Managing an Outsourcing

This guide is based on UK law. It was last updated in February 2008.

Managing any procurement has its challenges. However, with failing public sector IT outsourcing projects frequently reported by the media, we believe that the development of a robust procurement strategy at the outset of any outsourcing project will be vital to its ultimate success.

Once a project has received the necessary business case approval, the project team must turn their minds to developing a comprehensive procurement strategy. The strategy should map out the whole of the procurement lifecycle; detailing what needs to happen at each phase; what decisions will need to be made and when, and addressing third party dependencies.

Simon Colvin highlights three areas that often fail to be addressed sufficiently in the procurement strategy.

Business buy in

Due to the wide scope of most outsourcing projects, there is invariably a disparate group of internal stakeholders. The stakeholder group is likely to include senior management, technical and user group representatives. One of the keys to a successful procurement is ensuring that the project team develops early relationships with all stakeholder groups. In doing so they will ensure that all parties concerned are kept abreast of the overall strategy and key developments or changes during project implementation.

A stakeholder engagement plan must be an integral part of the procurement strategy. Where there is a wide group of stakeholders, consideration should be given to the use of presentations to each stakeholder group, the development of a project intranet and also, where the stakeholders are in varied locations, road show presentations.

Another challenge which often arises is managing divergent views. Few projects are able to meet the needs of all individuals concerned, therefore project managers need to manage expectations and communicate them effectively. Even with processes in place, managing stakeholders requires strong and decisive project leadership, with the project manager being responsible to ensure that the project is not road-blocked from within. Early planning to address potential issues will be invaluable.

Service definition

Most outsourcing projects require the new supplier to take over the 'as-is' service. The process of determining what levels of service are required will be made simpler if existing service levels (whether delivered in-house or by an incumbent supplier) are well documented.  If not, assessing and describing the current service levels is likely to be a significant task. On some projects Pinsent Masons has been involved in, this exercise has been one of the most lengthy and resource intensive stages of the procurement. Therefore it must be planned well in advance.

A number of factors should be considered:

• Service levels do not need to measure every aspect of the service – reporting on this basis is overkill, with both parties wasting management time producing or scrutinising a mass of information 
• Service levels should concentrate on the key services – if a service credit model is to be used then the credits should be based upon the impact to the business of the supplier failing to achieve the service level. If there is no impact then the service level is likely to be of no value. The scoping should therefore begin by determining what are the key performance indicators, and service levels determined on that basis 
• It is often appropriate to have two types of service levels – a limited set attracting service levels, the wider set only requiring regular reporting
• Determining service improvements needs both technical and strategic consideration. As there will be a cost attached to changes to the status quo, the requirement for service improvements must reflect real business need and be factored into the value for money assessment.

Treatment of assets used to deliver the services

In an ideal world, the decision as to who will own the assets will be made at the outset of the procurement. In reality, we find this to be rarely the case. If the decision has not been made when the procurement strategy is drawn up the decision making process will need to be factored into the plan.

The issue of asset ownership should be communicated to bidders at the invitation to tender stage. Postponing the decision leads bidders, in their proposals, to either 'hedge their bets' or fail to address the issue in any detail. A clearly stated approach to asset ownership will enable the bidders to respond with a meaningful proposition and factor the approach into their financial models. Of course, bidders may have alternative views to the asset ownership and their views on the stated approach and alternative approaches should be encouraged.

Conclusion

In our experience in facilitating numerous public sector outsourcing projects, we have seen many major roadblocks which arise due to lack of strategic procurement planning and failure to gain complete stakeholder "buy-in". Developing the procurement strategy is vital for any outsourcing project, and although it will require time and resource, the process provides essential focus on the entire lifecycle of the procurement, so that the required inputs and outputs can be planned in advance and resources and costs managed accordingly. Ultimately this will secure the success of any outsourcing project.

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