up its retained operation, and, obviously, how the relationship is actually being managed.

The implementation of any sourcing relationship occurs over three stages that Pillsbury has historically referred to as T3: Transfer, Transition and Transformation. Transfer is comprised of those activities, like the movement of people, sale of assets or assignment of licenses, that need to occur at the start of any third-party sourcing relationship so that the supplier has the necessary factors of production (resources) required for it to perform its scope of service. Transition are those initial steps taken by a supplier to begin providing the services and might include activities like moving data centers, installing its tooling and implementing a service level and reporting regime. Transformation are those follow-on activities that reflect value-added changes (either known or unknown) that the customer expects a supplier to implement and deploy in order to deliver key parts of the value proposition identified by the supplier as one of the reasons for the customer to enter into the sourcing relationship.

What Pillsbury has referred to as the transformation stage is what people are now calling innovation. To properly contract for such innovation (transformation) it is important to recognize that there are two fundamental types.

• Narrow. This is innovation within a given process that is assigned to a supplier. Take the process of service desk as an example. The innovation to be reasonably expected would be for the supplier to continuously improve its ability to perform the process. In doing so it could: reengineer the service desk procedures to improve throughput and increase quality; implement new applications to automate/standardize the handling of certain functions; increase the quality of the resources performing the functions via training, recruiting and reward; and relocate where the function is performed to reduce the cost of labor or facilities. While this type of activity might be labeled dynamic (rather than static), it often represents a continuation of the change that the customer may have been implementing year-over-year as part of its normal evolution of the service desk process.