All too often in outsourcing projects, the transition and transformation projects only succeed with a significant deviation from the original time and cost planning as well as the solution design. The smooth transition of services from the customer organization to the provider organization or from the previous provider to a new one is the basis for a long-term and trusting cooperation. Ultimately, this is also where the decision is made as to whether the set goals of the outsourcing will be achieved. Unfortunately, there are an increasing number of examples in which dissatisfaction with the implementation of the transition and transformation leads to heated commercial disputes and even a standstill in the service relationship.
What makes transition and transformation projects so challenging? What are the fields of action to avoid or at least “cushion” crisis situations? Based on our experience, we name approaches to bring transition and transformation projects safely to success despite their high complexity.
Transition means the handover of operations (“current mode of operation”) to a service provider “as-is”, without any changes in operations or technology. Thus, this means the change of responsibility and the contractual transfer of responsibility and, if necessary, of assets or personnel (“change-of-control”). In contrast, the transformation process means the phase in which changes are made in technological, operational and organizational terms that are necessary for future operation (“Future Mode of Operation”) in order to be able to achieve the agreed cost benefits, efficiency or quality improvements. Both phases often merge into one another and are therefore difficult to separate sharply.
In general, a transition and transformation project means a massive change in service delivery, systems and processes, in the remaining provider management organization and in the cooperation with the new service provider. It is influenced to the highest degree by the people involved and how they interact with each other.
Only an understanding of the typical patterns and behaviors of the people involved over the entire lifecycle of a transition and transformation project makes it possible to define the right measures to plan, communicate and manage the change as well as measures in a crisis.
After signing the contract, there is still a general satisfaction with the result and positive expectations regarding upcoming changes. However, as activities increase, both organizations become more aware of the complexity and impact of the changes and critical points in service delivery become increasingly apparent. This increases the pressure primarily on the service provider and thus its focus on meeting budgets, times and contractual obligations. However, weaknesses in the customer organization and provider management (capabilities, understanding of roles) are also becoming apparent. Differing views on contract content, quality of service delivery, and “inevitable” adjustments of contracts to changing circumstances in the provider’s solution design, then become necessary in increasingly controversial ways.
It is becoming increasingly difficult for project management to keep an eye on and control over all the strands of activity in order to ensure the planned progress of the project without costs and the use of resources getting out of hand. Increasingly, the performance of the provider, the cooperation with him and the commitments made are called into question.
The more milestones are not reached and costs and efforts increase unplanned, the more urgently measures must be taken to counteract the pull of a further downward spiral. Otherwise, there is a danger that only a stop of the project and the replacement of the team promise chances for a turnaround in the project or that the project fails completely. Both would also be associated with further costs, delays and dissatisfaction on both sides.
Why is that?
Expectations for the outsourcing project are high. Financial cost benefits, organizational and technical improvements, the elimination of past failures and undesirable developments, and much more. All this is now to be achieved with the new contract. The service provider’s sales department has agreed to this, developed a solution for the transition of services and offered this at a fixed price; knowing the capabilities and set-up of its delivery organization.
During the transition and transformation, many factors come together that strongly influence the complexity of the project. This is especially true if transition and transformation do not take place in sharply separated phases. A major problem in almost all transition and transformation projects is the frequently encountered technical errors in project management and the stringent leadership of global and complex teams, which inevitably leads to increased expenses and time delays. On the one hand, the complexity resulting from the project situation is underestimated. Starting with a transition and transformation contract that is too unspecific, does not describe a sufficiently binding and detailed plan for the transition and transformation, and allows interpretative leeway, which in itself harbors conflict potential and leads to delays. Mistakes are also often made as early as the due diligence stage, which is rarely of sufficient quality to serve as a basis for the project in the negotiation phase. If the customer organization then also fails to meet its obligations to provide materials, a clean basis for further planning is missing.
In addition, due to inexperience or time pressure, the complexity of the project environment is neglected. In a transition and transformation, numerous stakeholders on the user, management and project side are involved (or should be involved), some with different goals and interests, which must be balanced by the project teams. The differing expectations between the customer units and the provider about the exact content of the contract and procedures alone offer sufficient potential for conflict. In addition, there is often a governance structure that proves inefficient in practice if, for example, roles and tasks are unclear or not practiced precisely enough. On the customer side, but sometimes also on the provider side, employees are all too often inadequately trained and prepared, so that they are simply overwhelmed with their tasks. Out of frustration or because new tasks or projects are more tempting, many employees leave the teams after the start of the transition and transformation or are even removed.
If the goals of the transition and transformation and the future target state, in particular of the service content and quantities, processes or technical requirements, are not described and agreed precisely enough, this will inevitably lead to disagreements and disputes about the acceptance of the project.
On closer inspection, the omissions become obvious as early as the tendering phase. The service provider tends to overestimate its capabilities or to underestimate the effort and costs of the transition and transformation or, in order to win the contract, to under-calculate. The resulting pressure to keep margins reasonably stable by making additional demands or reducing quality later on leads directly to a dilemma.
What are the fields of action for a successful transition and transformation?
Changes are necessary on both sides as early as the contract initiation phase. On the one hand, expectations on the customer side must be actively managed to get everything solved that has not worked in IT in the past. On the other hand, on the provider side, there is a need for greater involvement of managers and teams in the sales and contract process of those who will later have to “spoon up the soup”.
It has been shown that a significant part of the success of a transition and transformation project lies in the skills of the individual and the teams and their interaction with each other. It is they who ultimately decide on the success or failure of the transition and often of the entire outsourcing project. Thus, it is eminently important to invest effort in resource and personnel management in order to have the “right” people in the teams. This applies equally to the customer and provider organization, whereby it is necessary to involve those responsible for the transition and transformation well before the contract is signed and to obtain the commitment of the relevant delivery unit.
The foundations for a successful transition and transformation are laid before the negotiation phase. That is why careful due diligence, a detailed description of the future mode of operation and the path to get there, and a precise transition and transformation contract are indispensable. Since transition and transformation projects in particular have risky dynamics, clear decision-making and escalation processes are important. These are part of a mature and efficient governance structure, which must also be clearly regulated in advance of the project. A common understanding of risks and their prevention or mitigation measures must be developed in a structured manner at an early stage and managed throughout the ongoing project. Coupled with proven methods and tools to control the project and support provider management, rigorous project management with a clear focus on meeting milestones and commitments is an indispensable prerequisite for adherence to the agreed roadmap.
However, no matter how detailed and comprehensive the plans are, they can only give the appearance of having considered all contingencies. It must be clear to all parties that a transition and transformation will always involve managing the unforeseen, the incalculable and uncertainties. Therefore, both in the commercial negotiations and in the project, this mindset and attitude must be taken into account on both sides in order to be able to maintain the necessary flexibility in action and budget.
Outsourcing is always a complex and risky undertaking. Poorly prepared or executed, it leads to massive problems in transferring services from the customer or existing service providers to the new partner. It can jeopardize IT operations and will inevitably lead to unplanned costs, schedule delays and increased resource requirements on both sides at the very least, putting the overall success of the entire outsourcing project in doubt. With realistic requirements and “solid” planning and contract design, however, many typical undesirable developments in transition and transformation projects can be avoided or at least limited. Particular attention should be paid to a clean contract, a jointly prepared detailed project plan, and rigorous management during implementation, led by a partnership of experienced employees in the customer organization and at the service provider.
If the necessary skills or resources are not available or planned for within the transition and transformation team or organization, it is recommended that external support be brought in to help ensure success and minimize risk.