Session 4: Managing Outsourcing Transition

BPO 201 – Business Process Outsourcing

SESSION 4

Course Norms & Rules Be participative – ask questions, share your thoughts and opinions, take notes. Be supportive – assist your peers as long as they are willing to assist themselves. Do all the assigned tasks to the best of your ability. Be enthusiastic, energetic and fun. Keep all distractions away in you. SESSION 4: Managing Outsourcing Transition Learning Objectives:           

Define transition management. Define the migration strategies and knowledge. Define what are transition risks. List the critical success factors. Identify transition effectiveness. Outline the requirements for good transition documentation. Explain work-shadowing. Define the components of readiness assessment. Define hand-offs. Explain the concept of scale. Explain time tracking.

Managing Outsourcing Transition The Transition Manager – Transition Strategies & Knowledge Transfer Framework 

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Transition Management is the set of activities that transpire after a BPO contract is signed that implements or executes the detailed movement or transfer of processes from the client to the service provider. A Transition Manager is responsible for migrating the function or the process from the client location or organization to the service provider or outsourcing organization. The Transition Manager needs to be an effective communicator, as the role requires extensive interaction with the clients. Because of the nature of the role, a Transition Manager needs to have a variety of skills and competencies:  Needs to have strong project management skills, as the migration process are complex projects that require expert management skills;  Needs to be comfortable in working in a cross-cultural environment, as most often, the client teams are based overseas;  Needs to have a thorough understanding of the: existing business and legal processes, and, current as well as emerging technologies as these play a critical role in the offshowing of a business function. Generally, there are two common strategies followed in migrating a function, these are: Lift and Shift and Re-engineer and Migrate  Lift and Shift Definition – This is the most common methodology used. When the process is mature, this approach is used for migrating. Phases 1. Move the current process to the service provider without changes/improvements 2. Stabilize 3. Re-engineer the process to achieve efficiency gain – produce same output, less FTEs - Modify the process - Add end-user type or strategic automation - Combine role with others - Move process into a production line - Negotiate elimination of unnecessary outputs

BPO 201 – Business Process Outsourcing

SESSION 4

Items to Consider: 1. Process change that will not affect process control points or output can be done by service provider independently - Onshore approval of process changes is good practice - Onshore review if the change impacts regulatory control points 2. Major effort: post go-live reengineering - Transition phase can be very easy especially if “people and processes” are moved; may take 3 to 4 months only - Risk the Onshore loses political will to reengineer processes after a while Advantages – Advantages of an “as is” basis process migration: - Training the new team is easier, as the process is well understood and documented - Existing employees at the donor location are available to support the process in case of disruptions or instability - A fresh set of eyes (the new team) look at the process from a fresh perspective, often resulting in process improvements and enhanced controls  Re-engineer and Migrate Definition – Fundamental rethinking and radically redesigning of the business process to as to achieve dramatic improvements in critical measures of performance such as cost, service, and, speed. Items to Consider: - Useful when the process is either broken and requires fixing, or is due to undergo significant change in the near future (systems change or process change) - In such cases, it may be important to utilize the expertise of the existing team (which is built over several years) to drive the change, before it is handed over to the new team - Company that outsource industry common processes to a market-leading service provider will generally follow service provider processes - Company changes its processes as part of transition to service provider Transition Success and Effectiveness Transition Pitfalls & Risks – Critical Success Factors – Transition Effectiveness Transition Pitfalls & Risks Most of the issues with sub-par or failed outsourcing endeavors can be attributed to a few pitfalls. 1. 2. 3. 4. 5.

Inadequate investment and Sponsorship Unclear scope of work Training shortcuts Unclear roles and responsibilities Not retaining the experts

These can be avoided if the Transition Manager constantly re-focuses attention of all involved towards these. Transition Critical Success Factors The success or failure of a transition project is fundamentally measured in two aspects: 1. Technology Readiness – state of readiness of the enabling hardware and software to support the on-going operations 2. Manpower Readiness – state of the readiness of the operating staff; hired, trained, and, skilled for the service processes Transition Effectiveness Transition Effectiveness can be measured through: 1. Financial Benefits It is important to quantify the real cost of the function before off-shoring (baseline costs), and also to measure the cost of the off-shore team on an ongoing basis.

BPO 201 – Business Process Outsourcing

SESSION 4

 Costs related to moving the function to the new team should be tracked separately as project costs.  Capturing these cost elements enables comparison of baseline costs with current costs, and provides an accurate measurement of the saves. 2. Performance of the Team  Primarily done by developing performance metrics  Usually subject to a testing phase to determine reasonability of the service measures – also known as the “baselining” period Document Readiness      

Inputs Processes are documented to standards Replication ready Output Communication Supervision

Document Readiness: Inputs 1. Inputs are documented  Source systems and dependencies  Timing of delivery quality assumptions, and work-around in case of failure in delivery of some inputs  Format of inputs (structured or not) Document Readiness: Process 2. Process are documented in industry standard format and in complete detail  Hand-offs to other parties, internal and external, documented, including timing and format  Interim/flash reports, if required, are documented as deliverables. Delivery time, day-ofmonth, period targets are documented. 3. Required tools, macros, workflow, application, shared directory access are listed in sufficient detail to allow replication in the service provider. Document Readiness: Outputs 4. Interim/flash and final outputs are completely documented  Formats are completely defined  Control steps and quality assurance checklists are defined  Delivery time/day-of-period are defined; these are reviewed to ensure they are achievable/consistent with input timeliness  Service provider and transition project manager should validate that timelines are current and not “aspirational”; tendency to put in desired/unrealistic deadlines when outsourcing Document Readiness: Communication 5. Communication channels for output to be explicitly defined  Clarity here minimizes misunderstanding during early production period  Especially if the output is an input to another process Document Readiness: Supervision 6. Onshore supervision points and that will be reviewed/checklist should be defined  Some country regulations (US) require clear trail of supervisory control by an Onshore person  Responsibility for output (e.g. financial statements) rests with an accountable Onshore officer

BPO 201 – Business Process Outsourcing 

SESSION 4

For shared service centers particularly, clear documentation on areas of supervisory review paves the way for transition into “center of excellence” mode where supervisory control rests offshore

***Activity*** Work Shadowing Definition: – is the term used for “learn-by-doing” activity of service provider personnel, generally done at the same location as current company performer Phases: 1. Onshore personnel doing activity  Onshore personnel performs activity, conducts training; service provider personnel looks over/on-observers  May be done at Onshore location with service provider staff travelling; may be done at service provider location with Onshore staff travelling  Service provider staff reviews documentation provided against actual activity done by Onshore personnel  Changes in documentation are done  Re-sizing pf required staffing may be negotiated at this point 2. Guided service provider network  Service provider performs the activity; Onshore personnel looks over and gives close guidance  May be done Onshore or at service provider site  Completes 1 or 2 full cycles: if output is monthly, guidance is given for 2 month-ends; if output is daily, guidance is given for a few days  Generally, 1 to 2 months of guided work 3. Go-live  Service provider performs the activity independently at service provider site  Performance targets in place and required  Changes in sizing or process (to correct erroneous training provided by onshore) now falls under change-request process and governance  Need to closely monitor for a period of 3 months to ensure stable performance ***Activity*** Readiness Assessment Readiness Assessment, Purpose of Readiness Assessment verifies if process to be outsourced is: 1. Adequately documented. Poorly documented current process will result in: a. Most current in-house processes operate on tribal knowledge, undocumented steps. b. Service providers adding “uncertainty” of process premium in their proposals – not very clear what will be delivered, how, and by when c. High probability of he-said-he-said misunderstanding during initial phase of production d. Long work shadowing period and high cost as service provided tries to document required process 2. Correctly-sized in generic resources a. Most current process done in-house operate with long-experienced staff (veterans in role). 1 FTE with 20 years on-the-same-job experience is not equal to 1 FTE with general experience no matter how bright or expert or diligent b. Without readiness assessment, the company will estimate the current cost low, the receiving provider may incorrectly size the role, may have to initially use 2 performers (with very structured steps) to do the same 1 FTE job until knowledge is gained/documented 3. Resource sizing already includes the right level of quality assurance and supervisory control

BPO 201 – Business Process Outsourcing

SESSION 4

a. Most in-house processes rely on veteran performers with long-developed “business acumen” that allows unstructured sense-check for quality assurance b. Most contracts (especially shared service center migrations) are under-configured because QA/supervisors are not included c. Why is incorrect (under) sizing a problem? Because service providers will inevitably use the “change request” process to add the cost Adequate Documentation Adequate Documentation for: 1. 2. 3. 4. 5.

Input Process Output Communication Supervision

Considerations for Input 1. 2. 3. 4. 5.

Properly described input Method of acquisition Language of input Timing of the input Dependencies

Adequate Documentation: Input a. What are the inputs - Is there documentation listing/describing the inputs o Many onshore processes performed by long=time staff would not have existing documentation o Key to know where are gaps to understand areas and cost of remediation - How are the inputs received o Are they in structured form (consistent) or are they in verbal, email or even spreadsheet freeform o Structured input makes straight-through processing easier, requires less business acumen on part of performer o Less training for processor to start, faster growth from new hire to productive performer o Unstructured input data points to early area for process improvement; efficiency gains from straight through processing - Are inputs in same language as that of provider o Can communication onshore be done in same language as that used by provider o Different language adds cost in terms of language translator/specialist and “funnel” effect b. Is there an input data timing condition (can be received only on Business Day) - Are the inputs received all throughout the month or do they peak on a single day/period o Peaking inputs may require peak-basis staffing to keep delivery target o Extra cost of peak personnel o Challenge of work-scheduling to use staff during low periods - Are inputs received only on defined days o Do those days coincide with month-ends o Less opportunity to do work-scheduling of off-peak staff if work peaks are the same c. What are the dependencies (what systems, external parties) - Are dependencies documented – i.e. OO output from another system/process must be received first before PP input can be delivered - Which inputs are delivered by external, systems, which by internal systems o How stable are the systems (do they go down regularly) - Are there work-arounds in case of input system failures d. How accurate are the inputs (quality of input) - Are there base/historical accuracy statistics. Can be used to justify cost of measures to improve accuracy

BPO 201 – Business Process Outsourcing

SESSION 4

- Input errors cost money in terms on re-work - Poor quality of input means prior step to validate input must be added e. How consistently delivered on time (timeliness) - Are there historical timeliness statistics. Can be used to justify investment in faster platforms, in process improvements - Late inputs cost money in terms of overtime - “Compressed work-day” burden on performers (doing 3 hours worth of process in hour deliver on time Adequate Documentation: Process Checklist a. b. c. d.

Are the processes properly documented Are hand-offs to other parties (internal and external) shown in the documentation Are interim or “flash” reports documented Are delivery time/day-of-month/period targets documented

General rule of thumb:  If documentation length exceeds the output materially, that is too low a level  Lowest level documentation going beyond 2 to 3 pages is too much a. Are the processes properly documented - What documentation standard o Process maps (who performs, what are the hand-offs to other performers) are intuitive o Using a specific standard is not important; it is important that a standard is consistently used - How many levels are documented o Must go beyond high-level process o Must document actual outputs sufficiently to allow:  Qualified performer (with xx years experience in yy process, with aa academic training) to replicate output o Must be simple and straight forward - Are workflow and other technology tools properly referred to in the document o Ideal if workflow platform is used in Onshore, but this is infrequent o If specific spreadsheets, access, or other end-user-developed programs are used (“macros”), it is important that the source code and technical documentation for the macro is shared b. Are hand-offs to other parties (internal and external) shown in the documentation - Clear documentation of hand-offs show areas of “process fragmentation” - Hand-offs are transfers of the task to other people before continuing - Aggregate items to review in a single-sign-off step at the end - May be better to require enriched data prior to start of the process – i.e., intelligent input template or train performer to do the data enrichment c. Are interim or “flash” reports documented - Flash reports allow Onshore supervisors to do early process check. Regulatory submission deadlines are hard, hence critical outputs may need intermediate review - Ideal that the process continues without waiting; only stop by exception d. Are delivery time/day-of-month/period targets documented - Indication of required delivery time/date important in the process documentation - Quick look at input receive and output delivery allows check of process ease and staffing requirements - Tight processing time (late input, early month output) shout out opportunities for required technology/process improvement Adequate Documentation: Process How up-to-date is the documentation - How often is document re-certified. Are the “live”/modified immediately whenever process is changed

BPO 201 – Business Process Outsourcing o o o

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Documentation is valuable only if up-to-date; show binders are not useful Easy to quickly assess live-status of documentation” Ask performer about his process, ask him to then point it in the documentation What steps/procedures will Contracting of a service provider for the delivery of a process or service - Delivery targets: Following defined delivery objectives-defined timelines, accuracy, consistency - How: With description/documentation of how the service will be performed (key operating procedures, control points) (in many cases, requirements will include: performer qualifications and count, required tools – for clarity of expectations) - Supervision: Stating the supervision process, periodic reviews, and how performance will be measured - Cost: For a clearly defined cost (per input unit o outcome) and clearly defined bonus/penalty award and basis

Adequate Documentation: Output Considerations for Output 1. 2. 3. 4. 5.

Properly described output Method of transmission Language of output Timing of the output Dependencies

Are outputs completely documented - Formats defined. In key management reports, down to the colors of certain data - If output is an input to another process, best that structured template is followed - Periodic changes in outputs (and in contents/format within output) are normal – BUT the change requests should be documented, cost-justified, and properly approved Adequate Documentation: Communication How are the outputs to be communicated - Transmission channel has to be clearly stated – e.g. email, file upload into MS Sharepoint - As input to another process – in workflow or direct entry to another system Adequate Documentation: Supervision Considerations for Supervision:    

Onshore Offshore Staffing, Equipment, Motivation Country Regulations

Where are the “Onshore” supervision points   

Some country regulations (US) require supervisory control by an Onshore person – i.e. ownership of the output is with the Onshore person In Onshore exercises who has “supervisory control” In shared services, next stage of evolution is true centers of excellence where work and supervision is done in another location

Adequate Documentation: Summary  

Onshore processes with adequate documentation have greater readiness for offshoring Documentation on Inputs, Processes, Outputs, Communication channels, and Supervision allow a service provider (Third0Part of Shared Service Center) to estimate cost of doing the service offshore with more certainty.

BPO 201 – Business Process Outsourcing

SESSION 4

Hand-Offs Definition -are transfers of the output to a different performer, an approver, for further action prior to continuation Reasons for Hand-offs 1. Data enrichment. The other performer adds data to the transaction 2. Quality Assurance. The second performer is a checker 3. Control. Approval for materiality and substance is done by a separate person How you get paid… 1. 2. 3. 4.

Paymaster creates initial employee pay record Timekeeper reviews overtime records to adds overtime pay Payroll clerk reviews loan records for loan deductions Payroll clerk looks at reimbursement records to add payments for expenses advanced by employee 5. Payroll clerk looks at enriched pay record and calculates right withholding tax 6. Payroll supervisor reviews the whole pay and approves 7. Paymaster submits net salary ta bank for payment Scale Sufficiency – Tips to Optimize Scale Illustrated

Scale - Number of employees (manning compliment, head count, full time requirements FTE) Sufficiency of scale depends on the following:   

Service provider Requirement of the job Client

Scale in Relation to Workforce Sufficiency of scale depends on the service provider – for risk management 

A 15,000 FTE provider is a single location may prefer engagements of at least 500 FTEs (5% is normal buffer of resources, can be ramped up easily or absorbed in other clients when contract ends)

BPO 201 – Business Process Outsourcing

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Right scale depends on client – percentage of outsourced roles to total staff, for risk management and control  

A 500 person Finance organization may want to limit initial outsourcing to say 10% or 15% A large company with experience in outsourcing may opt to outsource the entire technology group (from data centers to application development to helpdesk) to a provider –especially if core business is non-IT

Tips to Optimize Scale  

If the process to be outsourced is done by only a few FTEs (Full time equivalent), it is not worth outsourcing Near self-contained roles have good potential for outsourcing – because more FTEs covered

For Scale to work it must ne considered to both sides client and service provider. In each instance, both parties have to consider the following:  

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End-to-end roles are ideal (start from external contact, ends with external contact, with only 1 or 2 intermediate hand-offs for review/approval) Product P&L (profit and loss) starts with transaction data download and ends with submission to regional/senior management, intermediate activities (market price verification, calculation of mark-to-market value) are fully done by service provider Buyer needs sufficient FTEs in outsource project to justify risk and executive attention (sourcing management, finance/payments, legal) What is the amount saved. If it is too small, the cost of Onshore supervision eats up the benefit Service provider needs sufficient FTEs (margin) to justify a risk, supervisor (operations manager attention), and overhead (Finance, billing, legal) Large and small engagements have near same “overhead” in support –except for very large contracts Training Improve Hardware and/or Enhance Software

Identifying Task Candidates for Outsourcing  

Break down current onshore roles into individual tasks that have scale (high number of FTE hours) Tool for task analysis can be - Follow the performer: consultant follows a performer and tracks time spent in each task; called “stop-watch” method because consultants carry timing devices

Identifying Task Candidates for Outsourcing: Time Tracking         

Time-tracking into granular task buckets is good way to identify potential roles for outsourcing Record how much time is spent each day in specific task groups Helps managers assess whether the work can be simplified Challenge of simplify now or later Some high-volume tasks may need further breaking up to identify specific roles Highlights tasks that occupy a lot of people’s hours High FTE-hour numbers are directional pointers for outsourcing Other “sub-filters”: (a) do not require complex market knowledge, (b) do not have high financial or regulatory risk, (c) tasks which are self-contained (have minimal hand-offs) Tempting to wait and do more granular time tracking and further analysis. Be wary of analysis paralysis

Identifying Task Candidates for Outsourcing: Candidates   

Finite Documented Sufficient of Scale

BPO 201 – Business Process Outsourcing Identifying Task Candidates for Outsourcing: Considerations       

Readiness assessment Level of documentation of onshore processes Scale: sizing savings based on current performer count Time-tracking or task-based FTE assessment Prioritize roles that are “more ready” Lift-and-Shift for less documented roles Cost of low outsourcing readiness

Components of Readiness

***Session Assessment/Quiz***

SESSION 4