Outsourcing Sourcing and Procurement Operations

Outsourcing Sourcing and Procurement Operations

The digitisation of business led by disruptive SMAC (social, mobile, analytics and cloud) technologies is changing the fundamental foundation of how business is done. The fundamental strategies, processes, and financial structures need to change as organisations unbundle and decouple traditional value chains. The changing face of business has also impacted the Sourcing and Procurement (S&P) organisation.

Strategic alignment of S&P department is a high priority for CXOs

The spend on S&P versus the value it generates is under the scanner. The bottom-line impact on COGS (Cost of Goods Sold) can be significant as S&P may be supporting up to 60-70% of total company spending. There is also an urgent need to deploy strategies that protect the business from supply chain volatility risks especially in global environments.

Experienced S&P leaders today understand the need to build strong collaboration with their clients and therefore introduce initiatives with the intent to transform the S&P organisation. Positioning S&P as a leader and strategic enabler to drive intelligence for taking important business decisions is the need of the hour. S&P leaders are today asking some very critical questions:

• Is my Source2Pay cycle well managed and aligned to meet customer needs?
• Do we have the trusted advisors, resources and capabilities to provide a superior customer service and experience?
• Are we organised right in terms of our customers, categories and geography?
• How do we increase the SUM (Spend Under Management) and savings – at Enterprise, Business Unit, Category, Vendor and Transaction levels?
• What strategies, processes and technologies should we adopt to become an efficient and world-class S&P organisation?

To address the above questions and to effectively support business needs, S&P departments are today:

1. clearly segregating strategic and operational capacity and processes into client-facing, category-facing and operational roles;
2. becoming leaner, agile and responsive by building and retaining core competencies and key talent;
3. consolidating capacity and overlapping capabilities that may be segregated across purchasing, sourcing, vendor management, BU vendor operations and any such geographical groups; and
4. seeking procurement advisory and outsourcing services from third parties.

The choices: Improve operational efficiency, outsource or do both

Addressing high-volume client needs by adding resources is not going to be the most cost effective and sustainable option for S&P.  The choices can range from improving operational efficiency to outsourcing the non-critical operational processes or doing both (which is recommended).

Operational efficiencies can be improved by training talent, centralising, consolidating, optimising processes and eliminating demand and waste.

Industry research suggests that many S&P leaders today consider outsourcing as a viable option and it is gaining importance for companies of all sizes. Reports indicate that the global procurement market is expected to register a CAGR of 23.14% for 2012-2016 driven by cost reduction. Gartner predicted global procurement outsourcing market growth of 6.2% in 2013 with a five-year compound annual growth rate of 5.3% globally.

Core drivers for S&P outsourcing could be related to reducing cost of operations, transforming S&P operations, improving operational maturity, improving competitiveness, focus on core capabilities, improving access to products and services, improving efficiency and compliance and improving supplier performance.

Several S&P leaders are successfully leveraging outsourcing to enhance value

It is advisable to start small and gradually increase the scope of services as confidence in supplier ability to deliver and its acceptance increases. In the beginning repeatable and stable operations can be good candidates. High-value processes and sub-processes related to vendor governance, category strategy, spend analytics may not be the ideal candidates for outsourcing but can be matured internally or improved by leveraging external advisors.

Industry data shows that most S&P leaders who have outsourced operations have seen better value due to increased savings, improved SUM (spend under management), tangible UCR (unit cost reduction), better spend visibility and reporting, improved processes and better decisions on the overall spend portfolio. They have embraced outsourcing as an opportunity to benchmark capabilities against industry standards and improve processes while keeping focus on improving customer experience.

Some best practices to get started with the S&P outsourcing journey

In the short term you can start tactically but taking a long-term strategic view is important to derive the best value:

• Select the vendor keeping long-term relationship and needs in perspective.
• Establish a strong governance team and involve all stakeholders.
• Define your strategy and expected business outcomes.
• Ensure outsourcing will not disrupt any business needs.
• Implement strong change management to address concerns related to loss of jobs, changing roles and control.
• Invest in building supplier relationship and collaboration.
• Implement vendor performance metrics and dashboards to get better visibility.
• Collaborate with your partner to improve the value of engagement over time – this could mean automating several processes, eliminating demand, and deploying tools/technologies.
• While partnering with third parties for better savings and results; work with your clients and business to deploy mechanisms to enforce spend accountability.

Outsourcing can be a key enabler and transformational wild card for S&P departments to deliver more value to their business and can position them as more strategic to their clients. Outsourcing if positioned correctly will be able to provide the right mix of talent, flexibility and scalability to address business needs.

Copyright,  Sanjay Chadha, All Rights Reserved

Embracing the World of Recruitment Process Outsourcing (RPO)

Interestingly, as I was reading the media - I noticed that several US and UK firms are expanding their recruitment and staffing footprint in India. The market for RPO in India is expected to grow with leaps and bounds.  Here is a recent article in Economic Times that shares the story 

Embracing the World of Recruitment Process Outsourcing (RPO)

Corporate HR departments are increasingly using Recruitment Process Outsourcing (RPO) services to transfer all or part of their recruitment activities to an external service provider. RPOs are focused on recruiting activities with-in Human Resources Outsourcing (HRO) space which covers broad areas like, benefits management, compensation, payroll, training, contingent workforce, performance management etc..

RPO providers bring forward deep recruiting capabilities that include well-qualified recruiters, processes, sourcing networks, technology and social media. They operate as a virtual extension to the clients recruitment function. Specialized RPO firms will not only assume ownership of design and management of recruitment process but also take accountability for outcomes under pre-defined SLAs and drive automation and year on year productivity improvements.

Drivers and Benefits of RPO

Clients typically launch a RPO initiative to improve service, address fluctuating demand, improve time to hire, increase quality of candidate pool, provide verifiable metrics, reduce cost and improve governmental compliance. The benefits for clients can be enormous:

·         Low Cost: RPOs are generally run at lower cost as they are able to optimize costs associated with large staff of recruiters, resume databases, tools and social media networks.

·         Improved Flexibility: As with any other form of outsourcing, RPO solutions change fixed investment costs into variable costs that flex with fluctuating demand.

·         Better Utilization of Capacity: Companies may pay by transaction than by resource; ensuring better utilization of capacity and avoiding expensive layoffs when activity is low.

·        Higher Quality: RPO should also improve quality because RPO provider is paid for delivering specific performance targets and outcomes. As a result the RPO provider will concentrate their resources on core tasks that excluding any non-core activity.

The RPO Journey

For buyers interested in RPO solutions it is important to define your strategy upfront and answer some critical questions:

·         How will an RPO solution benefit your organization?

·         What are the areas that need improvement in the current recruitment processes?

·         Do we outsource specific tasks or end to end recruiting processes?

·         How will we redeploy the freed up capacity if we outsource?

·         How will be measure success if we embark on the RPO journey?

An assessment of recruiting processes will be essential to clearly understand the drivers that are specific to your organization. The recommendations from such assessments will provide insights into maturity of your process, people and technology and identify areas your firm should seek expertise and is willing to outsource. As an outcome of this phase, all key stakeholders need to be brought into the arrangement and must work together to accomplish the organization’s recruitment goals.

Once scope is clearly understood and agreed, preparing the design of your unique RPO solution in consultation with potential vendors, employees and external consultants will be the next logical step. A governance group can be formed consisting of HR, Legal, Sourcing, Procurement and other stakeholder representations to drive this forward. This will also clearly establish executive sponsorship for the initiative. Vendor selection can also be initiated at this stage. Traditionally organizations used to do RFI / RFP (Request for Information / Proposal) but we recommend a more collaborative approach with few firms that allows you to build the future state and service improvement plans in closely working with them. This approach will balance mutual expectations and provide critical insights to determine the best RPO partner for your firm.

Transition of core recruiting processes in alignment with the RPO strategy lays out the foundation of the future success of the RPO. This phase must be therefore managed well. Clients will need to work closely with the selected partner and transfer knowledge and capabilities.

The RPO initiative moves into steady state, once the provider has completed knowledge transfer (KT) and gained control of the process to the extent that it can run that without any client intervention. The steady state provides operational control to the provider to start looking into maturing the RPO so that it can be run more efficiently.

Once the engagement is in steady state, focus must shift towards enhancing value of the RPO. This calls for dedicated focus on optimizing the RPO processes and practices. Most providers at this stage will measure volume of demand, fluctuations, optimize capacity, implement SLA framework and continuous improvement mechanisms. They might also clearly identify client dependencies that need to be addressed so that optimization can be successful. Keeping transparency of operations at each stage of the recruiting cycle will be critical to showcase and measure value to the client. Providers should therefore publish reporting and metrics that provides insights into the health of recruiting process. Clients must provide strong governance over RPO activities, providing initial direction and continued monitoring to assure good results.

Your RPO initiative will be unique to your organization. Successful RPO strategy will require clients to share their recruiting strategy and business knowledge with the RPO provider. This will not only help them represent your brand successfully but also meet and exceed your expectations with the RPO initiative.

Copyright Material - DO NOT publish without permission. Copyright: Sanjay Chadha

So Much of Noise around Domestic Outsourcing - Is the Trend Real?

Globalisation requires companies to compete globally, and offer better products and services that are appealing to customers. In several industries, global outsourcing today enables the business value chain, providing a mechanism for corporations to achieve their globalisation objectives while keeping their costs manageable.

Y2K served as the growth engine for the offshore outsourcing industry. Demand was largely driven by a need to access flexible capacity at a lower cost. The trend has been significant over the last decade as offshore providers introduced new services, improved quality, provisioned flexible capacity and continued to offer labour arbitrage benefits.

Today, several factors are indicating a growing interest in domestic outsourcing. Domestic outsourcing means having work done in the same country by a different company. Within the USA, for example, development and operational centres in states like Montana, Alabama, Detroit, Wisconsin, Louisiana, and Maine are emerging and seeing increasing investments. Offshore providers are also recognising domestic outsourcing as an opportunity and are investing in centres staffed by US citizens. The “offshore” pitch is changing to the “right shore” pitch as clients look to balance cost with better quality of delivery.

Several factors are contributing towards this trend.

Industry and economic factors 

• Rapid environment changes are prompting demand for agile, adaptable products that solve business problems and have faster time-to-market. Taking a rigorous process-centric view and translating development requirements and architectures to remote teams may significantly slow things down. In several situations, these expectations are best perceived to be met by domestic destinations with well-integrated, highly collaborative, and business-centric teams working on similar goals.
• Innovation becoming mainstream. Offshoring continues to offer strong execution skills. However, generating viable innovation has been slow. In several situations, the “connect” required to innovate may be best when services are being delivered in closer proximity.
• Government incentives and support. Several state and local governments are now offering incentives like reduced tax rates, lower capital requirements, and improved entity structures to encourage corporations to make domestic investments.
• Immigration policies are tougher today that they were ever and are favouring increased usage of the domestic outsourcing model.
• The cash deployment factor. The last four years of recession and an uncertain economic environment focussed corporations towards conserving capital by making investments in improving productivity and generating operational efficiencies. These investments are now reaching the point of diminishing returns. Companies today are flushed with cash and their focus is starting to shift towards increasing their top line. As the economy improves and hiring starts to grow, there is an increased probability that corporations will invest cash to generate more returns. The demand generated as a result of these investments may provide a boost to domestic establishments as several situations may favour domestic over offshore destinations with the current economic environment.
• Matured sourcing. More and more buyers are demanding matured sourcing capabilities to free up their bandwidth and manage providers by results. As a result how providers deliver services is becoming less of a client concern unless there are risk factors involved. Providers are therefore asking for location flexibility that provides them with a balance of cost, quality and timeliness. As a result, the trend towards “right shoring” to sustain high-quality delivery will continue to increase as providers establish domestic outsourcing capabilities.

Offshore factors

• Labour arbitrage benefits are going away. The labour arbitrage benefits associated with offshore locations are starting to disappear when you factor in wage increases, productivity loss, resource turnover, travel costs and other factors. Today, the dollar weakness is helping sustain wage differentials but that cannot be always expected.
• Typical issues with offshoring. Issues like language barriers and time and cultural differences can be some of the reasons to leverage domestic locations for certain types of work. Several customer-facing functions (e.g. call centres) may be best suited for domestic outsourcing for these reasons.
• Perceptions about job losses associated with offshoring. Ironically, media coverage of the loss of US jobs only surfaces when it relates to relates to offshoring. It does not come up for “domestic outsourcing”, even though in many situations it has an equal potential for job losses and displacements within the same country.
• Offshoring risks. The risk tolerance for companies is different when they execute domestically. The risk controls required to manage reputation risks, data security challenges, intellectual property protection, consumer data protection etc for offshore require significant investments. Several risks like cultural respect for IP and the legal responsiveness of destination countries are unique to offshoring.

Determine if outsourcing will add value

Companies should first decide if outsourcing is even a viable option. If the service under consideration is a core competence and significant contributor to business success, it may be a candidate to keep in-house. Similarly, if the maturity level of the in-house organisation delivering the services is at the same or greater level of specialisation than leading providers’; it may not be a good candidate to outsource.

The major motivation for in-house activities is to protect core products and process innovations. Locating core activities deep in-house can avoid encroachment from competitors, with proximity allowing for collaboration, closer monitoring and easy access to specialised resources and infrastructure.

Determine your sourcing options

Once the decision to outsource is taken, careful evaluation of sourcing options and analysing the total cost of ownership (TCO), and skill levels should be conducted. Corporations must focus on carefully determining their business-aligned sourcing strategy and core drivers for sourcing mix (onshore execution v offshoring v domestic outsourcing). The answers will be different for different companies and will depend on closer review of scope with various factors like cost sensitivity, degree of user interaction, business domain, scope clarity, time to market, complexity, size etc.

Enable the best option and task your PMO

If domestic outsourcing is a viable option, enabling providers will require a similar set of competencies and relationship management abilities that organisations implemented for enabling offshoring. The outsourcing programs (PMO) will be best positioned to provide leadership and support for such initiatives. I have shared details on maximising value from implementation of sourcing strategy and associated competencies in my bookTransformational Outsourcing. The complexity associated with enabling domestic outsourcing is actually lower than the complexity associated with enabling offshoring but it requires similar supporting operational and process frameworks.

It is impossible to predict if the domestic outsourcing trend will continue; rather companies are advised to focus on the sourcing mix that provides them with the best value. A lot depends on how domestic destinations build maturity and deliver the promise of higher quality. The other factor that will determine success will be the investments in education and training to build the IT workforce. It is unlikely that industry will see any significant changes immediately. However, all sourcing models will be here to stay and will be preferred over others depending on specific situations.

Copyright Sanjay Chadha - Please do not publish the content from this Blog without permission of the author.

Outsourcing Innovation - Launching Outsourcing Management as a Service

The dependence on service providers for delivery of services is on the rise. More and more IT and BPO leaders are realising that timely execution of strategic programs to meet business needs is an uphill task and requires matured sourcing practices. Over the last decade several organisations embarked on an outsourcing-led transformation; several of these initiatives failed to deliver the expected value as many underestimated the complexity and skills required in executing the outsourcing strategy. The leading cause was they failed to take a long-term view and answer critical questions:

• How do you maximise value and bring forward sustainable enterprise improvements from outsourcing initiatives?
• How do you integrate outsourcing with the usual business of the organisation?
• How do you calibrate the pace of outsourcing-led transformation while balancing your company culture, operating model and business objectives?
• How do you assess the level of complexity and take a structured approach to achieving the outsourcing goals?
• How do you maximise success and balance that with the myth of excellence?

The companies that succeeded had invested in building a business-led strategy, strong governance, investments in mature outsourcing competencies, and dedicated outsourcing management organisation (Program Management Office, PMO). Most importantly, they recognised outsourcing management as a key differentiator and core competence.

What is outsourcing management as a service?

In practice, outsourcing management can be successfully done as a service supported by blend of strategic and operational competencies. Outsourcing competencies are a cluster of related abilities, commitments, knowledge, and the skills that enable an organisation to act effectively in a job or situation. They signify the measure of the ability of an entity (department, organisation, person, and system), especially in relation to the overall outsourcing objectives.

Creating a meaningful, sustainable and high-value outsourcing impact will require enterprises to evolve matured outsourcing competencies. These would need to be extended to clients as well as providers. In the absence of mature outsourcing competencies, outsourcing experience can be frustrating for internal clients as well as vendors. Some of these processes may exist in buyer environments but they may not have been structured as competencies and positioned for continuous improvements.

Building and nurturing external and internal relationships requires that organisations evolve services and processes as subset of competencies to provide a positive outsourcing experience to customers and service providers. Implementing a “competency-based service catalogue” will be critical to providing a structured view to clients and vendors. Clients need to service providers also in addition to internal outsourcing users otherwise vendors won’t be able to deliver the expected value. “Outsourcing management as a service” will build mutual trust, keep vendors and outsourcing users strategically aligned and make it a win-win for both clients and providers.

Skills required for “outsourcing management as a service”

Outsourcing management as a service would require strong blend of skills in areas of program management, service management and relationship management. PMOs must own “outsourcing management as a service” and evolve these skills to implement and mature the competencies, and to derive maximum value from outsourcing initiatives.

Figure 1: Outsourcing Management as a Service
Source: Transformational Outsourcing, Page 48, (Copyright 2013)

In my book Transformational Outsourcing, I have introduced the Outsourcing Services Framework to manage IT outsourcing. The framework covers the depth and breadth of 30 key competencies, specialised outsourcing topics associated with each competency, associated processes and best practices that organisations need to implement as part of a defined service catalogue to generate greater value from outsourcing initiatives. The choice of which competencies to invest into will be unique to every company and will depend on the maturity of their needs and processes. The outsourcing objectives, nature of work, desired maturity of relationships, risk management needs and the size and scale of the outsourcing initiative may influence the level of investment in competency framework.

Figure 2: Outsourcing Services Framework
Source: Transformational Outsourcing, Page 302 (Copyright 2013)

Implementing competencies will provide a strong foundation for continuous improvements

Managing complex relationships is more art than science. “Outsourcing management as a service” provides guidance to improve service focus for outsourcing management and lays out a strong foundation to enhance value by improving productivity, reliability, responsiveness, and maturity of outsourcing initiatives. The outsourcing service framework of competencies is practical, flexible, and self-sustaining. Competencies and underlying services and processes can be designed to build on continuous improvements using industry practices (e.g.: Six Sigma, TQM, Lean etc)

Thinking in terms of the outsourcing cycle – strategy, design, transition, steady state and optimisation – can be a good foundation to start with “outsourcing management as a service”. The competencies required at each stage of outsourcing cycle need to be envisioned as part of a flexible framework that will be uniquely adapted to each company. Each competency can be designed to have underlying services, processes, benchmarks and metrics associated with them. Reviewing these in an integrated fashion at the program level and evolving dashboards would be critical to mature and identify areas of improvements. Thinking in terms of services and competencies will mature the already existing processes in alignment with outsourcing objectives.

“Outsourcing management as a service” provides a compelling critique of conventional thinking on managing outsourcing. It keeps the focus on quality of outsourcing experience and matures the outsourcing initiative in alignment with business objectives. Transformational Outsourcing captures a practical and hands-on perspective on deriving and sustaining enhanced value from “outsourcing as a service”; it lays out how various competencies collaborate with each other and how various organisational units support their implementation.

Managing the Managed Services - Part 2

In Part 1 of this series, I defined a managed service, shared potential benefits and a brief overview of the key components of a successful managed service. In this article, I will share some practical considerations of implementing managed services.

Complexity of implementing a managed service

Implementing a managed service can be extremely complex – managing by outcomes can be difficult for teams and may require a lot of education and change management. Companies that have co-sourced extensively can consider this model to look beyond labour arbitrage and determine new areas of value generation and outsourced portfolio optimisation.

Instituting change is always a complex phenomenon especially when teams that are used to managing people are asked to manage vendors by deliverables and review work by outcomes. The occasional escalations about the skill and experience level of resources may get raised no matter what is the nature of engagement. Since the complexity is very high, the transition to managed outcomes is recommended to be gradual and done in a phased manner to reduce risk.

Design the transition into managed services to be gradual

Service providers will not typically agree to share risks and to SLAs unless they have better visibility into historical volumes, peaks, and lows, and understand the scope from ownership perspective. That is the core reason that most annuity efforts start as Time and Material (T&M) nature contracts. As the vendor gains experience and has better visibility into the effort, they are more willing to accept the financial and delivery risk.

Both sides (client and vendors) need time to understand the implications and ensure readiness to operate in a managed service model. As a best practice, organisations should not sign outcome-based contracts unless there is sufficient incentive and benefits are clearly evident. As a practice, it is advisable to introduce a pre-managed service phase that formalises the readiness required to move into managed services. A gradual transition approach will help clients with developing better trust and confidence on vendor delivery. The pre-managed services phase can be run like a project with specific deliverables:

• mutual understanding of drivers, value and benefits
• establishing scope boundary – size, scale, stability and volumes
• establishing data capture, SLA and performance mechanisms
• instituting formal governance and reporting
• establishing demand and capacity/charging models
• demand assignment and prioritisation mechanisms
• defining future state and continuous improvements roadmap
• ensuring vendor accountability, leadership and commitment
• negotiating incentives including productivity improvements
• establishing employee training and transition plans

The value levers in managed services

Outcome- and service-based contracts require structuring around outcomes and service delivery instead of resources. The focus should shift to optimising processes rather than being on the quality of resources assigned to projects. Managed services can essentially be your first team towards portfolio optimisation as it can open up lot more value-generation possibilities.

Labour arbitrage is only a small percentage of savings that firms can generate from outsourcing. More savings can accrue from process improvements, automation, consolidation, resource and technology pooling and freeing up of day-to-day oversight when efforts can be managed by outcomes.

Best practices

Implementing managed outcome models without proper readiness can lead to several issues; establishing balance between provider delivery competency and stakeholder expectations would be essential.

• Establish management support. Top-down support is important to drive conversions. Effort owners may resist the level of effort and change required to move into managed services and ignore the value they may be able to generate and sustain in the long term. The other need for top-down support is to transition displaced employees for exit or into more strategic initiatives.
• Keep the focus on value, maturity and readiness. Focus on clearly articulating the value from managed outcome engagements and make sure agreed outcomes drive towards win-win and are not one-sided. Establish mechanisms to: (1) establish business case that book value up-front; (2) review provider estimates to validate assigned capacity; and (3) track value generated to determine improvement areas in execution. Managed services direction will ask for increasing execution maturity and will establish a common understanding of estimation techniques and processes.
• Manage expectations. Even though vendors may be engaged for some time, their efforts may have been just directed to understand and run the operations (more likely what they agreed contractually) and not necessarily to optimise and generate value.
• Establish a consistent process. Work with your providers to evolve a process to transition efforts into managed services. Providers need the time and ownership to baseline various aspects of engagements before they can accept accountability.
• Evolve performance mechanisms. Evolve the SLA framework and other performance mechanisms that reduce delivery risk, enhance value and change behaviours.
• Implement informal workshops. Conduct educational sessions and trainings for effort teams to understand managed outcomes so that they can understand and apply what it means for them. Be prepared to address typical questions and evolve a FAQ and best practices documents. Typical concerns related to control, demand predictability, process and change management can be captured as part of these artifacts. Once you have some success, make sure those are showcase to broader teams.

Gaining maturity in managed services is a journey and can contribute towards deriving greater value from outsourcing initiatives.

Managing the Managed Services - Part I

It was interesting to hear several buyers at the recent SIG Global Sourcing Summit wanting to sign more and more managed services contracts. The trend was clearly evident and seems to be maturing gradually and catching pace in several areas including IT, BPO, cloud, real estate etc

Managed services are generally defined as the practice of outsourcing day-to-day management responsibilities as a strategic method for improving operations. The person or organisation who has direct oversight of the organisation or system being managed is the client and the organisation that accepts and provides the managed service is the managed service provider (MSP). While the day-to-day operation is outsourced to the service provider, the client still remains accountable to deliver the functionality, performance and experience to its business.

Managed services models can be difficult to implement; however, the benefits can be enormous and long-term once successfully implemented. Some of the key benefits come from:

• Outsourcing day-to-day work to free up the client teams to focus on more strategic business needs.
• Better cost-predictability and putting discipline on demand management.
• Implementing formal mechanisms to measure demand, assigned capacity, vendor performance and continuous improvements.
• Shifting the delivery risk from client to provider.
• Cost savings and specialisation depending on specific situations.

What mechanisms and practices build successful managed services?

Implementing managed services is hard work. Clients and buyers must collaboratively work together in the initial phases of managed service engagements to clearly establish the service. Understanding the nuances of managed services can easily get confusing for starters and therefore buyers must ensure that differences with contingent and SOW-based professional services engagements are well socialised during change management sessions.

A successful managed services would keep a long-term perspective and implement the following mechanisms and practices:

• Clear specification of the scope of services that the service provider will deliver.
• Clearly defined deliverables and expected outcomes.
• Performance measures to provide an objective measure of how agreed outcomes are being delivered. Performance measures can be in form of Service Level Agreements (SLA) built on well-defined metrics and data sources.
• Mutually agreed Unit of Work (UOW), estimation and pricing models.
• The service provider manages the service day-to-day with minimal (to eventually none) client involvement by establishing teams, processes, controls and reporting mechanisms.
• Strong governance and reporting mechanisms.
• Experienced client and vendor oversight that keeps a strong relationship and delivery focus to ensure that conflicting situations are properly resolved in time and outcomes are aligned to business needs.
• Change management and communication focus – especially during the transition phase of the service when client teams may resist a move into managed services.
• Agreed rewards for exceeding service levels and penalties for missing service levels.
• Service improvement plan that improves the service and matures it over time for greater benefits.
• Optimisation focus to derive greater benefits and consolidate similar services to build larger scale for better efficiencies. The benefits can be in the form of productivity gains, process improvements, better demand management, new ideas, innovation and other situational factors.
• Value tracking mechanisms to ensure that managed services are delivering the intended value.

Managed services implementation requires service providers to bring forward matured processes, strong leadership and experience of delivering similar services. Providers therefore today need to mature their service offerings to provide more comfort and trust to their clients to demonstrate their readiness to take engagements in the managed services model.

At the same time providers need to keep a rigorous focus on service improvements, reporting and value tracking to generate the desired benefits from the managed services. The increased efforts to take an end-to-end view of managed services will be rewarded by the clients who count on you to keep their business running at high efficiency.