Outsourcing – Managing for Success Stuart Payne, Morgan Chambers Copyright © 1999 Morgan Chambers plc Copyright © 1999 Morgan Chambers

Agenda l Recap – why outsource l Building a Sourcing Strategy l Risks and Risk Management Strategies l Effective Contracting l Supply Management – best practice Copyright © 1999 Hewlett PackardCopyright © 1999 Morgan Chambers

Copyright © 1999 Morgan Chambers

Reasons why Organisations Outsource Commercial Service cost reduction transfer of fixed costs to variable costs cost transparency quantifiable service improved service Resource access to a wider resource pool access to specific technical skills Strategic enabling management focus on core business and supporting step change Quality processes & procedures best of breed Technical provision of step change technical advancement

Supporting Organisational Change l Mergers/Acquisitions/Disposals l Speed to Market l Upsizing/downsizing/rightsizing l Geographic considerations l Increasing Shareholder Value l e-Solutions Copyright © 1999 Morgan Chambers

Key Drivers – UK Experience Copyright © 2001 Morgan Chambers

Achievable Savings - industry examples Copyright © 1999 Morgan Chambers

Typical Concerns re. Outsourcing l ….It is expensive! l ….I will be locked in to a long term contract! l ….I will lose control of my affairs! l ….It is risky and can go horribly wrong! l ….My staff will all leave!

Main Risks in Outsourcing l Poor alignment with business goals l Lack of Preparation l Supplier Capability l Inflexibility l Ineffective Management Copyright © 1999 Morgan Chambers

Risk Mitigation Strategies l Clearly define objectives and need l Run a formal and appropriate Supplier selection process l Provide the Supplier with a full check list of requirements l Communicate (sponsors, influencers, end-users) l Establish an effective Supply Management Team Copyright © 1999 Morgan Chambers

Understand your Organisation Differentiating Expertise Support with strategic consultancies e.g. Board of Directors e.g. Project Managers OUTSOURCING MANAGERS Professional Expertise Support with specialist consultancies Generic Expertise Support with outsourcing e.g. Programmers Clerks The Value Individuals Add to the Company Increases

A Sourcing Strategy Process Stage 1 - Initiation Stage 2 - Information Gathering Stage 3 - Capability & Criticality Review Stage 4 - Sourcing Options Stage 5 - Final Report and Strategy COSTS ORGANISATION BUSINESS DRIVERS Critical success factors PERFORMANCE MARKET

Sole-source vs Competitive tender? l Unique Solution? l Established/trusted business partner? l Time of Essence? l Independent VFM check if sole-source adopted

The Contract-Allow the Supplier Flexibility l Don’t be too prescriptive in how services are delivered l Focus on the end view of service Copyright © 1999 Morgan Chambers

Contract Fitness for Purpose Services Assets People Pricing Term Exits Change Improvements Detailed supporting documents, operating documents, procedure manuals etc. Appendices, SLAs, rvice Descriptors, etc. Future blueprint Schedules ‘Hygiene’ level UNDERPINNING BUSINESS RELATIONSHIPS Contract

The Contract-Always Remain in Control l Define clear procedures for managing the Supplier and the Agreement l Ensure that there is escalation in place l Build in effective recourse l Oblige the Supplier to run a CIP l Secure rights to service ‘configurables’ l Retain publicity rights Copyright © 1999 Morgan Chambers

A WIN-WIN SITUATION IS IMPERATIVE!

The Outsourcing KPIs

Key Tasks l Transition l Measurement /Reporting l ‘Soft’ services l Timely meetings l Remedial plans l No second- guessing l Penalties - realism l Quick wins/big hitters l Plan changes l Check alignment l SLA trade-offs l Continuous improvement …Remember the contract and your business goals!!!

Sourcing Relationships can be complex... Outsourcing Management Team Supplier End Users Business Management Executive Specialist Advisers CustomersMedia Supplier Service Integrator

Relationship Management Establishing relationships at all staff levels within a Customer / Supplier outsourcing scenario is critical to the overall success of the relationship and the customer’s perception of the quality of the services being delivered Copyright © 1999 Morgan Chambers

Key Tasks …. l Define Suppliers’ points of contact - ensure adherence l Establish unambiguous roles and responsibilities for the Customer, End-Users and Supplier l Regularly review in-house staff skills and numbers l Promote a continuing bond between Supplier staff and End- Users l Make the morale of supplier staff a customer concern l Sort out personality conflicts l Retain right to veto key staff l Ensure awareness, understanding and commitment from all parties l Define clear escalations l Involve end-users in performance assessment Copyright © 1999 Morgan Chambers

Contract Management functions Partnership Management Contract Management Commercial Management Technical Management Service Integration Process Management Copyright © 1999 Morgan Chambers

Leverage Mechanisms – (if things don’t always go as expected) l Escalation l Penalties l Unbundling l Bad press l Termination l Service reviews l Planning l CIP l Gain shares l Up-sell l Good press l Benchmarking MORE! WAR! Copyright © 1999 Morgan Chambers

The Outsourcing Value Proposition Outsourcer economies Added benefits $$$ $$