1. Zia Qureshi, Chief Executive Business Catalyst
Managing Outsourcing -
The Sustainable Approach
World Outsourcing Summit, USA
Zia Qureshi, Chief Executive Business Catalyst

2. This Presentation is in 3 Parts
Introduction
Case Study – Commonwealth Bank
Sustainability Framework

3. Introduction
“Many organisations fail to achieve true benefits of outsourcing” – Dun & Bradstreet reports that 20-25% of all outsourcing relationships fail within two years, and 50% fail within five.
“A sound management framework is the first step towards benefit realisation & sustainability “
Zia Qureshi

4. Key Criteria for Sustainability
Clear strategy – outsourcing drivers
Sound commercial deal
Governance / operational mgt. structure
Relationship Management
Correctly defined scope and service levels
Business planning process
Understand why you are outsourcing
Ensure clear understanding of the underlying business purpose & business drivers
Investigate outsource vs re-engineer options
Strategy is articulated via business plans – update as business plans evolve
Value proposition for both parties underpins outsourcing life-cycle

5. Commonwealth Bank of Australia (CBA)
Australia’s largest domestic financial organization
> 10 million customers, 3000 ATMs, point of sale terminals within stores
In 1997, 1500 IT employees transferred to EDS
The then largest outsourcing deal in financial services = $5 billion deal. Bank bought 35% of EDS
EDS responsible for Banks’ IT operations, maintenance and development
Surpassed original goal to reduce costs by 20% by year 3 and improved service levels by 10%
The bank faced an environment where they faced lower and lower costs, increased competition from non-traditional competitors – they needed a way to control the quality
Their value chain was being attacked at every point by new competitors e.g.. Financial technology – brokers & originators could set up new businesses – CBA decided to change their org structure to replicate the value chain.
They decided to in-source loan processing (The bank’s core competency) and outsource IT.
They did a basic market study of the market infrastructure – need to outsource on a competitive basis – avoid a monopoly situation – had to be in both parties interests – volume of work they were outsourcing would make a difference to the service provider.
One huge benefit for the bank was when they were looking for new technology upgrades (e.g.. Eftpos) – what took them months to do, took EDS 48 hours to complete (capacity enhancement)

6. Commonwealth Bank of Australia
David Murray, Managing Director, Commonwealth Bank of Australia

7. Sustainability Framework
Key elements include:
Soundness of Commercial Deal
Governance Framework / Relationship Management
Business Planning Framework
Build Meaningful Measurements
Implementation & Change Management

8. Soundness of Commercial Deal
Proper Due Diligence – deals awarded on sales presentation rather than provider hard evaluation
Sales Team
Soundness of commercial deal is the starting point – sets the tone
Sales people often view the sales process as a “game” – with this mindset, they fail to focus on the unique needs of their customer
The next problem is when the “A” Sales Team goes out & sells the contract but sends in the “C” Team to deliver & manage the account

9. Between Rock & a Hard Place
Delivery Team
Between Rock & a Hard Place
CLIENT
EMLOYER

10. Soundness of Commercial Deal
Undertake in-depth financial analysis of the deal to assess whether business case is realistic
“ No one delivers outstanding value to clients to make a loss for their own business”
Soundness of commercial deal is the starting point – sets the tone
Sales people often view the sales process as a “game” – with this mindset, they fail to focus on the unique needs of their customer
The next problem is when the “A” Sales Team goes out & sells the contract but sends in the “C” Team to deliver & manage the account

11. Soundness of Commercial Deal
Avoid under bidders – it affects the quality of resources
Conduct comprehensive risk analysis
Soundness of commercial deal is the starting point – sets the tone
Sales people often view the sales process as a “game” – with this mindset, they fail to focus on the unique needs of their customer
The next problem is when the “A” Sales Team goes out & sells the contract but sends in the “C” Team to deliver & manage the account

12. Soundness of Commercial Deal
Plan to achieve the objectives and strategies of both parties
Soundness of commercial deal is the starting point – sets the tone
Sales people often view the sales process as a “game” – with this mindset, they fail to focus on the unique needs of their customer
The next problem is when the “A” Sales Team goes out & sells the contract but sends in the “C” Team to deliver & manage the account

13. Governance Framework / Relationship Mgt
Key Principles:
Maintain effective overall relationship management and contract management arrangements

14. Governance Framework / Relationship Mgt
Establish a “one team concept” to provide strategy, direction and facilitation

15. Build multi-level organizational touch points
Governance Framework / Relationship Mgt
Build multi-level organizational touch points
Well defined accountabilities

16. Governance Framework / Relationship Mgt
Build mechanism for effective performance review – formal (scorecards) and informal measures

17. Partnership vs Contractual Relationship
In a contractual relationship one party (A) provides goods or services to another (B) in exchange for payment.
In a partnership two or more parties (A & B) combine their resources to serve a common client base and share the benefits.
Both of these types of relationships are relevant at different aspects of an outsourcing arrangement.
Both of these are operative at different aspects of an outsourcing relationship

18. Managing Outsourcing Relationships Can Be Complex
CEO & Executives
Business Partnership
Relationship Management
Client
Outsourcer
CEO & Acct Executives
Strategic Intent & Value Proposition
Service Delivery
Projects & End-to-End Service Management
Professional Services
Management Partnerships
Contractual Agreements
SLA’s
In-house Services
Third Party Services
Outsourcer
Services
Operational / IT Strategies
Vision - Solution Design
Professional Services
Strategic Advice / Innovation
CIO / One-team Concept

19. Relationship Management - Pitfalls
Outsourcing demands an entirely new management style i.e. leading out rather than managing down
Organizations often struggle to measure quantity, costs and customer satisfaction
Over-reliance on penalty clauses
Unresolved differences in culture and management styles
Lack of leadership skills – need results based goals, communication and negotiations
Point 2
Organizations can only achieve what they can measure however they often struggle to measure the quality of services they receive and how these compare against industry norms
Basic characteristics such as quantities, costs & customer satisfaction are difficult to measure
Point 3:
Need to pay careful attention during the early transition phase, otherwise negative early experiences become difficult to overcome
Point 4
Penalties are poor motivators of good performance – absence of performance incentives makes it difficult to drive overall relationship, especially towards continuous improvement & increased value

20. Critical Components for Managing the Outsourcing Relationship
Management
Structure
Leadership
Skills
Relationship
Structure
WHO
WHAT
WHY
Source: Michael F. Corbett

21. Relative Increase in Importance of Management Skills after Outsourcing
New Management Skills
Relative Increase in Importance of Management Skills after Outsourcing
Same More Important Much More Important
Business
Technical
People
Negotiation
Communication
Planning
Administration
Organizational
Financial 20 40 60 80
100
Survey of 30+ CIOs by Michael F. Corbett

22. Governance Plays An Increasingly Important Role
Boards are increasingly accountable - ensure deals are conducted according to appropriate control standards
Build active Risk Assessment into review process
Business Managers participate in performance review (with functional experts) to ensure added value
Avoid “penalty” mindset within Governance Team – nurture supplier success and view them as an asset
Governance Team Structure
Account Relationship Management
Report to Project Champion (CEO)
Manage all aspects of the relationship in accordance with vision
Manage service delivery, contractual & commercial issues
Ultimate decision in cases of dispute
Commercial Management
Ensure contractual arrangements are met within a commercial arena
Ensure deliverables are provided as per agreement
Manage the issues register
Report progress to Account Relationship Manager
Manage & control contract changes
Service Delivery Mgt
Day –to- day service management activities, delivered in accordance with agreed procedures
Problem management – develop resolution action plans & ensure escalation processes monitored
Define service performance benchmarking
Develop & maintain accurate service delivery & performance rating
Monitor performance against defined service levels/ balanced score card

23. Commonwealth Bank of Australia
David Murray, Managing Director, Commonwealth Bank of Australia

24. Business Planning Framework
Outsourcing is often managed as a contract management exercise rather than a business operation(s) requiring unique leadership, management focus and processes
The “Outsourcing Business Plan” is key to adopting a true business management approach
PURPOSE: Provide means of dealing with the evolving business needs and expectation management between the provider and the client, at strategic and operational levels

25. Commonwealth Bank of Australia
David Murray, Managing Director, Commonwealth Bank of Australia

26. Outsourcing Business Plan Structure
Strategy
Financials
Operations
Human resource
Communications
Objectives, tactics, targets
Profitability, ROI, savings
Key Projects, timeline, service levels, KPI’s
State of the partnership, HR needs
Means of communication
Ref: Bell Canada

27. Create Responsive Business Plans
Plans need to recognize both parties need to maintain profitability over the long term
Align business objectives between parties – integrate these into the strategic business plans
Client is involved in provider’s business planning cycle – input into scope, timing, review process
Focus team to pick up change signals early - revise plans as things change

28. Create Responsive Business Plans
Build “improvement initiatives” into planning, ensure customer feedback into planning cycle
Iterative process - as plans change, adjust measures and rewards
Plan is mechanism to reflect changes in the business context
Ensure performance measures & SLAs tightly support each other and link into plans

29. Build Meaningful Measurements
The reality with many outsourcing contracts is that they have scores of SLA measures:
Do they have a business outcomes perspective?
How much time / cost in tracking and reporting?
Who really gets time to look / act on them all?
How many are really critical to the business outcome?
Do you have a real basis to proactively interact, plan, monitor, measure and improve the arrangement?

30. Example of successful implementation:
Sustainability Framework
Revisited
Example of successful implementation:
Soundness of Commercial Deal
Relationship Governance Framework
Business Planning Framework
Build Meaningful Measurements
Implementation & Expectation Management

31. Change Management Impact on key stakeholders
Top management visible support and commitment
Lateral leadership
Joint accountability

32. Include Change Management Principles…
Partnering mentality: develop shared vision and commitment to common business outcomes
Continuous improvement: proactively seek and assess technological advances and openly share performance information
Cultural alignment: share information about current and desired cultures

33. Management Expectation Gap
Superior Expertise Best Practice – Sales vs Delivery
Innovation
Quantum leap in Business Improvement – turn key
Relationship Management
Base Level Operations
Low
Medium
High
Institute communication strategies to manage unrealistic expectations from the very start