Continuous improvement to the service
Sometimes the transition begins with the provider leading a joint project team seemingly intent on making one single leap towards complete competitiveness. ERP projects intended for completion by the end of the transition often come into this category. Common sense would normally indicate that something as major as an ERP project would be better left until the two parties had gained experience of working together. Against that, I have observed several outsourcing arrangements where the alternatives to a completely new integrated software system to begin the contract appeared even less attractive.
In most outsourcing arrangements, however, one of the key aims of the transition and any pre-transition projects deemed necessary will be to identify both the service improvements that can be achieved in the short term and those that are better left to some future date. Typically the short-term changes will concentrate on improvements in reliability, speed and quality of the existing service while at the same time searching for cost reduction and rationalization opportunities.
Risk/reward sharing or value added outsourcing arrangements will normally require the provider to look for opportunities to re-engineer and improve the service at regular intervals both during the transition and thereafter as new processes, interfaces, reports and greater on-line access to information becomes possible. Logically, though, the heavy workload experienced and the process of both parties learning to work together means that improvements first isolated during the transition are usually implemented much later.
Many of the highly publicized added value success stories in outsourcing have come about because of continuous improvement programmes created sometime after the tract got under way, i.e. the actual improvements were not anticipated prior to or during the transition. The existence of this knowledge has led some client organizations to feel that if they create the right risk/reward-sharing environment for the providers to work in then it is not an area that needs exercise their minds in the short term – certainly not prior to the transition starting.
Unfortunately, there are certain aspects relating to continuous improvements in the future that the client organization has to consider very seriously and as early as possible in the pre-contract period. This is because continuous improvements are unlikely to all start and end conveniently within the confines or boundaries of the function being outsourced.
It is possible to imagine all manner of out of scope problems that the provider might face when contemplating future improvements. Related areas may have already been outsourced to one or more different providers and these other providers or other internal departments may be proceeding along entirely different agendas with new projects planned or under way. Obviously, a new provider is unlikely to take on a function without previously establishing who has control of the related functions. However, potential confusion in the out of scope areas may not be sufficient to stop the provider going ahead with the basic contract. In other words, just having the contract with only the possibility of sharing future savings may be sufficient reason for the provider to sign up for the arrangement.
In these circumstances the provider may have entered the agreement with every intention of seeking continuous improvements providing that the client gets its house in order at an early stage after the contract starts. If the provider is prevented from bringing about further improvements due to factors in other related functions that it is unable to influence, then it can be excused for assuming that the problem lies with the client. After all, it does not have an unlimited supply of the specialists who bring about such improvements. Consequently, it only requires a few setbacks when attempting to bring about improvements to convince the provider’s management that the specialists could be better used elsewhere. It is possible that this change, in terms of reducing future creative effort, could come about without the client ever realizing it.
Therefore, if it is seeking continuous improvements from an outsourcing arrangement, the client must analyze the potential for inter-department or inter-supplier co-operation and discuss its findings with the provider before the transition gets underway. Convincing the provider at an early stage that it understands these potential limitations and will do everything it can to correct the situation should help to create the right sort of environment for continuous improvements.