Chapter 4: Managing Outsourcing Transitions
 Negotiate elimination of unnecessary
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.
Transition Manager
- is responsible for migrating the function or the process
from the client location or organization to the service
provider or outsourcing organization.
- 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 off-shoring of a business
function
Generally, there are two common strategies followed in
migrating a function, these are:
• Lift and Shift
− This is the most common methodology
used. When the process is mature, the ’Lift
and shift’ 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
outputs
Items to Consider
1. Process change will not affect process control
points or output can be done by service
provider independently
− Onshore approval of process changes is a
good practice
− Onshore review if the change impacts
regulatory control points
2. Major effort: post go-live reengineering
− Transition phase can be easy especially if
“people and processes” are moved. This
may take 3 to 4 months only
− Onshore has the risk of losing political
will to reengineer processes after a while
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
 Fundamental rethinking and radically
redesigning of the business process 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 & Effectiveness
Transition Pitfalls and Risks
Most of the issues with sub-par or failed outsourcing
endeavors can be attributed to a few pitfalls.
1. Inadequate investment and sponsorship
2. Unclear scope of work
3. Training shortcuts
4. Unclear roles and responsibilities
5. Not retaining the experts
These can be avoided if the Transition Manager
constantly re-focuses attention on these things.
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 ongoing operations
2. Manpower Readiness – state of the readiness
of the operating staff; hired, trained, and, skilled
for the service processes
Transition Effectiveness can measured through:
1. Financial Benefits
 It is important to quantify the real cost of the
function before off-shoring (baseline costs) and
the cost of the offshore team on an ongoing
basis.
• 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 are documented
 Source systems and dependencies
 Timing of delivery quality assumptions and
work-around in case of failure in delivery of
some inputs
− Historical timeliness and accuracy
statistics.
− Helps size service provider resources
need, identify likelihood of work-
compression (rushing 3 hours work in 1
hour) or overtime (working late to keep to
output delivery targets)
 Format of inputs (structured or not)
Processes are documented using the 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-
of-month, period targets are documented
Required tools such as macros, workflow, application,
shared directory access are listed in sufficient detail to
allow replication in the service provider
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 timelines
 Service provider and transition project manager
should validate that timelines are current and
not “aspirational;” tendency to put in
desired/unrealistic deadlines when outsourcing
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
Onshore supervision points and what 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
• 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
Work Shadowing
 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 observes
how client does the task
 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 of 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
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 provider tries to
document required process
2. Correctly-sized in generic resources
 1. Most current processes 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
2. 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
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 to the cost
Adequate Documentation for:
1. Input
Considerations for Input:
a. Properly described input
b. Method of acquisition
c. Language of input
d. Timing of the input
e. Dependencies
A. What are the inputs
− Is there documentation listing/describing the
inputs?
I. Many onshore processes performed by
long-time staff would not have existing
documentation
II. Key to know where there are gaps to
understand areas and cost of remediation
− How are the inputs received
I. Are they in structured form (consistent) or are
they in verbal, email or even spreadsheet
freeform
II. Structured input makes straight-through
processing easier, requires less business acumen
on part of performer
− How are the inputs received(Continued)
I. Less training for processor to start, faster
growth from new hire to productive
performer
II. 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
I. Can communication onshore be done in
same language as that used by provider
II. 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 x)
– Are the inputs received all throughout the
month or do they peak on a single day/period
• Peaking inputs may require peak-basis
staffing to keep delivery target
• Extra cost of peak personnel
• Challenge of work-scheduling to use staff
during low periods
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
• 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
– Input errors cost money in terms of re-work
– Poor quality of input means prior step to
validate input must be added
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 1 hour to
deliver on time)
2. Process
a. Are the processes properly documented
b. Are hand-offs to other parties (internal and
external) shown in the documentation
c. Are interim or “flash” reports documented
d. Are delivery time/day-of-month/period targets
documented
General rule of thumb:
1. If documentation length exceeds the output
materially, that is too low a level
2. Lowest level documentation going beyond 2 to
3 pages is too much
A. Are the processes properly documented
− What documentation standard
 Process maps (who performs, what are the
hand-offs to other performers) are intuitive
 Using a specific standard is not important; it
is important that a standard is consistently
used
− How many levels are documented
 Must go beyond high-level process
 Must document actual outputs sufficiently to
allow a qualified performer (with xx years
experience in yy process, with aa academic
training) to replicate output
 Must be simple and straight forward
− Are workflow and other technology tools
properly referred to in the document
 Ideal if workflow platform is used Onshore,
but this is infrequent
 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
b. Clear documentation of hand-offs
show areas of “process fragmentation”
c. Hand-offs are transfers of the task to
other people before continuing
d. Aggregate items to review in a single-
sign-off step at the end
e. 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 times (late input, early month
output) shout out opportunities for required
technology/process improvement
How up-to-date is the documentation
– How often is document re-certified. Are the
“live”/modified immediately whenever process is
changed
 • 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 are the steps of the delivery of a process or
service in contracting of a service provider
– 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
or outcome) and clearly defined bonus/penalty
award and basis
3. Output
Considerations for Output:
1. Properly described output
2. Method of transmission
3. Language of output
4. Timing of the output
5. Dependencies
A. 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
4. 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
5. Supervision
Considerations for Supervision:
• Onshore
• Offshore
• Staffing, Equipment, Motivation
• Country Regulations
A. 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 (Third-Part or Shared Service
Center) to estimate cost of doing the service
offshore with more certainty
Hand-offs
− are transfers of the output to a different
performer, an approver, for further action prior
to continuation
Reasons for:
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 will you get paid:
1. Paymaster creates initial employee pay record
2. Timekeeper reviews overtime records to adds
overtime pay
3. Payroll clerk reviews loan records for loan
deductions
4. 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 to bank for payment
Number of employees (manning compliment, head
count, full time requirement 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 in 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)
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 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
– Example: Create Letter of Credit. But the
role is only done by one person who does
everything, or 1 person full day plus a
supervisor for 1 hour a day
• Near self-contained roles have good potential for
outsourcing—because more FTEs covered
– Complete help-desk
– Mortgage processing, from application
form acceptance to creditworthiness
points calculation, to annotation of loan
on deed, to title insurance submission, to
recommendation for funds release
• 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)
– “External” Contact can mean external to
the process
– 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 − Tempting to wait and do more granular time
justify risk and executive attention (sourcing tracking and further analysis. Be wary of
management, finance/payments, legal) analysis paralysis

• What is the amount saved. If it is too small, the • High FTE-hour numbers are directional pointers
cost of Onshore supervision eats up the benefit for outsourcing

• Service provider needs sufficient FTEs (margin) to − Other “sub-filters:” (a) do not require
justify a risk, supervisor (operations manager complex market knowledge, (b) do not have
attention), and overhead (Finance, billing, legal) high financial or regulatory risk, (c) tasks
which are self-contained (have minimal
• Large and small engagements have near same
hand-offs)
“overhead” in support—except for very large
contracts Identifying Task Candidates for Outsourcing:
Candidates
• Training
• Finite
• Improve Hardware and/ or Enhance Software
• Documented
Identifying Task Candidates for Outsourcing
• Sufficient of Scale
• Break down current Onshore roles into
individual tasks that have scale (high number of Identifying Task Candidates for Outsourcing:
FTE hours) Considerations
• Tool for task analysis can be • Readiness assessment

− Follow the performer: consultant follows • Level of documentation of onshore processes

a performer and tracks time spent in each
• Scale: sizing savings based on current
task; called “stop-watch” method because
performer count
consultants carry timing devices
• Time-tracking or task-based FTE assessment
− Time-tracking: each current performer
tracks his activities, how much time is • Prioritize roles that are “more ready”
spent in each task, over a period of 1 to 3
months • Lift-and-Shift for less documented roles

• Time tracking into granular task buckets is a • Cost of low outsourcing readiness
good way to identify potential roles for Components of Readiness
outsourcing
• Scalable Talent Pool
• Helps managers assess whether the work can
be simplified • Cost

− Challenge of simplify now or later • Excellent Infrastructure

• Recording how much time is spent each day in • Government Support & Public-Private
specific task groups Partnership

• Highlights tasks that occupy a lot of people’s

hours

• Some high-volume tasks may need thorough

analysis to identify specific roles