collaborative rather than competitive approach to negotiation. In craft- ing the contract, both parties should pursue precise language in the spirit that both reflects the strategic nature of their relationships and provides mechanisms that anticipate and resolve future problems. Endnotes 1. Joanne Wojcik,“Formal Process Advised in Vendor Searches,” Business Insurance (November 16, 1998): 16. 2. Vaughan Michell and Guy Fitzgerald,“The IT Outsourcing Mar- ket-Place:Vendors and Their Selection,” Journal of Information Tech- nology 12 (1997): 223–237. 3. “Keys to Success: Stability of Partner, Maturity of Processes & Industry Focus,” Insurance & Technology (August 2002): 28. 4. Charles A.Weber, John R. Current, and Anand Desai,“VendOR: A Structured Approach to Vendor Selection and Negotiation,” Journal of Business Logistics 21, no. 1 (2000): 135–167. 5. “‘Must’ Provisions to Consider for Your Outsourcing Contracts,” Supplier Selection and Management Report (October 2003): 10–12. 6. Farok J. Contractor,“A Generalized Theorem for Joint Venture and Licensing Negotiations,” Journal of International Business Studies (Summer 1985): 23–50. 7. Mario Apicella,“Shaking Hands Is Not Enough,” InfoWorld (April 30, 2001): 49–50. 8. Dai Davis,“Service Level Agreements:What Are They? Why Do We Need Them?” Credit Management (May 2002): 36. 9. Laton McCartney,“How Do You Set Up an Effective SLA?” Inter@ctive Week (September 27, 2000): 30. 10. Patrick Thibodeau,“Offshore Risks are Numerous, Say Those Who Craft Contracts,” Computerworld (November 3, 2003): 12. 11. Bart Perkins,“A Reality Check on Going Offshore,” Computer- world (June 16, 2003): 42. 12. “How to Protect IP Before Entering into New Relationships,” Supplier Selection & Management Report (April 2003): 2–4. 132 ESSENTIALS of Business Process Outsourcing 4377_P-04.qxd 1/31/05 12:34 PM Page 132 13. HIPAA Compliance,ASPs, Outsourcing, and Vendor Relation- ships,” Medical Benefits (July 15, 2002): 11. 14. Brad Miller,“Outsourcing Aids Compliance,” Bank Technology News (December 2001): 52. 15. Walter Mattli,“Private Justice in a Global Economy: From Litiga- tion to Arbitration,” International Organization (Autumn 2001): 919–947. 133 Vendor Selection and Contracting 4377_P-04.qxd 1/31/05 12:34 PM Page 133 4377_P-04.qxd 1/31/05 12:34 PM Page 134 135 Managing BPO-Related Change CHAPTER 5 After reading this chapter, you will be able to: • Increase the potential for executing a successful BPO transi- tion stage strategy • Develop an effective BPO project management plan, and determine whether the project should be managed by an individual, a few people, or a team • Recognize five principles that guide change management and understand how they can be applied to support the transition stage of a BPO initiative • Identify three critical skills that serve as the foundation of a successful BPO relationship • Better determine the depth and scope of a BPO relation- ship, and make decisions as to whether to use the assets of the buyer or vendor and whose business culture to adopt • Understand what constitutes—and how to develop—a trust- ing, successful buyer–vendor relationship • Minimize or eliminate the factors that can threaten the suc- cess of a BPO initiative 4377_P-05.qxd 1/31/05 12:35 PM Page 135 As the BPO life cycle moves into the operational stage, organizations will find themselves facing important changes. A great deal of time and expense has gone into preparation, and at this stage it is critical to pro- tect that investment in two key ways: (1) by recognizing and managing the risks that the BPO-induced change represents and (2) by managing the often complex relationship that exists between BPO buyers and ven- dors. An effective change management strategy—which should not be implemented until the BPO contract is signed and the launch date set— can identify the tactics that contribute to a smooth BPO transition. A formalized relationship management strategy can solidify the vendor–buyer foundation, ensuring that both parties respect each other’s role and operate within the parameters of a well-designed project man- agement plan. Changes and Challenges Facing the BPO Organization It goes without saying that any organization must assess its own unique challenges in undertaking a BPO project. At the same time, there are general issues that almost all organizations must confront, including: • Establishing a vision of the future state of the organization • Securing leadership as well as management of the BPO transition • Communicating with internal staff about the BPO transition • Managing organization culture beyond the process affected by BPO • Managing job loss and changeover to new management • Establishing business continuity and new performance benchmarks To deal effectively with these issues, organizations need an overarch- ing project management plan, an understanding of basic change manage- ment principles, and recognition of the numerous change-induced issues 136 ESSENTIALS of Business Process Outsourcing 4377_P-05.qxd 1/31/05 12:35 PM Page 136 likely to arise. By paying attention to, and planning for, these matters early in the process, organizations can keep their BPO initiative on track. BPO Project Management Plan Although signed and sealed, the BPO contract does not provide the flexibility and responsiveness necessary to manage an ongoing project. That requires a second document, the project management plan, that the contract should allude to but not spell out in detail. It needs to be fluid enough to adapt as the needs and competitive conditions of each firm change, and include provisions to enable these adjustments.At the same time, it must contain basic project management details such as goals and objectives, timelines, milestones, and key term working definitions. Individual or Team? Developing a project management plan requires the buyer and vendor to assign a dedicated team or, at minimum, an individual (the internal BPO champion) to design the plan, manage the project on an ongoing basis, 137 Managing BPO-Related Change Know the Roles—and the Role Players Basically, the project management plan is designed to provide a dis- ciplined framework of execution that ensures the BPO transition phase gives way to the operating phase. a However, it has another key objective as well: establishing and identifying roles and role players from each organization—buyer and vendor. These roles and role players will be responsible for project outcomes and accountable to the BPO steering team. a D. Hodgson, “Disciplining the Professional: The Case of Project Management,” Journal of Management Studies (September 2002): 803–821. T IPS &T ECHNIQUES 4377_P-05.qxd 1/31/05 12:35 PM Page 137 and implement changes as needed. 1 Although this adds short-term costs to the project, it will usually prove to be less costly in the long run because issues can be anticipated and managed before they become problems. In general, project management costs should not exceed 7 percent of total project costs. 2 The decision to use an individual or team approach to project man- agement depends on several factors. For example, since an offshore out- sourcing relationship can bring a range of issues (e.g., cultural, language, time zone, etc.) not generally encountered onshore, it may require a more intensive, team-based approach. Similarly, a buyer managing mul- tiple vendors instead of just one may have to establish numerous BPO champions or Project Management Teams to deal with each vendor.This creates a further need to integrate the various project managers to ensure they communicate and share best practices and lessons learned. 3 However, a team-based approach can lead to problems of account- ability if there are no one-to-one links between individuals and discrete project management responsibilities.That is, even when a team approach is used, individual team members should be assigned clear responsibili- ties for particular aspects of the project, and they should have clear reporting channels. Exhibit 5.1 highlights some of the issues to consider in deciding whether to take a team or individual approach to project management. Hybrid Approach A hybrid approach that can alleviate the potential for diffusion of accountability is to assign a BPO champion to develop the Project Man- agement Team (PMT). In this method, project management responsibil- ity remains clearly with the BPO champion, who answers to the Steering Team and is held accountable for overall project performance (Exhibit 5.2).This person is likely to have participated on the BPO Analysis Team (BAT), the vendor selection team (VST), or both, and will generally have 138 ESSENTIALS of Business Process Outsourcing 4377_P-05.qxd 1/31/05 12:35 PM Page 138 139 Managing BPO-Related Change Factors Relevant to Choosing between a Team or Individual BPO Relationship Manager Individual Team Single BPO Provider Multiple BPO Providers Cost reduction is primary goal Strategic planning is primary goal One process outsourced, with Multiple proccesses outsourced low probability of additional outsourcing Onshore BPO provider Offshore a nearshore BPO provider EXHIBIT 5.1 EXHIBIT 5.2 BPO Steering Team PMT and/or BPO Champion BAT VST BPO Project Management Team in the Overall Project Team Structure 4377_P-05.qxd 1/31/05 12:35 PM Page 139 high visibility within the organization and possess skills in communica- tions, negotiations, and business reasoning. He or she should also: • Be able to organize and manage a team • Be highly familiar with the business case for BPO • Be willing and able to articulate, discuss, or defend the project Generally speaking, the PMT should consist of members represent- ing a range of organizational functions, including individuals from each firm, to ensure a diverse skill set that covers financial, technical, and human resource capabilities. Other roles that might be assigned to team members include: • Facilitator. Responsible for setting meetings and arranging meeting locations • Recorder. Responsible for taking notes during the meeting and distributing minutes to each team member • Liaison. Responsible for maintaining communication between the team and other organizational units General Principles of Change Management The PMT is responsible for implementing the organization’s change man- agement strategy. Although much has been written about change man- agement—and there is no consensus as to what strategy is best for a BPO initiative—one thing is certain: Well-chosen actions taken to manage change are less important than their consistent and well-communicated application. 4 This does not mean to suggest that all managerial interventions are created equal; consistently applying a poor technique will inevitably pro- duce poor results. That is why “well chosen” is added as a caveat. The change management strategy should be the one that makes sense under the circumstances. It would be difficult for the PMT to explain and/or defend its tactics if it were obvious they were inappropriate or plainly ineffective. 140 ESSENTIALS of Business Process Outsourcing 4377_P-05.qxd 1/31/05 12:35 PM Page 140 In light of the recommendation that a consistent application of a well-chosen strategy, and not the strategy itself, is foremost in effective BPO-induced change management, one question naturally arises:What management principles qualify as well chosen? Experience and scholarly research generally agree that effective change management has five pri- mary requirements: 1. Compelling vision of the outcome of the change process 2. Visible leadership from top management 3. Extensive communication and opportunities for employee feedback 4. Ability to deal with job loss and changeover 5. Ability to maintain business continuity and benchmark performance 141 Managing BPO-Related Change Concept of Satisficing Most change management scholars would agree that any attempt to achieve optimum results is likely to lead to paralysis, as the search for the perfect technique to match current conditions would be highly time consuming and fraught with endless debate. The predominant concept today is satisficing—producing results that exceed certain prespecified and, hopefully, measurable para- meters, but might not be the optimum solution. a Satisficing is a concept not used often enough in organizational change manage- ment. It is a handy concept—handier than, say, synergy—that promotes action over inaction, results over paralysis, and consis- tency over trendy management theories. As such, it should become a part of the PMT’s lexicon and a pillar of efficient change management. a Sidney G. Winter, “The Satisficing Principle in Capability Learning,” Strategic Management Journal (October/November 2000): 981–996. T IPS &T ECHNIQUES 4377_P-05.qxd 1/31/05 12:35 PM Page 141 [...]... regular performance review process It is often advantageous to “out” them, then provide clear and unambiguous expectations of future performance Of course, managers must follow up on these expectations and be prepared to use disciplinary tactics if the performance objectives are not being met 1 47 4 377 _P-05.qxd 1/31/05 12:35 PM Page 148 ESSENTIALS of Business Process Outsourcing of the business case; that...4 377 _P-05.qxd 1/31/05 12:35 PM Page 142 ESSENTIALS of Business Process Outsourcing Creating a Compelling Vision While there continues to be debate over its role in organizational achievement, vision can contribute to the process of aligning goals and individual efforts In this context, vision can bring clarity to the outcome of a challenging project, helping people establish a sense of flow and... might feel from seeing the impact of BPO on their colleagues Compounding this will be concerns about workflow issues and day-to-day business continuity Organizational units that work closely with the outsourced function may worry 149 4 377 _P-05.qxd 1/31/05 12:35 PM Page 150 ESSENTIALS of Business Process Outsourcing about the ability of the vendor to achieve the same level of productivity Other concerns... are being eliminated and/or the threat of job 143 4 377 _P-05.qxd 1/31/05 12:35 PM Page 144 ESSENTIALS of Business Process Outsourcing elimination looms Other impediments to a BPO implementation that must be managed include: • Effects on personnel not displaced by the BPO project, but who may fear being next in line • Attitudes of personnel regarding the presence of outsiders in the organization • Attempts... buyers should 153 4 377 _P-05.qxd 1/31/05 12:35 PM Page 154 ESSENTIALS of Business Process Outsourcing be prepared to change their approaches accordingly and adopt a formal approach to BPO relationship management A Relationship Rooted in Key Skills The foundation of a BPO relationship is laid when a company begins to communicate its intention to outsource Successful management of the outsourcing relationship... (Aspen Publishers, January 15, 2003) 151 4 377 _P-05.qxd 1/31/05 12:35 PM Page 152 ESSENTIALS of Business Process Outsourcing Reducing the Impact on Displaced Employees The RIF plan should also consider options for reducing the impact of the displacement for employees For example, early retirement programs may be an option for senior employees.Voluntary buyouts of employment agreements may be used in cases... with help from those working on the transition Managers must actively query 145 4 377 _P-05.qxd 1/31/05 12:35 PM Page 146 ESSENTIALS of Business Process Outsourcing IN THE R EAL W ORLD Making Change Work In November 1999, New York-Presbyterian Hospital (NYPH) announced a seven-year, $228 million information technology (IT) outsourcing contract with First Consulting Group (FCG) The contract created a third... results of outsourcing across the company.To facilitate this, some firms have actually created the position of outsourcing relationship manager Ultimately, the barometer of a good BPO relationship is the ability of both parties to respect each other’s roles and responsibilities and to operate within the confines of a mature, communicative, and trusting project management plan.The legal framework of a... these expected dips, managers should have detailed benchmarks that provide a means of judging the extent of the performance downturn and helping determine if intervention is required 152 4 377 _P-05.qxd 1/31/05 12:35 PM Page 153 Managing BPO-Related Change Business continuity during transformational change is difficult, often requiring long hours and skill-stretching behavior Managers annoyed by frequent... agreement’s impact on service and loss of control, physicians, too, have experienced positive changes Source: Adapted from Bob Smith, Outsourcing on a Grand Scale,” Health Management Technology (July 2000): 18–20 146 4 377 _P-05.qxd 1/31/05 12:35 PM Page 1 47 Managing BPO-Related Change others to determine if there has been any unnecessary foot-dragging or apparent lack of motivation assisting the transition.This . plan, an understanding of basic change manage- ment principles, and recognition of the numerous change-induced issues 136 ESSENTIALS of Business Process Outsourcing 4 377 _P-05.qxd 1/31/05 12:35. plainly ineffective. 140 ESSENTIALS of Business Process Outsourcing 4 377 _P-05.qxd 1/31/05 12:35 PM Page 140 In light of the recommendation that a consistent application of a well-chosen strategy,. transition phase of the BPO Life Cycle is a true turning point.The organization is implementing changes that heretofore had only been 142 ESSENTIALS of Business Process Outsourcing 4 377 _P-05.qxd 1/31/05