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Human Capital Issues in Outsourcing:Minimizing Risk22 May 2003 : 

Human Capital Issues in Outsourcing:Minimizing Risk22 May 2003

How to Increase Your Outsourcing Risk : 

How to Increase Your Outsourcing Risk Forget about critical knowledge and skills Mismatch roles and competencies during transition Ignore worker backlash Create an outsourcing business case without considering management costs Let the ESP manage the contract and relationship themselves Fail to plan for the retained staff’s needs Transfer the wrong resources to the ESP

It’s About the People : 

It’s About the People Transition to outsourcing is a major organizational change Most leaders fail to sufficiently prepare employees for transitions that are essential to the future survival and prosperity of the organization. The cost of not addressing the people issues far outweighs the investment in the human capital aspects of change.

Compelling Research : 

Compelling Research Enterprises that fail to prepare and support their workforces for major and continuing organizational change will miss business objectives by at least 30% and will experience turnover rates of at least 20% annually for their key knowledge and leadership workers. Through 2005, 75% of enterprises contemplating widespread change will fail to adequately consider their organizational ability and willingness to adapt, ignoring the root cause behind more than 60% of initiative failures. Source: Gartner

Address Human Capital Issues : 

Address Human Capital Issues What human capital management issues should be addressed to minimize disruption and the loss of productivity, and ensure a smooth transition to an external service provider? How can you build productive relationships with external service providers by effectively defining the organization structure and governance processes? How can you apply change management techniques to efficiently and effectively manage the transition to an outsourcing model?

Aligning HC With the Sourcing Life Cycle : 

Aligning HC With the Sourcing Life Cycle

Sourcing Strategy: Start with the Right Questions : 

Sourcing Strategy: Start with the Right Questions What are our core competencies? What skills, knowledge, competencies do we have? What knowledge and skills must we hold on to? What are we spending on people? On services? What knowledge and roles are strategic? What are the pros and cons? What roles must we take on or retain?

Communication Assumptions : 

They don’t need to know yet. People will learn from the “official” communication when they need to. The communication department/supervisor will handle it. We’ll just give them an overview. We don’t have time to talk to every employee personally. They already know; we announced it. We don’t know the details yet, so there’s no point in saying anything. Communication Assumptions

Communication Phases : 

Continue to show senior management commitment Reaffirm organizational principles and strategic focus Listen to and act on feedback to maketransition successful Refine transition to ensure success Following up (This is how we will make it work) Sourcing Management Continue to show senior management commitment Provide specifics on the changes being made Share implications of change with those affected Provide training for new roles, skills and methods Rolling out (This is what it means to you) Demonstrate senior management commitment Reaffirm strategic rationale Identify management and employee issues Gain information Provide the “big picture" Giving project status (This is where we are going) Evaluationand Selection/Contract Development Position sourcing from a strategic perspective Reaffirm organizational principles Provide specifics about the process Announce senior management buy-in and support Building awareness (This is whatis happening) Sourcing Strategy Communication Purpose Communication Phase Sourcing Stage Communication Phases

Communicating for Trust and Commitment : 

Communicating for Trust and Commitment Link messages to the strategic purpose of thesourcing initiative Be realistic and honest Be proactive rather than reactive to avoid the need for defensiveness later on Repeat messages consistently through varying channels Establish feedback mechanisms

What People Want : 

What People Want Know that sourcing is being considered or happening Understand the reason for change and the vision of the future Have some control over the events in their lives Know what will happen to them personally and when Feel there are no hidden agendas Receive candid communication throughout the process Have their own and other’s dignity preserved Soften the negative impact on those most affected

Show Me the Money : 

Show Me the Money Many enterprises underestimate the resources required to manage an outsourcing relationship Organizations typically spend between four and eight percent of the total contract value on managing the deal Enterprises can save five to fifteen percent of their management costs and enhance contract value by more effectively governing sourcing relationships

Changing Management Model : 

Changing Management Model Command and Control Manage performance in terms of cost reduction and service levels Formal structures Business as Usual Stability Focus on tasks Manage technology and technologists Empowerment and Trust Manage performance in terms of business results and deliverables Communities of interest “Best of Breed’ Disruption Focus on sources, teams, people Manage business expectations, outcomes and suppliers

Governance Success Depends on Alignment : 

Governance Success Depends on Alignment

Retained Organization Design Roadmap : 

Retained Organization Design Roadmap Assess the Current Structure Define Future Requirements Identify Required Roles Design Organization Structure Manage the Change

Assessing the Current Structure : 

Assessing the Current Structure What is the role of IT? What is the current business structure?

Define Future Requirements : 

Define Future Requirements Efficiency vs. Effectiveness Type of Deal

How Work Flows Through the Organization : 

How Work Flows Through the Organization

Required Retained Roles : 

Required Retained Roles Leadership Efficiency Effectiveness Chief Sourcing Officer Transition Management Contract Management Performance Management Financial Management Relationship Management Technical Advisors Business Process Management Strategic Planning

New Definitions of Competence : 

New Definitions of Competence Change Management Client Partnership Customer Service Orientation Establish Expectations Influencing Others Information Seeking Strategic Thinking Business Function Knowledge Client Satisfaction Metrics Knowledge Negotiation Risk Management Service Provider Assessment & Evaluation Strategic Business Planning Business Requirements Analysis Product/Service Performance Analysis Project/Program Management Information Systems Knowledge Behavioral Business Technical

“Best Practice” Retained Organization : 

“Best Practice” Retained Organization

Centralized - Organization Design : 

Centralized - Organization Design

Shared Services - Organization Design : 

Shared Services - Organization Design Service Level Agreements Relationship Managers

Governance Structure : 

Governance Structure Strategy Committee

Change Management Process : 

Change Management Process

Invest in Change Management : 

Invest in Change Management

Conditions Necessary for Change : 

Conditions Necessary for Change D = Dissatisfaction with the current situation V = Vision of a positive possibility F = First steps in the direction of the vision R = Resistance to change D x V x F > R If any of these are 0 – change will not occur Change leadership plans must address the D, V, and F to overcome resistance.

Common Transition Management Mistakes : 

Common Transition Management Mistakes Lack of common vision Exerting too much top-down control Failing to involve those affected in planning the change Viewing the change as an isolated event Neglecting culture, behavior and mindset in employees Lack of acknowledgement of WIFM Misdiagnosing the scope of change required Taking the short-term view Setting unrealistic time frames Poor role modeling Fear of communicating the “real picture”

Recommendations : 

Treat your people asa valuable asset Address human capital impactsthroughout the sourcing life cycle Ensure the retention of critical knowledge and skills Understand the human response to change Build leadership change management competencies Build the human capital infrastructure(organization, roles, competencies) to supportthe retained organization Communicate, communicate, communicate Recommendations