MANAGING OUTSOURCING

TRANSITIONS
Module 4
Fundamentals of
Business Process Outsourcing 101
Changing Hats
Topical Overview

• Transition Management and Strategies

• Transition Success Factors and Effectiveness
• Document Readiness
• Work Shadowing
• Readiness Assessment
• Identifying Task Candidates for Outsourcing
• Hand-Offs
• Scale
• Time Tracking
Module Learning Objectives

• Define Transition management

• Define the migration strategies and knowledge transfer
frameworks
• Define what are Transition Risks
• List the critical success factors
• Identify transition effectiveness
• Outline the requirements for good transition
documentation
• Explain work-shadowing
• Define Hand-offs
• Explain the concept of Scale
• Explain Time Tracking
 Managing Outsourcing
Transition
The Transition Manager ~ Transition Strategies &
Knowledge Transfer Framework
Transition Management,
Definition of

Transition Management is the set of activities that

transpire after a BPO contract is signed that
implements or executes the detailed movement or
transfer of processes from the client to the service
provider.
Transition Management,
The Manager

A Transition Manager is responsible for migrating

the function or the process from the client location
or organization to the service provider or
outsourcing organization.

The Transition Manager needs to be an effective

communicator, as the role requires extensive
interaction with the clients
Transition Management,
The Manager

Because of the nature of the role, a Transition

Manager needs to have a variety of skills and
competencies:
• Needs to have strong project management skills, as the
migration process are complex projects that require expert
management skills;
• Needs to be comfortable in working in a cross-cultural
environment, as most often, the client teams are based
overseas;
• Needs to have a thorough understanding of the; existing
business and legal processes, and, current as well as
emerging technologies as these play a critical role in the
off-shoring of a business function
Transition Strategies &
Knowledge Transfer Framework

Generally, there are two common strategies

followed in migrating a function, these are:

• Lift and Shift

• Re-engineer and Migrate

Transition Strategies &
Knowledge Transfer Framework

Lift and Shift

• Definition

• Phases

• Items to Consider

• Advantages
Lift and Shift

Definition

This is the most common methodology used.

When the process is mature, the ’Lift and shift’
approach is used for migrating.
Lift and Shift

Phases

1. Move the current process to the service

provider without changes/ improvements
2. Stabilize
3. Re-engineer the process to achieve efficiency
gain – produce same output, less FTEs
• Modify the process
• Add end-user type or strategic automation
• Combine role with others
• Move process into a production line
• Negotiate elimination of unnecessary outputs
Lift and Shift

Items to Consider

1. Process change will not affect process control

points or output can be done by service
provider independently

− Onshore approval of process changes is a good

practice

− Onshore review if the change impacts regulatory

control points
Lift and Shift

Items to Consider

2. Major effort: post go-live reengineering

− Transition phase can be easy especially if “people

and processes” are moved. This may take 3 to 4
months only

− Onshore has the risk of losing political will to

reengineer processes after a while
Lift and Shift

Advantages of an “as is” basis process migration:

• Training the new team is easier, as the process is well

understood and documented

• Existing employees at the donor location are available

to support the process in case of disruptions or
instability

• A fresh set of eyes (the new team) look at the process

from a fresh perspective, often resulting in process
improvements and enhanced controls
Transition Strategies &
Knowledge Transfer Framework

Re-engineer and Migrate

• Definition

• Items to Consider
Re-engineer and Migrate

Definition

Fundamental rethinking and radically redesigning of the

business process to achieve dramatic improvements in
critical measures of performance such as cost, service, and
speed
Re-engineer and Migrate

Items to Consider:

• Useful when the process is either broken and requires

fixing, or is due to undergo significant change in the
near future (systems change or process change)

• In such cases, it may be important to utilize the

expertise of the existing team (which is built over
several years) to drive the change, before it is handed
over to the new team
Re-engineer and Migrate

Items to Consider:

• Company that outsource industry common processes

to a market-leading service provider will generally
follow service provider processes

• Company changes its processes as part of transition to

service provider
 Transition Success &
Effectiveness
Transition Pitfalls & Risks ~ Critical Success
Factors ~ Transition Effectiveness
Transition Pitfalls and Risks

Most of the issues with sub-par or failed outsourcing

endeavors can be attributed to a few pitfalls.
1. Inadequate investment and sponsorship
2. Unclear scope of work
3. Training shortcuts
4. Unclear roles and responsibilities
5. Not retaining the experts

These can be avoided if the Transition Manager

constantly re-focuses attention on these things.
Transition Critical Success Factors

The success or failure of a transition project is

fundamentally measured in two aspects:

1. Technology Readiness – state of readiness of the enabling

hardware and software to support the ongoing operations

2. Manpower Readiness – state of the readiness of the

operating staff; hired, trained, and, skilled for the service
processes
Transition Effectiveness

Transition Effectiveness can measured through:

1. Financial Benefits

2. Performance of the Team

Transition Effectiveness

1. Financial Benefits

It is important to quantify the real cost of the

function before off-shoring (baseline costs) and the
cost of the offshore team on an ongoing basis.

• Costs related to moving the function to the new team

should be tracked separately as project costs.

• Capturing these cost elements enables comparison of

baseline costs with current costs, and provides an
accurate measurement of the saves.
Transition Effectiveness

2. Performance of the Team

• Primarily done by developing performance metrics

• Usually subject to a testing phase to determine

reasonability of the service measures – also known as the
“baselining” period
Document Readiness
Document Readiness

• Inputs
• Processes
• Output
• Communication
• Supervision
Document Readiness:
Inputs

Inputs are documented

• Source systems and dependencies
• Timing of delivery quality assumptions and
work-around in case of failure in delivery of
some inputs
− Historical timeliness and accuracy statistics.
− Helps size service provider resources need,
identify likelihood of work-compression (rushing 3
hours work in 1 hour) or overtime (working late to
keep to output delivery targets)

• Format of inputs (structured or not)

Document Readiness:
Process

Processes are documented using the industry

standard format and in complete detail

• Hand-offs to other parties, internal and external,

documented, including timing and format
• Interim/flash reports, if required, are documented as
deliverables. Delivery time, day-of-month, period
targets are documented

Required tools such as macros, workflow,

application, shared directory access are listed in
sufficient detail to allow replication in the service
provider
Document Readiness:
Outputs

Interim/flash and final outputs are completely

documented

• Formats are completely defined

• Control steps and quality assurance checklists are
defined
• Delivery time/day-of-period are defined; these are
reviewed to ensure they are achievable/consistent with
input timelines
• Service provider and transition project manager should
validate that timelines are current and not
“aspirational;” tendency to put in desired/unrealistic
deadlines when outsourcing
Document Readiness:
Communication

Communication channels for output to be

explicitly defined

• Clarity here minimizes misunderstanding during early

production period

• Especially if the output is an input to another process

Document Readiness:
Supervision

Onshore supervision points and what will be

reviewed/checklist should be defined

• Some country regulations (US) require clear trail of

supervisory control by an Onshore person

• Responsibility for output (e.g., financial statements)

rests with an accountable Onshore officer

• For shared service centers particularly, clear

documentation on areas of supervisory review paves
the way for transition into “center of excellence”
mode where supervisory control rests offshore
Document Readiness:
Summary

• I_____
• P________
• O_____
• C____________
• S__________
Work-Shadowing
Work-Shadowing

Definition

is the term used for “learn-by-doing” activity of

service provider personnel, generally done at the
same location as current company performer
Work-Shadowing

Phases:

1. Onshore personnel doing activity

• Onshore personnel performs activity, conducts

training; service provider personnel observes how
client does the task

• May be done at Onshore location with service

provider staff travelling; may be done at service
provider location with Onshore staff travelling
Work-Shadowing

Phases:

1. Onshore personnel doing activity (Continuation)

• Service provider staff reviews documentation

provided against actual activity done by Onshore
personnel

• Changes in documentation are done

• Re-sizing of required staffing may be negotiated

at this point
Work-Shadowing

Phases:

2. Guided service provider network

• Service provider performs the activity; Onshore

personnel looks over and gives close guidance

• May be done Onshore or at service provider site

• Completes 1 or 2 full cycles: if output is monthly,

guidance is given for 2 month-ends; if output is
daily, guidance is given for a few days

• Generally 1 to 2 months of guided work

Work-Shadowing

Phases:

3. Go-live

• Service provider performs the activity

independently at service provider site

• Performance targets in place and required

• Changes in sizing or process (to correct erroneous

training provided by onshore) now falls under
change-request process and governance

• Need to closely monitor for a period of 3 months

to ensure stable performance
 Activity:
Readiness Checklist
Readiness Assessment
Readiness Assessment,
Purpose of

Readiness Assessment verifies if process to be

outsourced is:

1. Adequately documented. Poorly documented

current process will result in:

a) Most current in-house processes operate on tribal

knowledge, undocumented steps.

b) Service providers adding “uncertainty” of process

premium in their proposals—not very clear what
will be delivered, how, and by when
Readiness Assessment,
Purpose of

1. Adequately documented. Poorly documented

current process will result in: (Continued)

c) High probability of he-said-he-said

misunderstanding during initial phase of production

d) Long work shadowing period and high cost as

service provider tries to document required process
Readiness Assessment,
Purpose of

2. Correctly-sized in generic resources

a) Most current processes done in-house operate with

long-experienced staff (veterans in role). 1 FTE
with 20 years on-the-same-job experience is not
equal to 1 FTE with general experience no matter
how bright or expert or diligent

b) Without readiness assessment, the company will

estimate the current cost low. The receiving
provider may incorrectly size the role, may have to
initially use 2 performers (with very structured
steps) to do the same 1-FTE job until knowledge is
gained/documented
Readiness Assessment,
Purpose of

3. Resource sizing already includes the right

level of quality assurance and supervisory
control

a) Most in-house processes rely on veteran performers

with long-developed “business acumen” that allows
unstructured sense-check for quality assurance.
b) Most contracts (especially shared service center
migrations) are under-configured because
QA/supervisors are not included
c) Why is incorrect (under) sizing a problem? Because
service providers will inevitably use the “change
request” process to add to the cost
Adequate Documentation

Adequate Documentation for:

1. Input
2. Process
3. Output
4. Communication
5. Supervision
Adequate Documentation:
Input

Considerations for Input:

1. Properly described input

2. Method of acquisition

3. Language of input

4. Timing of the input

5. Dependencies
Adequate Documentation:
Input

a) What are the inputs

– Is there documentation listing/describing the inputs?

• Many onshore processes performed by long-time

staff would not have existing documentation

• Key to know where there are gaps to understand

areas and cost of remediation
Adequate Documentation:
Input

a) What are the inputs

– How are the inputs received

• Are they in structured form (consistent) or are they

in verbal, email or even spreadsheet freeform

• Structured input makes straight-through processing

easier, requires less business acumen on part of
performer
Adequate Documentation:
Input

a) What are the inputs

– How are the inputs received(Continued)

• Less training for processor to start, faster growth

from new hire to productive performer

• Unstructured input data points to early area for

process improvement; efficiency gains from
straight-through processing
Adequate Documentation:
Input

a) What are the inputs

– Are inputs in same language as that of provider

• Can communication onshore be done in same

language as that used by provider

• Different language adds cost in terms of language

translator/specialist and “funnel” effect
Adequate Documentation:
Input

b) Is there an input data timing condition

(can be received only on Business Day x)

– Are the inputs received all throughout the month or do

they peak on a single day/period
• Peaking inputs may require peak-basis staffing to
keep delivery target
• Extra cost of peak personnel

• Challenge of work-scheduling to use staff during low

periods
Adequate Documentation:
Input

b) Is there an input data timing condition

(can be received only on Business Day x)

− Are inputs received only on defined days

• Do those days coincide with month-ends

• Less opportunity to do work-scheduling of off-peak

staff if work peaks are the same
Adequate Documentation:
Input

c) What are the dependencies (what systems,

external parties)

– Are dependencies documented—i.e., OO output from

another system/process must be received first before
PP input can be delivered

– Which inputs are delivered by external systems, which

by internal systems
• How stable are the systems (do they go down regularly)

− Are there work-arounds in case of input system failures

Adequate Documentation:
Input

d) How accurate are the inputs

(quality of input)

– Are there base/historical accuracy statistics. Can be

used to justify cost of measures to improve accuracy

– Input errors cost money in terms of re-work

– Poor quality of input means prior step to validate input

must be added
Adequate Documentation:
Input

d) How consistently delivered on time

(timeliness)

– Are there historical timeliness statistics. Can be used to

justify investment in faster platforms, in process
improvements

– Late inputs cost money in terms of overtime

– “Compressed work-day” burden on performers (doing 3

hours worth of process in 1 hour to deliver on time)
Adequate Documentation:
Process Checklist

a) Are the processes properly documented

b) Are hand-offs to other parties (internal and

external) shown in the documentation

c) Are interim or “flash” reports documented

d) Are delivery time/day-of-month/period

targets documented
Adequate Documentation:
Process Checklist

• General rule of thumb:

• If documentation length exceeds the output

materially, that is too low a level

• Lowest level documentation going beyond 2

to 3 pages is too much
Adequate Documentation:
Process Checklist

a) Are the processes properly documented

– What documentation standard

• Process maps (who performs, what are the hand-offs

to other performers) are intuitive

• Using a specific standard is not important; it is

important that a standard is consistently used
Adequate Documentation:
Process Checklist

a) Are the processes properly documented

– How many levels are documented

• Must go beyond high-level process

• Must document actual outputs sufficiently to allow a

qualified performer (with xx years experience in yy
process, with aa academic training) to replicate
output

• Must be simple and straight forward

Adequate Documentation:
Process Checklist

a) Are the processes properly documented

– Are workflow and other technology tools

properly referred to in the document

• Ideal if workflow platform is used Onshore, but this is

infrequent
• If specific spreadsheets, access, or other
end-user-developed programs are used (“macros”), it
is important that the source code and technical
documentation for the macro is shared
Adequate Documentation:
Process Checklist

b) Are hand-offs to other parties (internal and

external) shown in the documentation

– Clear documentation of hand-offs show areas of

“process fragmentation”
– Hand-offs are transfers of the task to other people
before continuing
– Aggregate items to review in a single-sign-off step at
the end
– May be better to require enriched data prior to start of
the process—i.e., intelligent input template Or train
performer to do the data enrichment
Adequate Documentation:
Process Checklist

c) Are interim or “flash” reports documented

– Flash reports allow Onshore supervisors to do early
process check. Regulatory submission deadlines are
hard, hence critical outputs may need intermediate
review

– Ideal that the process continues without waiting; only

stop by exception
Adequate Documentation:
Process Checklist

d) Are delivery time/day-of-month/period

targets documented

– Indication of required delivery time/date important in the

process documentation

– Quick look at input receive and output delivery allows

check of process ease and staffing requirements

– Tight processing times (late input, early month output)

shout out opportunities for required technology/process
improvement
Adequate Documentation:
Process

How up-to-date is the documentation

– How often is document re-certified. Are the

“live”/modified immediately whenever process
is changed

• Documentation is valuable only if up-to-date; show

binders are not useful

• Easy to quickly assess live-status of documentation:

Ask performer about his process, ask him to then
point it in the documentation
Module 4: Managing Outsourcing Transitions – Readiness Assessment
Adequate Documentation:
Process

What are the steps of the delivery of a process

or service in contracting of a service
provider

– Delivery targets: Following defined delivery

objectives-defined timelines, accuracy, consistency
Adequate Documentation:
Process

• How: With description/documentation of how the service

will be performed (key operating procedures, control points)
(in many cases, requirements will include: performer
qualifications and count, required tools--for clarity of
expectations)

• Supervision: Stating the supervision process, periodic

reviews, and how performance will be measured

• Cost: For a clearly defined cost (per input unit or outcome)

and clearly defined bonus/penalty award and basis
Adequate Documentation:
Output

Considerations for Output:

1. Properly described output

2. Method of transmission

3. Language of output

4. Timing of the output

5. Dependencies
Adequate Documentation:
Output

Are outputs completely documented

– Formats defined. In key management reports, down to

the colors of certain data

– If output is an input to another process, best that

structured template is followed

– Periodic changes in outputs (and in contents /format

within output) are normal—BUT the change requests
should be documented, cost-justified, and properly
approved
Adequate Documentation:
Communication

How are the outputs to be communicated

– Transmission channel has to be clearly stated—e.g.,

email, file upload into MS SharePoint

– As input to another process—in workflow or direct entry

to another system
Adequate Documentation:
Supervision

Considerations for Supervision:

• Onshore

• Offshore

• Staffing, Equipment, Motivation

• Country Regulations
Adequate Documentation:
Supervision

Where are the “Onshore” supervision points

• Some country regulations (US) require supervisory

control by an Onshore person—i.e., ownership of the
output is with the Onshore person

• In Onshore exercises who has “supervisory control”

• In shared services, next stage of evolution is true

centers of excellence where work and supervision is done
in another location
Adequate Documentation:
Summary

• Onshore processes with adequate documentation

have greater readiness for offshoring

• Documentation on Inputs, Processes, Outputs,

Communication channels, and Supervision allow a
service provider (Third-Part or Shared Service
Center) to estimate cost of doing the service
offshore with more certainty
Hand-Offs
Hand-Offs, Definition of

Definition

are transfers of the output to a different

performer, an approver, for further action prior to
continuation
Hand-Offs, Reasons for

1. Data enrichment. The other performer adds

data to the transaction

2. Quality Assurance. The second performer is

a checker

3. Control. Approval for materiality and

substance is done by a separate person
How will you get paid…

1. Paymaster creates initial employee pay record

2. Timekeeper reviews overtime records to adds overtime

pay

3. Payroll clerk reviews loan records for loan deductions

4. Payroll clerk looks at reimbursement records to add

payments for expenses advanced by employee

5. Payroll clerk looks at enriched pay record and calculates

right withholding tax

6. Payroll supervisor reviews the whole pay and approves

7. Paymaster submits net salary to bank for payment

 Scale
Sufficiency ~ Tips to Optimize
Scale Illustrated…
Scale

Number of employees (manning compliment, head

count, full time requirement FTE)

Sufficiency of scale depends on the following:

• Service provider
• Requirement of the job
• Client
Scale in Relation to
Workforce

Sufficiency of scale depends on the service

provider—for risk management

• A 15,000-FTE provider in a single location may prefer

engagements of at least 500 FTEs (5% is normal buffer of
resources, can be ramped up easily or absorbed in other
clients when contract ends)
Scale in Relation to
Workforce

Right scale depends on client—percentage of

outsourced roles to total staff, for risk management
and control

• A 500-person Finance organization may want to limit initial

outsourcing to 10% or 15%

• A large company with experience in outsourcing may opt to

outsource the entire technology group (from data centers to
application development to helpdesk) to a
provider--especially if core business is non-IT

Module 4: Managing Outsourcing Transitions – Scale

Tips to Optimize Scale

• If the process to be outsourced is done by only a few FTEs

(Full time equivalent), it is not worth outsourcing
– Example: Create Letter of Credit. But the role is only
done by one person who does everything, or 1 person full
day plus a supervisor for 1 hour a day

• Near self-contained roles have good potential for

outsourcing—because more FTEs covered
– Complete help-desk

– Mortgage processing, from application form acceptance to

creditworthiness points calculation, to annotation of loan
on deed, to title insurance submission, to
recommendation for funds release
Tips to Optimize Scale

• End-to-end roles are ideal (start from external contact,

ends with external contact, with only 1 or 2 intermediate
hand-offs for review/approval)

– “External” Contact can mean external to the process

– Product P&L (profit and loss) starts with transaction data
download and ends with submission to regional/senior
management; intermediate activities (market price
verification, calculation of mark-to-market value) are
fully done by service provider
Tips to Optimize Scale

• Buyer needs sufficient FTEs in outsource project to justify

risk and executive attention (sourcing management,
finance/payments, legal)
• What is the amount saved. If it is too small, the cost of
Onshore supervision eats up the benefit
• Service provider needs sufficient FTEs (margin) to justify a
risk, supervisor (operations manager attention), and
overhead (Finance, billing, legal)
• Large and small engagements have near same “overhead” in
support—except for very large contracts
• Training

• Improve Hardware and/ or Enhance Software

Identifying Task Candidates
for Outsourcing
Identifying Task Candidates
for Outsourcing

• Break down current Onshore roles into individual

tasks that have scale (high number of FTE hours)

• Tool for task analysis can be

− Follow the performer: consultant follows a performer and
tracks time spent in each task; called “stop-watch”
method because consultants carry timing devices

− Time-tracking: each current performer tracks his

activities, how much time is spent in each task, over a
period of 1 to 3 months
Identifying Task Candidates
for Outsourcing: Time Tracking

• Time tracking into granular task buckets is a good

way to identify potential roles for outsourcing

• Helps managers assess whether the work can be

simplified
– Challenge of simplify now or later

• Recording how much time is spent each day in

specific task groups
Identifying Task Candidates
for Outsourcing: Time Tracking

• Highlights tasks that occupy a lot of people’s

hours

• Some high-volume tasks may need thorough

analysis to identify specific roles
– Tempting to wait and do more granular time tracking and
further analysis. Be wary of analysis paralysis
Identifying Task Candidates
for Outsourcing: Time Tracking

• High FTE-hour numbers are directional pointers

for outsourcing

– Other “sub-filters:” (a) do not require complex market

knowledge, (b) do not have high financial or regulatory
risk, (c) tasks which are self-contained (have minimal
hand-offs)
Identifying Task Candidates
for Outsourcing: Candidates

•Finite

•Documented

•Sufficient of Scale
Identifying Task Candidates
for Outsourcing: Considerations

• Readiness assessment
• Level of documentation of onshore processes
• Scale: sizing savings based on current performer
count
• Time-tracking or task-based FTE assessment
• Prioritize roles that are “more ready”
• Lift-and-Shift for less documented roles
• Cost of low outsourcing readiness
Components of Readiness

•Scalable Talent Pool

•Cost

•Excellent Infrastructure
•Government Support & Public-Private Partnership
 Activity:

Changing Hats (Continued)

Learning Check/ Quiz

1. Define transition management

2. What skills are essential for a transition manager?
3. What are the two (2) transition strategies?
4. What are the transition pitfalls and risks.
5. What are the critical success factors
6. What are the measures of transition effectiveness?
7. Explain the importance of proper documentation.
8. Explain work-shadowing
9. Define the components of readiness assessment.
10. Define Hand-offs
11. Explain the concept of Scale
12. Explain Time Tracking