Frequent transition management challenges in the sourcing lifecycle.
Thursday, 16th of March 2023
As a result of the constantly increasing complexity of IT landscapes, more and more companies want to employ an external partner to handle these tasks so that they can focus on their core competencies within the company. After a partner has been successfully found by the sourcing management, the tasks are then transferred to the external service provider. This process is called transition. In the following, we will look at some of the challenges of this phase using two examples:
- The initial transfer of service packages to the external service provider.
- The transfer of a service package from one service provider to a new service provider.
The transition phase can directly put the relationship between client and contractor, which is still quite young at this point, to a tough test. Based on our experience, we can say that it is precisely in this phase of the sourcing lifecycle that the greatest challenges and problems arise in the cooperation. The reasons for this are often poor project planning using the wrong methodologies, non-transparent communication between both parties, basic requirements that have not been created (e.g. with regard to the organizational structure and/or process organization), or even a lack of resources and availability.
What challenges arise in case study one and how can they be avoided?
In this case study, we assume that there is little to no experience with outsourcing and the necessary transitions in the company or on the client side. However, the lack of experience is usually not the root cause of the challenges that arise. The reasons are more likely to be an unprepared organizational structure and/or process organization.
Outsourcing a service package for the first time always means change within the company. These changes affect, among other things, previously lived processes, meeting structures, existing roles and functions, and the “mindset” of the affected employees. The contract usually strictly specifies which processes, roles and functions are to be handled and staffed on the service provider side, as well as which bodies are to be used to transparently report on the current status of service provision in the future.
This is accompanied by necessary changes on the client side, which significantly affect the employees who previously provided the outsourced services themselves. New roles and functions with a different mindset must therefore be created, as performance is to be monitored and controlled in the future.
Each individual employee will therefore have to rethink and grow into a new role in the future – away from their own provision of the service to the management of the future service provider. In order to be able to ensure adequate service provider management, new or adapted processes as well as roles and functions must therefore be described and created on the client side.
This necessary transformation within the own organization is often very underestimated and leads to a limited ability to perform the role of service provider management in practice. The result is often a defensive attitude on the part of the employees, a disturbed partnership from the start, and (in the worst case) a strategic goal that has not been achieved or only partially achieved.
It is therefore essential to prepare the employees and the organization for the changes. The current organizational structure and processes must be analyzed, particularly with regard to the currently existing roles, functions and committees as well as the delegation/escalation and information flows, in order to initiate the first necessary measures before the actual transition. Only if the company’s own organization is adapted to the future contract and service model, it can effectively support the transition with the right focus.
However, a transition always involves two parties. Thus, we would like to use the next question to identify further challenges caused by the service provider. Even if the question relates to the second case study, these errors can occur in the same way and additionally in the context described above.
What challenges can arise when, as described in example two, a new service provider takes the place of the old service provider?
In this case study, it is assumed that the client side has already gained experience in supporting transitions and that the organization is already aligned with the current contract structure. Thus, this question tends to focus on the service provider side.
After selection via the tender process, the contractor must now integrate and process considerable amounts of information in its organization within the transition. This includes the application of the right project management methodology, appropriate project planning including the establishment of a functioning project organization, transparent and open communication with the client side (customer) – especially in the event of problems and challenges – and the provision of qualified resources.
A transition must be planned before it begins, and the milestones to be achieved by the contractor (service provider/managed service partner) must be agreed and described. For this purpose, the right project management and tracking methodology must be selected jointly. In most cases, this coordination does not take place until the start of the transition and takes about 2-4 weeks. Since a transition is usually tightly scheduled for cost reasons, these 2-4 weeks are often missing at the end of the transition and cause delays already at the start of the project. We therefore recommend that this rather “formal coordination” is always carried out before the official transition start in the so-called “pre-transition phase”. This period, which is based on the complexity of the service packages to be transferred, ranges from four to eight weeks. In addition, this time can be used to start onboarding for key positions in the project. In this way, any delays within this process can be mitigated and the transition team’s ability to work at the start of the transition can be ensured.
Agreeing on the transition milestones in as much detail as possible ensures that a uniform understanding of the delivery services expected by the customer is created. If this coordination does not take place initially before the start of the transition, there is no detailed and, above all, no documented agreed target definition for the future service provider. This can lead to difficult and unnecessary discussions later in the course of the transition, especially if a postponement of the transition completion is expected, or can prevent the regular acceptance of the transition.
Just as important as aligning planning and milestones is selecting the right project management methodology. In most cases, a transition via the Cynefin model can be classified as “complicated”. Therefore, the application of “classic” project management methods such as the waterfall model or PRINCE2 is recommended here. However, the situation should be analyzed and evaluated individually. The application of the wrong methodology leads to inaccurate planning, insufficient documentation and thus causes delays and/or misunderstandings, which in turn lead to commercial repercussions on the part of both parties.
The correct selection of the project management methodology, detailed documentation of the completed coordination (e.g. via protocols) including the project plan as well as the detailed definition of individual project milestones is absolutely necessary in order to avoid delays or escalations in the further course of the transition. The documentation of the points is usually taken over by the service provider side and should be released in writing or by mail by the client.
At least as important as the documentation of the previously mentioned points is the correct communication, preparation and presentation of the transition progress. The service provider should regularly report on the transition progress and communicate transparently and openly when challenges arise.
Problems are often “dragged out” and target dates are postponed without taking a closer look at the effects. For such changes, a “change process” should be defined within the project, in which the client must agree, for example, to the postponement of a target date. Furthermore, the service provider should be required to document “project changes” and continuously assess the risks that arise. This documentation can be used as a basis for decision-making in the event of later escalation and is therefore correspondingly important.
The transition lays the foundation for further cooperation in regular operation. An unsuccessful and delayed transition usually leads to a disturbed relationship with the partner and the unexpected full delivery of services in the subsequent regular operation. With correct forward planning, consistent application of the right project management methodology and open, transparent and performance-oriented communication, many of the challenges highlighted can be avoided or reduced.