Is Your Lease Keeping You in the Current Model?

How to make sure your outsourcing arrangement stays on course.

by Curtis S. Morgan

Outsourcing is like deciding whether to buy or lease a car. If you buy, the cost of repairs, upkeep, and eventual replacement are all in your control. If you lease, you expect to turn the car in for a new one every few years. The lease decision provides access to current technology and offers the advantage of upgrades available in the newer models. So if outsourcing is, like leasing, an expectation of always having the latest engineering, why do so many relationships fail to deliver continuous development and improvement?

Of course, upgrading the HRO space is certainly more difficult than going to a dealership and turning in your old car for a newer model. Often, process change and development start out full throttle, yet the expected continuous improvement fails to materialize after the heady results of the early transition effort. Given the obvious advantages of process or cost improvements to both provider and buyer, why do so many relationships eventually become stagnant? A typical pattern of events runs something like this:

The buyer and provider start out with a mutual commitment to focus resources on cost control and process improvement after live date. Presumably the providers team has the focus and expertise to execute the transition to the better future state, and contract provisions typically are set so that its in the providers financial interests to invest in improved processes.

During transition, all resources are focused on transition efforts, change management, and minimizing the adverse impact on employees and business partners, while continuing to meet the buyers ongoing service needs.

Once services have transitioned, the reality of changing requirements, corporate transactions, special projects, and competing buyer demands distracts the change management resources assigned to the core optimization efforts. The vendor has to redeploy change management resources toward what the buyer now needs to have done rather than the intended process improvements or implementations. At the time, redeployment seems to be a win-win: The buyers needs are met and the vendor provides revenue-generating special projects.

At some point however, the long-term impact of this shift in focus becomes apparent when the promised continuous improvement fails to materialize. Somehow, everyone was working hardyet the service delivery and cost controls have lagged behind expectations.

So how can you realign with your original objectives while continuing to meet interim needs? Below are the steps necessary to get things back on track.

1. Assess where you are and why. Make sure that the primary obstacle to achieving improvement is the diversion of resources and not a decision not to pursue certain efficiencies. There may be other reasons why the transformation has stalled or been deemed not feasible. Spend time with the teams to gain the reassurance that the goal is still worth the investment and the resources are still appropriate to the goal.

2. Examine alternatives for the destination state. Has interim technology or process improvement created alternatives that did not exist in the past? Evaluate what levels of improvement in service or process can be achieved and what other tangible and intangible advantages such as increased flexibility, responsiveness, or employee appreciation might result. Finally, assess if these advantages are realizable for the employee population involved.

3. Evaluate the resources needed to move from assessing to implementing the selected improvements. Building the full project plan for the transition is necessary for identifying and putting a price on resources. The resulting cost benefit analysis (reflecting cost and return sharing arrangements in the contract) will be used to validate the investments made by all parties.

This planning process can be time-consumingespecially when there is an eagerness to just get started. Although you have to get the ball rolling, both the buyer and provider owe it to themselves and their employees to keep the improvements smart, focused, and timely. To keep the new initiatives moving, you may need separate resource teams from those deployed against other initiatives using the existing team has not worked in the past. Added dedicated resources are typically neededalong with the commitment to keep them isolated from the distractions that may have derailed past efforts. In short, a more disciplined investment approach may be necessary to keep you in the latest HRO model.

Posted July 10, 2005 in Engaged Workforce

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