Consider the Source

Assessing IT in the Public Sector

By Don Flores, Partner & Director, State and Local Government Services, TPI

Last month, I attended the 40^th annual conference of the National Association of State Chief Information Officers, which represents state CIOs and IT executives and managers from the states, territories, and the District of Columbia. At different times during the conference, we were asked to participate in interactive multiple-choice poll, and the results were very interesting. On the first day, 67% of the state IT officials in the audience predicted 2010 would bring a 5% reduction in their funding (only 6% said it would be up and 13% said it would be the same). And when the group was asked what should be the top priority for state CIOs next year, “seeking efficiencies and cost control” won in a landslide.

This is not an easy time to be a state or local government IT leader. At a time when public funds are in the tank due to the economic downturn, demand has never been greater for services, especially in highly complex areas such as disaster recovery, data security and e-government. The pressure is easy to see in the Commonwealth of Virginia, where a recent legislative audit of outsourcer Northrop Grumman found repeated outages and costly delays in its handling of the government’s IT systems and has led to calls to cancel the contract.

Smart organizations—whether they’re in the public sector or the private – know that proper governance of outsourcing arrangements must be agreed upon ahead of time and built into every agreement. But crafting a successful sourcing strategy actually begins much earlier than that. TPI has recently kicked off IT assessments with the State of Vermont, State of Washington and City of Houston aimed at identifying opportunities to reduce costs and improve service delivery. Carefully exploring all options is the only way states and municipalities can find the efficiencies their budgets require while still providing the high-quality IT services their citizens demand.

Keeping Your Healthcare Sourcing Strategy Moving Forward (with Confidence!) During Turbulent Times

By: David J. McCament, Director, Healthcare Payer / Provider, TPI

Today’s global economic conditions are unprecedented for decision makers in healthcare. For example, every part of the United States healthcare business model is undergoing significant and unpredictable change; and we’re not even close to the finished model. 

Despite these turbulent times, healthcare payers and providers who are embarking on or are in the middle of major strategic business projects are wondering how to align their sourcing strategies amid this constant, multidirectional change. 

There is no time like the present for healthcare payers and providers to capitalize on chaos to improve operations and prepare for the new healthcare environment. Here are the TPI Top 5 actions you can take in the near term to drive contractual flexibility, increase speed of value realization and maximize the value derived from your sourcing relationships.

1. Reduce the number of key service providers and then increase leverage with those that survive your vetting process.

2. Renegotiate current contracts to reflect the changing environment. Consider the future benefit streams of your contracts and “pull them forward” contractually to realize their value sooner. Seek to consolidate multiple contracts with the same service provider to improve leverage across business units.

3. Now is the time to establish (or fine tune) rigorous Service Management & Governance oversight processes to ensure maximum value realization from your current contracts.

4. Look outside the traditional healthcare market for sourcing ideas and executable models. Examples of other industries that have proven track records in sourcing include banking and financial services, manufacturing and telecommunications, all of which have been successfully sourcing non-core functions for decades.

5. Establish an enterprise-wide sourcing advisory council to document and propagate your organization’s sourcing philosophy. For example, consider the bigger picture of sourcing as not just “outsourcing,” but as the application of resources form every potential source to solve your business challenges.

Now is the time to re-assess your sourcing strategy and re-evaluate your current sourcing relationships. Reset the performance bar, define/refine what innovation means to your firm and make sure to measure service providers’ execution of their contractual obligations.

TPI’s experts can help healthcare organizations produce an objective assessment of your current sourcing strategy and develop a roadmap for your future strategy with objective, risk-balanced, and forward-oriented solutions for maximizing value during these turbulent times.  

Take charge; set direction. Contact David K. McCament, Director, Healthcare Payer / Provider, TPI, to learn more.

The Quest For Outcomes – Part 1

By: David Fleming, Director, TPI

It is undeniable that C-suite sponsors of strategic sourcing initiatives are increasingly focused on the ability of their service providers to deliver outcomes rather than provide input.  These same sponsors are tasking transaction teams with creating outcome based agreements, often to the bemusement and confusion of these teams as they cast around trying to create this new paradigm.

A starting point for any team seeking to establish an outcomes based agreement is to consider the idea that all contracts are outcomes based – whether swapping beans for a cow or dollars for improved customer satisfaction.  The value in accepting this idea is that it directs the mind away from a focus on how to develop a new contracting model.  Instead it allows strategists, performance managers, and C-suite sponsors to consider what management techniques, particularly sourcing techniques (new and old), are most likely to ensure that the transaction being entered into will deliver the outcomes sought.

As simple as it sounds, the first step in delivering an outcomes based agreement is to identify the desired outcomes along with the outputs and inputs needed to achieve them.  At this stage, some old-school management tools can be useful, although they may be tested by the complexity of both strategic sourcing agreements and delivering outcomes across a network of organisations.  Simplest among these tools is the SMART test. 

• SPECIFIC: Are the outcomes being sought specific? If they are inherently complex, which is probable, are there future problems that are likely to result when a commercial relationship is established? Task project teams with anticipating these problems and identifying those management techniques likely to be needed to ensure that problems are dealt with in a manner that preserves the effectiveness of the agreement.
• MEASURABLE: How can the outcome, and more particularly the service providers’ contribution to the outcome’s achievement be measured? This is rarely simple since outcomes are at the least dependent on inputs from the client and service provider. Commonly, multiple service providers contribute to an outcome and each will inevitably have a view on their own contributions and their co-contributors failings.
• Similarly considerations of ACHIEVEABILITY, REASONABLENESS and TIMELINESS need to be made and factored into the design of the agreement.

A project team that understands the SMART dimensions of the outcomes they are seeking is well equipped to establish the obligations of all parties, the means by which achievement of these obligations will be tracked, and the management techniques that will be used to remediate situations where outcomes are not being delivered.

Actions to Take When Developing a Service Strategy

By: Mark Lockard, Director, TPI


Nobody develops a service strategy with intentions of failing. However, if everybody’s service strategy were a success, we would all be gaining market share and achieving top quartile performance! While we know that is not the case, we frequently don’t understand the root causes when our realities deviate significantly from our plans.

Consider these TPI Top 5 tips for developing a service strategy that has a high chance of success:

1. Know what is important to your internal customers. Never assume that you know what matters to your customers. The marketplace is constantly changing. Review your last customer satisfaction survey with your customers to ensure you are measuring what matters most to them now, and also make sure you focus a portion of the agenda on their future needs.
2. Have an objective view of your current capabilities. Isn’t it a bit peculiar that when most of our staff is asked about their capabilities, they are top quartile or best in class? It’s a quirk of human nature to be optimistic; great accomplishments rise to the surface while mediocre performance remains unexamined. Understand how you really stack up to an external view and whether you are providing the right services. Compare your service levels and costs to the broader marketplace, not just a comfortable niche.
3. Understand your total cost of ownership. While gaining that objective view of your capabilities, make sure you understand your total cost of services. In most companies, budgets mask costs. Employee-related costs are usually clear; however, the costs for technology, facilities, recruiting and other services usually reside in the budgets of other corporate functions.
4. Have an objective view of the benefits and the risks of the proposed service strategy. The benefits of the proposed strategy are often compelling. It’s easy to get caught up in the initial excitement. But have your risks been adequately identified? Do you know how likely those risks are to occur? And if they do, how much damage might result? Know what your risks are and create plans to mitigate your risks.
5. Socialize your service strategy and the roadmap for change. Strategies that have not been shared and vetted with all of the affected stakeholders aren’t ready for implementation. Be sure your roadmap clearly describes how you’ll get from point A to point B. Gaining buy-in to your service strategy is critical to success and can be the hardest part of the process.

TPI’s experts can help you achieve an objective assessment of your current service strategy. We provide objective, risk-balanced, and forward-oriented strategies for establishing shared services and/or outsourcing delivery relationships. Contact Mark Lockard, Director, TPI, to learn more.

Mind Your P's and Q's to Control Outsourced Costs

By: Thomas Young, Partner & Managing Director, Media, Telecommunications and Financial Services, TPI

 
Historically, the general focus of our outsourcing clients has been to use an RFP process to get the best price for the services that they procure. The primary driver is to improve the economics of the cost center involved in the outsourcing effort. However, in a price times quantity model ("P x Q”), most of the money to be saved lies in the “Q” dimension, not the “P” dimension.  Unless your price points are way out of line, P improvement in most engagements is in the 10-20 percent or higher range. Your greater cost reductions will potentially come from the Q end of the equation.
 
Consider these TPI Top 5 tips for understanding and managing Q in your outsourcing environment:

 
1.  Get into the habit of Q (consumption) reporting. Pareto's 80/20 rule often applies to heavy users of outsourced services. By reporting usage statistics, especially to the top 20 percent of users who drive volumes, you may reveal areas of consumption that have little to no business value and encourage heavy users to reduce their Q footprint, thereby lowering your overall costs.
 
2.  Avoid “The Tragedy of the Commons." Many costs centers do not charge back to users. The reasons can vary, from corporate accounting policies to allocations that add no value.  However, failing to drive cost to the “cost-causers” will lead you into “the tragedy of the commons" trap. That is, people will use resources without regard to moderation if it appears to them that the activity is "free."  By formally or informally showing your services users the costs of their activity, they will act more rationally in their business decisions. Properly designed outsourcing contracts are designed to give you an elastic cost model that facilitates doing exactly this.
 
3.  Understand the power of Q ratio analysis. Convert your business drivers into relevant business ratios such as calls/user, storage/customer, IMACs/user, requests/agent, etc. When you look at the taxonomy of these ratios against your entire business, areas of Q reduction will become apparent. Also, Q ratio analysis will allow you to benchmark your organization and set reasonable objectives.
 
4.  Install a capacity model. Once you have a framework for understanding your Q's by source and by use, then you can begin some top-down reductions to pressure out Q volumes that are really unnecessary. For instance, aim to reduce the monthly capacity in the aggregate by 5 percent. Do not restrict any users, per se; just put in a priority demand management system, set some factory-capacity- style limits, and see what comes of this process. The first 5 -10 percent reduction might come easier than you think.
 
5.  Set up a demand reduction incentive plan. If reducing 30 percent of your volumes translates into a 20 percent cost reduction, offer up a challenge to the user or organizations that can control these volumes. If they achieve 30 percent or more reduction, then hand out positive incentives such as budget relief, bonus kickers, comp time, etc.

TPI’s experts can help you achieve your organizational goals through objective advice, knowledge of your industry and experience with arrangements from simple to complex. Contact Tom Young, Partner & Managing Director, TPI, to learn more.
 

Tips for Managing Risk in Your Outsourcing Services Engagement

By: Cynthia Batty, Global Competency Lead, Service Management, TPI

Buyers of sourcing services must seriously consider risk when they contemplate outsourcing — and the results are often included in the outsourcing contract. Outside of disaster recovery and business continuity, though, most clients never follow up with an action plan after the engagement begins, nor do they consider additional risks associated with outsourcing. Between the pressure of transition and startup and the daily demands to deliver services and satisfy business stakeholders, risk is often left for “later.” Resist this tendency by ensuring that operational, reputational, financial and relationship risks are actively managed.

Consider these TPI Top 5 tips for making ongoing risk management a part of your governance process:
 

1. Identify risk responsibilities in the contract. Risk responsibility was documented and is likely scattered throughout your service provider contract in many different exhibits. Evaluate all your contract documents for every area where risk management and responsibility is identified, and make a risk responsibility matrix that shows what you and your service provider are contractually responsible for. Share the matrix with your entire management team and your service provider, and incorporate it into your governance process.

2. Identify and document additional risks in the engagement. Many potential risks in the engagement will not be addressed in the contract, including those your organization may cause. To determine potential risks, hold a series of workshops with your outsourcing management team, the service provider, business stakeholders, and any other organizational entities necessary. Contact us for a checklist of categories to examine closely for risk factors. 

3. Rate the risks; develop and implement risk mitigation strategies. Rate each identified risk on a scale with two axes: probability and impact. Holding a group discussion can quickly identify risks that require mitigation strategies. Those that have high probability and high impact are obvious candidates for deeper consideration. Pay special attention to risks in the low probability/high impact category; strategize what you will do in every case where you think mitigation will be required, and identify (and act on) any mitigation requirements that might affect or change how you act in daily operations.

4. Manage your identified risks. Maintain a risk tracking log, noting when you encounter a situation where you need to activate your mitigation plan. Periodically meet with your key team members (and the service provider, when applicable) and review mitigation plan deployments to learn what worked and what could be improved. Periodically review your risk tracking log to determine if the risk profile (probability vs. impact) has changed, and update plans accordingly.

5. Publish your risk tracking tool. The risk tracking log can be as simple as an Excel spreadsheet, a more sophisticated Access or Lotus Notes database, or a commercial-off-the-shelf application. Whatever tool you use, ensure that everyone involved in the outsourced services management knows where to access the tracker. This is your roadmap for the organization to respond to risk events that will inevitably surface. 

TPI’s Service Management & Governance experts can help you achieve your organizational goals through objective advice, knowledge of your industry and experience with arrangements from simple to complex. Contact Cynthia Batty, Director, TPI, to learn more.

 

Continuous improvement and innovation in services agreements – making it really work

By Cynthia Batty, Global Competency Lead, Service Management, TPI

It sounds like a great idea: continuous improvement and innovation are commonly included in outsourcing contracts, generally in two ways. First, TPI’s method for continuous annual improvement of service level performance has become the industry standard. We highly recommend this approach which has enjoyed nearly two decades of successful deployment.

The other way that continuous improvement and innovation are included is typically a clause in the Master Service Agreement that requires the service provider bring forward three to five ideas each year to improve services and technology or save money. Because these ideas may cause a reduction of the fee to the Service Provider, these clauses are normally supported by Gainshare clauses.  This means if there is significant reduction of the fees, then a structured program will allow the Service Provider to also reap some of the financial benefit for a period of time after the idea is implemented.

The challenge with continuous improvement and innovation in contracts is that the achievement of the objectives involves both the service provider and the client – it’s not a one-way street. Unfortunately, in the rush of daily service delivery, often neither party returns to the contract to recall that these promises were made, or to create a process through which they could be delivered. Most of the midlife engagements we see have such clauses in the agreements, which have never been executed – or even thought about by either party!

Continuous improvement and innovation are creative conditions; ideas do not simply materialize out of thin air in the course of service delivery. Every client situation is unique, and potential innovations must be proposed in the context of the situation. We recommend that clients create a specific focus on innovation in their governance process.  This requires that an innovation structure is created and time is set aside for both teams to think about potential ideas, review industry conditions, take input from the service provider’s experience in other engagements and best-practice think tanks, and come up with proposals that the leadership teams can evaluate.

Merely having an idea is not enough for the innovation process; there are technical feasibility studies to be done, contract review to ensure that the idea is really a new one and not contemplated already in the agreement, and the financial business case to support investment or validate gainsharing. The Innovation team will reach out to the Client’s Service Management & Governance team members for support – the Contract Manager, Finance Manager, and Service Delivery Managers, and often business stakeholders. Retained functions such as Architecture and Security teams may also be involved on both sides of the relationship. This innovation process creates buy-in across the two organizations which will have to represent the value of the idea to their respective leadership teams, making the likelihood of the idea’s implementation much greater.

Continuous improvement and innovation are a way of thinking that can only thrive in a well-governed relationship. Governance excellence is essential – and we find that clients who focus on structure and process in their relationships not only are able to realize the benefits of continuous improvement and innovation, but that other benefits also come along: friction between the two teams is dramatically reduced, problems get solved in an orderly way, and the management chain knows exactly what is going on in the services relationship. TPI has created a tool to help clients look at the continuous improvement of their own governance and management capability – our SM&G Maturity Assessment. This tool can be used to baseline a client organization’s shared and sourced services management capability, and repeated periodically over time to measure continuous improvement in this essential capability. A well-managed relationship is a happy, productive, and innovative relationship.

Contact Center Outsourcing Consolidation- Where Are the Benefits?

By: Mike McMenamin, Associate Partner & Director, Contact Center Services, TPI

  In the past 3-5 years contact center outsourcing, a $60 billion market, has experienced significant consolidation. Here is a timeline of how the consolidation progressed:

1. Stage 1: (10 -15 years ago) -  Large buyers of contact center outsourcing services, i.e. Fortune 500 firms with more than 500 agents (many with more than 1,000), initially outsourced for cost savings and to reduce large employee populations of agents; moved work out to one or two service providers.

2. Stage 2: (5-10 years ago) - These same buyers realized that using multiple service providers created ongoing price and performance competition; workload was split between multiple service providers (sometimes as many as 10 based on their size).

3. Stage 3: (3-5 years ago) – As a significant portion of the work portfolio has migrated offshore and all major providers have established a global footprint of some kind, buyers have begun to consolidate their stables of multiple service providers.   They see and realize the benefits (i.e. knowledge transfer, global standard processes / tools / technology, improved global account management) of moving toward fewer and usually larger, more capable service providers. 

In this market, the Tier-1 service providers have been the beneficiaries of this move towards consolidation on large accounts.  The large telecommunications companies (Sprint, AT&T, and Verizon) have consolidated and now rely on two to three major providers, as opposed to 10 different firms in the past.  Firms like GM and HP (with > 5,000 agents) have also consolidated using a smaller number of service providers.  This allows the buyers to move their workload around the globe (onshore, offshore, nearshore) with a single service provider as their markets, demand, and business priorities change from year to year.

Interviewing New Service Provider Relationship Manager – Ask the Tough Questions!

By: Cynthia Batty, Global Competency Lead, Service Management, TPI

You are in the second year of a service provider relationship, and your first relationship manager is ready to roll off to a new assignment. Your service provider has offered two candidates to interview – what should you ask them?

You’ll want to know how they perceive the service provider’s role: you need someone who is experienced and smart, with the wits and wisdom to discern when things need to be changed or improved. You want someone with the guts to stand up for what is right – no matter which side that might be. You need dedication to governance ideals, to innovation, to a good and peaceful relationship, and to working together with each player in the environment. Here is a list of questions you might consider asking your two candidates, by category.

Experience

• What is your experience in managing other relationships? What were the areas you found most challenging to the relationship?
• If you could change one thing about your last engagement, what would it be and why?
• Have you found situations where you would have recommended the client organize themselves differently than they were? What was the situation and how would you have changed it?

Governance

• What kinds of governance meetings do you think are important in a services relationship? How do you see the service provider’s role in the governance meetings?
• How would you help your client ensure that the services remain aligned to the business needs?
• Do you think that the contract must be amended from time to time to keep the relationship in synch, or should the contract be a static document?

Services

• What do you think makes for the best service delivery structure in a services relationship?
• How important do you think service levels are in a relationship? The statement of work?

Relationship

• What are the things you think make for a successful services relationship?
• How do you approach problems in the relationship?
• What are the things you think are most damaging to a services relationship, and how do you work to ensure that these challenges are addressed?
• How do you approach the paradox that it is your job to deliver services to the contract and budget, while the client is motivated to get whatever they need to manage their business requirements?

Innovation

• What do you think your role is in ensuring that innovation is encouraged and developed in the services relationship?

Integration

• What is your perspective on working with other service providers in the environment? What is the best way to work together effectively?
• How do you plan to work with the client’s retained IT organization?

Business Process

• What are the strong points of your company’s approach to business process with clients? What would you change if you could?

When you know each candidates position on these areas, you will be in a good position to make a truly informed and three-dimensional decision about who is right for you – and if neither candidate meets your criteria, ask for another one.

When Should Government Work Be Outsourced?

By Daniel Jones, Partner and Director, Public Sector

Professional service contracts are a relatively small part of the services brought in by governments, but the impact can be high and widespread use of consultants can quickly result in a very large expenditure on presentations and reports. To curtail this practice, the Department of Homeland Security recently announced a workforce assessment initiative reviewing all professional services contracts exceeding one million dollars before a new contract is awarded or an existing contract is renewed.

This raises an interesting question of what constitutes an inherently governmental function, particularly when looking at the wider question of Public Sector outsourcing.  A significant increase in government work was outsourced to private companies during the Bush administration as well as the Thatcher administration in the UK. There is no easy answer to the question of what needs to be done by public servants, although there are, at least at first sight, some obvious areas - policing, armed services, courts, taxation and border control, but all of these include activities that can and are outsourced, often to great benefit. Ultimately the answer as to where to draw the line on outsourcing will result from a political decision on the role of the private sector in delivering public services.

Some would argue that public services are special and that a sensitive public service should not be outsourced, but there are examples of great services delivered by commercial organisations for government, just as there are examples of exceptionally poor services delivered by public sector employees. The difference has generally to do with leadership, service design and levels of investment, rather than any difference in the motivation or values of public servants and corporate employees. Where the service is outsourced, a key determinant of service quality is the ability of the public sector to provide effective service management and governance.

Professional services are a lot less tangible than outsourcing and public sector organisations in all the major economies will be looking hard at the value they receive from their advisors - and rightly so.  In some cases they will undoubtedly conclude that the work should have been done by a government employee, or that they did not receive value for the money spent.

Not all professional services fall into this category.  There are some areas where external specialists, supplementing a skilled internal team, can make a very significant difference, particularly if they come with proven methods, in depth experience, and a wealth of detailed data to support their advice.