misunderstood and poorly handled: change …...the survey set out to understand, for the first time,...

Misunderstood and Poorly Handled: Change Management for Outsourcing

July 2011

© 2011, HfS Research Ltd. | www.hfsresearch.com 1

MISUNDERSTOOD AND POORLY HANDLED: CHANGE MANAGEMENT FOR OUTSOURCING Results of the Groundbreaking HfS Research/Sourcing Change Survey on the State of Change Management in the Outsourcing Industry

Author Deborah Kops, HfS Research Fellow and Managing Principal, sourcingchange.com

Executive Summary

After years of implementation, the fact that outsourcing triggers a myriad of changes—organization, process, workflow,

technology, service levels among others—is still sidestepped by the industry. While most players give lip service to the

need for change management when sourcing, there’s still a lack of understanding of the skills and capabilities that make

change management strategically important to an outsourcing deal.

The HfS Research/Sourcing Change 2011 Change Management survey reveals a number of critical points:

» Change management doesn’t get the critical recognition it deserves. The perception of change management

fares poorly in its ability to make or break outsourcing success. Buyers know that they are making major

organizational change through sourcing, but still approach it as a series of tactics generally programmed within a

transition plan and fundamentally designed to keep stakeholder noise levels down. The change management

concept may not be fully understood or well-defined by the sourcing community, or the ROI of investing in

change management resource is still unclear. It may be necessary to promulgate a common definition and

assemble enough of a body of evidence throughout the sourcing lifecycle to prove or disprove the change

management imperative. The industry must depart from anecdote and truly understand the implications of

change management to sourcing success.

» To its detriment, change management is often confused with communications. One of the most clear-cut

conclusions from the study indicates that respondents equate change management with communications to and

engagement with stakeholders. The overarching belief is that if stakeholders are given the right message at the

right time, and if their reactions are monitored, the most significant change management obligations are

discharged. But change management isn’t just comms. The strategic approach, calibrating outsourcing scope and

deployment with the organization’s ability to take up the change, or ensuring that the organization is reskilled

and redesigned to effectively manage and deliver is what’s really critical to outsourcing success.

http://sourcingchange.com/


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» Buyers prefer to do it themselves, rather than looking for outside expertise. Many companies go it alone when it comes to change management expertise; they prefer not to rely on outside experts or provider support. Buyers overwhelmingly rely on internal resources—primarily occasional human resources and communications support—when it comes to change management expertise. And this makes sense—those with the name of the company on their paycheck know the secret handshake, the unspoken pecking orders, who influences whom, and where the bodies are buried. But what does present a red flag is the fact that many resources are “borrowed” and not embedded into the team. An outsourcing program is a major change program; moving forward without deep expertise presents a program risk. Having enough skilled and dedicated resource is critical to sourcing success.

» Providers think they provide change management support to buyers. Paradoxically, a significant percentage of provider respondents indicate that they always provide change management services within their scope. Perhaps the gap is definitional. Providers may think providing a template or cultural training constitutes change management support. Or perhaps the gap is an aspiration borne from the idea that “we are partners in your change.” Whatever the reason, buyers do not profess the same level of engagement with their providers. The provider by its very nature is also a major protagonist in the plot. In terms of change management, providers are well positioned to advise, warn and bring best practices, and possibly even consult if they bring sufficient skill. Either the change construct is not yet well-defined enough by the buyer to bring the provider into the game in a position of trust, or the provider does not have the expertise to add much value.

» Change management requires a cross-industry response to fix the problem. The industry must drive the creation of better knowledge and expertise. Currently there is no burning platform—the industry’s lack of focus on the importance of change management means that there are no recognized sources or acknowledged repositories of expertise and knowledge, rendering change management as a cottage industry. Buyers and providers alike are tapping into expertise wherever they think they can, and when they don’t, on-the-job training takes center stage. The proverbial “chicken and the egg” construct may be at play here. Industry bodies, consultants, advisors and others are not focused on adding to the body of knowledge because they don’t perceive a demand, while perhaps buyers don’t demand more out because they don’t see much value out of the existing resources. Perhaps it’s time to comprehensively examine the implications of effective change management by agreeing a definition, benchmarking, developing case studies and industry-standard toolkit.

About the survey In March 2011, HfS Research leveraged its vast network of global enterprises to solicit the opinions of buyers and providers of outsourcing attempting to understand how they view the sourcing of change management. The web based survey was completed by 237 respondents with 96 buyers and 141 service providers.


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Contents

Introduction 4

Study Context 4

What is sourcing change management? 5

2011 Survey Results and Analysis 5

Observation 1: Players see change management as fundamental to sourcing success, yet go tactical 5

What are the implications for outsourcing change management? 9

Observation 2: It’s all about keeping the stakeholder in the loop 10


Observation 3: The buyer’s mantra is “we can go it alone” 11


Observation 4: Buyers and provides are not on the same page 13


Observation 5: Change management is seen as a program palliative 14


Observation 6: Buyers need to skill up for change management 15

What are the implications for the state of change? 16

Study implications for buyers 17

Study implications for providers 18

About the buyer respondents 20

Respondents across the sourcing leadership spectrum respond 20

Experienced sample weighs in 21

Buyer Respondents outsourcing across the horizontal spectrum 21

Participation mirrors industry trends 22

Revenues indicate big and global 23

About the author 24

About HfS Research 25

About Sourcing Change 25


July 2011


Introduction

The 2011 Change Management survey set out to understand for the first time how buyers of outsourcing services view sourcing change management. The data and analysis provides the first efforts to get under the covers of outsourcing change management—namely how buyers and providers see its impact, what tasks are deemed most critical to success, how they resource their programs, when and where in the sourcing process do they incorporate change management techniques, and from where they gain their skills. The analysis sheds light as to why both buyers and providers still shy away from dealing with change management head-on.

Study Context

Since the advent of outsourcing, most of the industry’s energy—both buyer and provider—has focused on the act of sourcing—the business case, market studies, provider selection and negotiation. Yet we tend to ignore the fact of sourcing—the myriad changes that result from the deceptively simple decision to move business functions or processes to a third party. So very much changes—enablers such as location, who does the work or the introduction of new technology; rules such as workflow, policies, procedures and standards; performance—metrics, SLAs and OLAs; and culture—relationships, careers, employee/employer relationships, the buyer. On top of all of these changes, there’s always an accompanying change of control—no longer are the same stakeholders (whether they’re functional owners, business lines or geographies) making the decisions.

To make outsourcing change happen, it’s critical to get these stakeholders (executive management, business line leaders, operations managers, retained team, vendors just to name a few) to quickly comply with new ways of working. Just because leadership decides to adjust its business model by outsourcing—the act—does not mean that the organization will willingly and seamlessly adopt and embrace the fact of sourcing. Corporate dictates alone do not have the power to get stakeholders to comply; once the decision to source has been made, each and every business line an evaluates the decision through their own lens to figure out what it means from an organizational standpoint but as importantly, what it means for the stakeholder personally.

Yet we’re spending almost no time thinking about how best to design an outsourcing deal within the context of the way the organization takes on change, and, once we decide to source, how do we best manage the organization through changes which affect the power structure of the organization, require new processes and/or technology, and introduce new players.

Today, almost every segment of the sourcing industry today will acknowledge the criticality of effective change management. Buyers privately and sometimes even publicly at conferences bemoan the fact that insufficient emphasis was paid to all or some aspects of change in sourcing design and implementation. Providers tell woeful tales of clients who ignored change management in their planning and implementation process, setting their team up for resistance during knowledge transfer and beyond. Experienced consultants and advisors even write an occasional treatise on the importance of change management. Yet change management as the difference between sourcing success and failure still gets short shrift.


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What is sourcing change management? For the purposes of this survey, we defined change management as a structured approach to the adoption to changes resulting from sourcing implementation, both from an organizational perspective and on an individual level, including:

» Correlating the pace of outsourcing change to the way the organization changes

» Educating and managing stakeholders

» Redesigning and retraining the organization

» Communicating the right messages at the right intervals

» Insuring supportive sponsorship

» Developing the right response models

2011 Survey Results and Analysis The survey set out to understand, for the first time, how buyers of outsourcing services view sourcing change management. The results are organized around the following key observations:

1. Players see change management as fundamental to sourcing success, yet go tactical

2. It’s all about keeping the stakeholder in the loop

3. No one has really discovered the secret sauce

4. Buyers believe change management starts at the beginning, but what are they actually doing about it?

5. The buyer’s mantra is “we can go it alone”

6. Providers think they are a big help in the change management process

7. Change is seen as another PMO work stream

8. Where is all this change management knowledge and training actually coming from?

Observation 1: Players see change management as fundamental to sourcing success, yet go tactical Perhaps it’s a result of hype, experience, or the tendency to check off any critical box on a survey, but the buyer

respondents overwhelmingly believe that change management is critical to sourcing success. When asked the question,

“based upon your experience, how important is change management?” an overwhelming percentage of buyer

respondents said it was “critical to the overall success of the program,” as opposed to a small minority that perceive it

important but not critical, or somewhat important.

The provider community holds a somewhat similar conviction about the importance of change management, but from

their perspective more respondents think it important but not critical or just somewhat important, while a few intrepid

provider souls discount the importance altogether, possibly believing in the sledgehammer approach to sourcing

implementation. We show that data in Exhibit 1.


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Exhibit 1 Importance of change management to outsourcing success-buyer versus provider

Based on your experience, how important is change management?

Importance of change management to outsourcing success-buyer versus provider (exh.1)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Not important

Somewhat important

Important, but not critical

Critical to the overall success of theprogram

Proportion of Respondents %

Buyer Provider

Based on your experience, how important is change management?

Buyer n=95 Provider n=141

Source: HfS Research and Sourcing Change, 2011

If change management is considered so critical to sourcing success then the prevailing buyer approach is definitely not strategic. While most respondents profess that change management is critical to sourcing success, only about half of them report that they approach change management strategically, followed by almost 40% who approach it tactically, and 14% that go into action purely as an interventionist measure when sourcing goes wrong.

Providers appear to view change management as less strategic. By contrast, a lower of provider respondents see change management as strategic, while the remainder view it as tactical or interventionist.


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Exhibit 2 General approaches to change management: Buyers versus providers

In general, how does your organization approach change management?


To understand buyers’ views that sourcing is critical, they were asked when change management tasks should ideally

commence in order to be most effective. As we show in Exhibit 3, the majority of buyers believe it starts when the

sourcing strategy is being formulated, while almost as many collectively believe it starts before provider selection or when

developing the transition plan. This correlates with the importance buyers place on change management as a key

determinant of sourcing success, but does not fully synch with the fact that respondents overwhelming focus on the

tactics, particularly communications to stakeholders, rather than gauging the way the organization changes, and

developing a sourcing approach that has the greatest probability of succeeding.


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Exhibit 3 Buyers primarily believe change management starts at the beginning

When do you think change management tasks should commence in order to be most effective?


Drilling down, there seems to be some correlation between industry sourcing maturity and approach. The chart suggests

that early adopter industries—BFSI, CPG and Life Sciences—are taking more of a strategic approach to change

management, perhaps simply because they have more experience suffering the implications of poor change management,

especially on a global level. Notably, the public sector, with limited experience in sourcing, approaches change

management as interventionist.


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Exhibit 4 Approach to change by industry

In general, how does your organization approach change management? Most popular category

Strategic Tactical Interventionist

Other

Banking

Life Science

Media

Manufacturing

Telecom & Hi-Tech Transportation

Public Sector

Retail

Utilities

CPG

In general, how does your organization approach change management? n=96Most popular category

Approach to Change by Industry (Exh. 4)


What are the implications for outsourcing change management?

The juxtaposition of the buyer responses suggests several forces are at play. Firstly, the majority of the respondents deem themselves sourcing veterans. They hav experienced the challenges which result from a lack of focus on change management, and have a ready catalog of war stories ranging from not listening closely enough to the business lines to a lack of focus on the needs and retraining of the retained team. As global players, they understand the complexity of working across cultures. So they should be well aware of the criticality of change management to sourcing success.

However, although respondents believe change management is critical, and that it should commence at the beginning of the sourcing process, they are less comfortable approaching change management strategically—for example, spending time at the outset of the sourcing process how the organization will actually change. This opens up a Pandora’s box of tactical issues—can buyers actually define change management? Do they understand the direct relationship between change management and sourcing success? Are they conversant with change management best practices? Do they know how to effectively incorporate change management into their sourcing programs? Do they have access to the right resources at the right time?

Or are the issues more fundamental? Sourcing as a business transformation tool is generally approached by the left side of the brain—the impulse is to build a logical business case. Although sourcing leaders are aware of the impact of change management on outsourcing success as a concept, when it comes to actual implementation, which requires harnessing the right side of the brain skills of sensing and feeling the reactions of their stakeholders, they often become uncomfortable. It’s far easier to approach change as a series of discrete “tick-the-box-off” tasks such as getting a memo out, or recording the reactions of a stakeholder, rather than delving into organizational dynamics to design and engineer


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the sourcing program to effectively respond to the way the organization actually changes, or dealing with the personal reactions of stakeholders.

Probably all are true. Dealing with people and organizations can be messy. Our predilection is to acknowledge that stakeholders may not fall in line, may not have the right organizational structure, training or capabilities, or that competing initiatives may get in the way of deployment, but cross fingers and hope for the best, and, when necessary, go into crisis mode.

Observation 2: It’s all about keeping the stakeholder in the loop One of the most clear-cut conclusions from the data indicates that respondents on both sides of the table equate change management with communications to and engagement with stakeholders. The overarching belief is that if stakeholders are given the right message at the right time, and if their reactions are monitored, the most significant change management obligations are discharged.

As Exhibit 5 shows, buyer respondents definitively believe that the greatest challenges they face their change programs deal with with stakeholder communications, engagement, and monitoring, which can be termed program tactics. To contrast, there is less concern voiced about actually understanding how the organization embraces change in order to craft the program accordingly, although there is a recognition that a lack of understanding does have a negative impact.

Surprisingly, respondents are less concerned about having the right resources-- appropriate change management skills, training for new capabilities, sufficient budget, and indicate that the timing and pacing of change--in other words, waiting too long in the sourcing process to incorporate change management—is not a great worry. Notably,the management of both the affected (read: redundant) and retained team are not as great a concern to buyer respondents.

Exhibit 5 Biggest Change Challenges

Significant and some negative impact



0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Not having a budget or plan for sufficient change managementresource

Ineffectively managing affected staff performance and knowledgetransfer during transition

Waiting too long in the sourcing process to incorporate changemanagement

Ineffectively managing the reactions of the retained team

Not training for new capabilities

Not obtaining the right change management skills

Not understanding how the organization embraces change

Not having the right mechanisms to monitor stakeholderreactions/pace of adoption

Not adequately planning for the full engagement of stakeholders -Level of Negative Impact

Communicating ineffectively or insufficiently to the business lines

Exh. 5Significant and some negative impact


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The respondents’ experience confirms that effective management of stakeholders, particularly the business lines, is one of the primary “makes or breaks” of sourcing success. Sourcing leaders understand the fact that these people are the all-important customers of sourcing and that the noise levels emanating from their ability to accept outsourcing can derail the program.

But not all stakeholders are created equal in the eyes of the respondents. While the business lines become the customer of the sourcing initiative, the reactions of the retained and affected teams are just as important to sourcing success.Their inability to accept the change is a risk; many senior sourcing leaders have experienced the fallout of staff resistance during implementation. Couple this ranking with the respondents’ perception that helping the retained team acquire new capabilities has a lower priority, and one wonders how the retained staff will acquire the capabilities necessary to work effectively in a new operating model—managing outcomes, rather than performing processes—and how the soon-to-be-redundant staff will willingly share both process and tacit knowledge during transition.

The results corroborate the first observation that buyers are more comfortable with change tactics as opposed to change strategy. Being able to gauge the usual trajectory of their organization’s ability to accept and embrace change is not considered a significant negativ, perhaps because the cause and effect is not thoroughly understood, and the implications cannot easily be couched in a Gantt chart.

Surprisingly, buyers are less concerned about the implications of not having the right change management expertise on the team, budgeting for sufficient change management resource, or starting change management initiatives at the right time. This has several implications: firstly, that sourcing leaders believe that specialist expertise is not necessary; that the entire program team becomes a de facto change manager; or that having the right resource or building change management principles into the strategy at the outset will make no difference to the success of the program. Perhaps there is a lack of clarity as to what good change management expertise actually can deliver in a sourcing initiative.

Observation 3: The buyer’s mantra is “we can go it alone” When asked about resourcing for change management in the sourcing process, buyer respondents lean heavily on internal resources—often on an as-needed or part-time basis (see Exhibit 6). The prevalent approaches are to tap into internal corporate change management expertise, borrow staff or time from internal corporate communications and HR departments, rather than manage change with experts embedded into the team. Fewer organizations seek assistance externally by engaging external change management consultants as necessary, obtaining resources and expertise from their providers, or hiring in specialist consultants on a full time basis. Several see no need for any type of specialist resource, while surprisingly, sourcing advisory contracts are rarely extended to provide help with change management.


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Exhibit 6 Buyer Approach to Resourcing Change

How have you typically resourced for change management in your outsourcing engagement(s)?

Resourcing Change--Buyer

Approach-exh. 6

0% 10% 20% 30% 40% 50%

Extended a sourcing advisory contract to provide change…

Did not tap into specialist resources

Hired a specialist into the team on a full time

Used external specialist consultants on a full time basis

Obtained change management leadership and resources from the …

Assigned resources from internal HR on a full time basis

Used external change management consultants as necessary

Borrowed internal HR experts as necessary

Borrowed internal corporate communications experts as necessary

Assigned resources from an internal corporate change management…



How have you typically resourced for change management in your

outsourcing engagement(s)? n=96



Industry players generally agree that only internal staff have explicit, and more importantly, an implicit understanding of the way the buyer organization works. Those with the name of the company on their paycheck know the secret handshake, the unspoken pecking orders, who influences whom, and where the skeletons are buried. No consultant brought in from the outside can hope to get up to speed quickly enough to make a profound difference, especially in a fast-paced change initiative. So tapping into internal resource makes eminent sense.

The largest percentage of respondents say they tap into internal corporate change management assistance which is surprising given the fact that these internal consultancies became endangered species almost 10 years ago. Perhaps respondents are tapping into organization development expertise as opposed to comprehensive change management talent.

But what does present a red flag is the number of respondents who “borrow” HR and communications expertise on a part-time basis. Two observations can be made: First, correlations with other data again prove the point that respondents think of change and communications as synonymous; second, that the sourcing team thinks it is more or less well-equipped to manage sourcing change without specialist expertise. Arguably, the sourcing team in its entirety is a change manager. Members are at the front line of change and should have the capability to strategize, influence, resolve, listen, intervene and respond. There is nothing amiss in equipping the sourcing team with expertise as needed from experts within the organization. But industry war stories seem to have the same refrain—change was not managed well. Perhaps part-timers or generalists are not sufficient to tackle outsourcing change challenges.

Notably, neither sourcing advisors nor consultants have been able to gain a significant share of buyers’ wallets selling their suite of change management services. This suggests several forces may be at play: First, buyers do not believe external consultants have enough institutional knowledge of the change process to be effective; second, buyers may be suffering from consultant fee fatigue; third, extant consultant/advisor change management offerings do not meet buyers’ needs; or


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fourth, consultants and advisors have determined that there is insufficient market to make an investment in sourcing change expertise, so they have not shaped the right offerings.

Observation 4: Buyers and provides are not on the same page Surprisingly, a sizable percentage of provider respondents state that they always provide change management support to their clients, while almost one-quarter say they help select clients, yet as Exhibit 7 indicates, less than one in five buyers say they rely on their providers for change management support.

This begs a fundamental question: are buyers and providers working off the same definition of change management? From the purview of the provider, change management may be deemed as providing a communications template, telling war stories at the right time or including change management tasks in the transition plan, while the buyer may define change management more broadly.

Exhibit 7 Provider approach to supporting change management

Do you provide your outsourcing clients with change management expertise?



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The disconnect is notable; recent Sourcing Change research indicates definitively that buyers do not believe providers have the qualifications to help with change management, nor do they believe they should be providing change management support. Case studies developed from conversations with 10 leading buyers suggest overwhelmingly that providers do not have the expertise internally to be of much assistance in the change process, and as importantly, that they should not be supporting the process due to the fact that they sit on the other side of the proverbial table—a perceived conflict of interest.

However, the buyers’ belief may be a bit short-sighted. Providers, like the sourcing team, have almost as much of a vested interest in ensuring stakeholders adopt the new model. Working across a large spectrum of client situations , they have seen what works and doesn’t relative to chane management, and may even have picked up or developed a few tools and techniques in the process. Buyers should acknowledge that providers may be able to provide some level of assistance during the change journey.

Observation 5: Change management is seen as a program palliative When asked how change management is actually implemented, the majority of buyer respondents, as Exhibit 8 shows, tuck change tasks into the main implementation under the aegis of the PMO, as opposed to managing tasks within a separate work stream, also managed by the PMO. A nagging few are still managing change as a discrete set of deliverables, or do not include any change management tasks into the program. Provider responses are generally aligned with those of the buyers. And both see tasks similarly, as shown in Exhibit 9. The emphasis on communication still takes precedence over other tasks.

Exhibit 8 Approaches to implementing change: Buyers and providers

How have you approached change management tasks when outsourcing?

Approaches to Implementing Change-

Buyers versus Providers (exh. 8)

4%

17%

16%

63%

6%

13%

24%

57%

0% 10% 20% 30% 40% 50% 60% 70%

Did not include change management tasks into the program

Designed as a series of discrete deliverables such as communications orstaff redundancy

Designed as separate work stream but managed by the PMO

Integrated into the implementation plan and program team/PMO


Provider Buyer

How have you approached change management tasks when outsourcing?

Buyer n=94 Provider n=141




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Exhibit 9 Communication takes precedence over other tasks

How have you approached change management tasks when outsourcing? Selected answer: Critical to the success of program

Change Management Critical Success

Factors--Buyers versus Providers (exh.

9)

0% 20% 40% 60% 80% 100%

Exiting staff according to policy

Feeding into the initial sourcing strategy and planning to ensure that theorganization can accept the change

Monitoring the organization’s ability to adapt they way it works in order to more effectively transition

Marketing the concept of sourcing to key stakeholders

Managing perceptions of the sourcing program

Managing a network of champions to facilitate the take up of thechange

Supporting business as usual during the course of the sourcing contract

Reorienting and training the retained team

Communicating to a full range of stakeholders throughoutimplementation


Provider Buyer

Please rate the importance of the following change management tasks Buyer n=95 Provider n=141 Selected answer: critical to the success of program




Responses to this question confirm the conclusion change management is seen as facilitating communications and managing noise as an aid to the overall implementation, perhaps as a program palliative, rather than as a discrete series of tasks managed with more strategic import. While coordination with other implementation tasks is certainly critical, the scope of effective change management transends the transition phase. By focusing primary efforts at implementation, the prevalent approach reinforces the belief that change management is a tactical pursuit. Effective change management is not only implemented on day one, when the outsourcing approach is first designed, but is also perpetual.

Observation 6: Buyers need to skill up for change management Almost a quarter of percent of buyer respondents, and a similar number of providers, say they obtain their knowledge and training from sourcing industry associations, followed by a range of other sources when asked about where they tap into knowledge. Remarkably, with outsourcing well into its second decade of implementation, as Exhibit 10 shows, an alarming 14% confess they are still going it alone—employing the the trial and error method when approaching change.


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Exhibit 10 Where do buyers obtain their knowledge of change management?


The data is particularly disturbing as few industry associations have much focus on providing training and expertise in sourcing change management. An empirical review of the programs of three of the largest industry conferences held in the US during February and March 2011 indicates exactly one breakout session was devoted to change management, and none of them hosted in-depth workshops. One of the conferences bannered the word “change” in its theme, but not one session was held on the topic.

What are the implications for the state of change?

So where is the industry actually getting their knowledge and expertise? Why is there no focus on developing a repository of benchmarks, case studies, support networks and tools and techniques? When industry groups banner the importance of change, why don’t they follow through with the workshops, discussions and conference sessions that meet the needs of the industry?

Because there is apparently no clarion call for training and knowledge, perhaps buyers and providers believe that attaining skills to manage sourcing change will not positively affect the outcome, or that change is fundamentally “un”-manageable, so a “this too shall pass” approach is the default position.


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Study implications for buyers It is time for outsourcing buyers to stop assuming that the organization will accede to changes naturally, and start taking a more active and strategic role in managing the process in order to increase the chances of sourcing success. Implementing change management initiatives on day one of the process presents an opportunity to craft a sourcing strategy which the organization can best embrace, going with the “grain” of culture and structure in a manner of speaking to ensure that sourcing change is more easily accepted, sustained and ultimately can grow aggressively across the enterprise. Relegating change management tasks to transition is too late to do much more than mitigate the noise that naturally results from outsourcing. Praying that resistance to change will erode over time is not a strategy; it’s an admission that the sourcing organization does not know how to manage change effectively.

Across the board, sourcing leadership recognizes the implications of change management but each through their own experiential lens. Those who implement complex, multi-scope, multi-geography sourcing programs, particularly in business line-led organizations, will naturally experience greater change challenges, while a single process implementation in an organization run by the corporate center may find that change is a relative piece of cake. The trick is to gauge the organization’s particular change challenges at the program outset, and design the sourcing paradigm accordingly.

How can a buyer master change management?

» Accept the fact that sourcing is synonymous with change, and start at the beginning. By solution design, it’s

generally too late to incorporate the design parameters that harness the way the organization actually changes.

For example, if an organization does best with a big bang sourcing scope because it responds best in situations

where there is no ambiguity about sourcing, it should be recognized on day one and fed into sourcing design.

Conversely, if the organization accepts change more incrementally—a “try and buy” approach, it’s important to

scope a pilot, but make sure it is a department that has strong positive influence upon subsequent candidate.

» Learn “worst practices” from failed change initiative. Most sourcing initiatives pay little heed to the causes of a

failed ERP implementation, or other major change programs that affected a range of stakeholders. Since each

organization has a predictable change curve given its culture, its compact with employees, its power structure

and how it rewards or punishes compliance, learning from history is one of the best ways to avoid the same traps

and harness the best practices.

» Work in concert with other initiatives to eliminate corporate confusion and leverage resources and

opportunities. A sourcing program is generally only one of many business transformation programs going on at

any one time—perhaps a major global expansion, an ERP implementation, or a sourcing program in another

horizontal or business line. Many sourcing change initiatives fail simply because they are not calibrated with

other major corporate transformation programs. Coordinating programs across the enterprise ensures that

priorities are clearly spelled out, deployment dates are not missed, and stakeholders are not barraged with

conflicting messaging forcing them to decide individually which program is most important. Working with other

programs also removes some of the heat of sourcing change, and positions outsourcing as a tool for, rather than

as, a driver of organizational change.

» Approach change management as an ongoing program, not a skirmish with stakeholders that needs to be

quickly put down. Outsourcing change management is perpetual. As a best practice, it starts at the design phase

and continues at a maintenance level in perpetuity. Business is not static; markets change, personnel change,

expectations change, so the outsourcing model must continually adapt. When new team members are brought

in, they must be given an orientation to the scope, structure and purpose of outsourcing. As businesses move

into new markets, new stakeholders must be educated and managed. As business conditions change, scope,

performance levels and expectations may change the form of sourcing.


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» Ensure that the sourcing team has sufficient change management skill. Outsourcing change management is a

contact sport; the sourcing team is the always the first line of change management. They, not a part time internal

subject matter expert or consultant, must deal daily with stakeholder resistance to scope changes, must ensure

staff effect the right level of knowledge transfer, make tweaks to the organization design because of new

information surfacing during transition, or are called on the carpet because a business line complained. Helping

the team by giving them training to detect resistance to change, and managing effectively by attaining both the

so-called empathetic skills and the ability to negotiate a win-win situation should be an imperative.

» Enlist executives as change leaders in addition to their sponsorship role. The executive sponsor should be cast

as not only as communicator-in-chief, but more importantly, as change leader-in-chief. Yet most sourcing

programs proscribe the role of executive sponsors to pronouncements at the right time, interventions with their

leadership team when it’s time to call out recalcitrance, or when the provider needs to be shown who’s the

client. If the executive positions him or herself as the chief change agent, and actively works within the business

to push the case for change, a certain amount of resistance can be eliminated.

» Measure the implications of change management initiatives. One of the reasons sourcing executives shy away

from implementing change management comprehensively is because they have no method to measure its

efficacy. This inability spawns a belief that noise and rejection is naturally part and parcel of any outsourcing

initiative. The benefits of change management can be measured just like any other corporate program—by first

base lining and then structuring the program to track and deliver data which then can be managed and measured

by using the usual tools, including voice of customer surveys. The challenge for most organizations is not

measuring, it’s measuring ‘softer’ data that seems too grey to put into measurement rigor.

» Develop a change approach that works within the corporate context, and document a playbook to ensure that

successful tactics can be applied consistently. The secret about change management is that reactions and

actions are predictable, and it is possible to industrialize strategies, tactics and responses. Yet few organizations

do the spade work to find out how the organization best changes, and tracks the best practices to facilitate the

change within the context of the particular organization. As a result, the same change challenges crop up in

every outsourcing program.

Study implications for providers The provider is a full stakeholder in their buyer’s change management struggle. With customer satisfaction at stake, the ability to meet deployment schedules at risk, “tissue rejection” at transition a real challenge, and ultimately the ability to achieve enought scale to make the the provider’s business case a real concern, the fact is that the provider can no longer afford to sit at the change management sideline.

Most buyers, as confirmed by the survey, do not see providers playing a major role in change management. While buyers understandably perceive that it is their prime responsibility to manage the change to an outsourced model, it may be that buyers do not assume providers can help because they have not convinced them that they have the requisite methodology, expertise or experience.

Why do the majority of providers go to market without adding change management into their sales process or solutions?

There are a range of reasons:

» Lack of understanding of long term implications. Providers intuit that if the client side has “tissue rejection” to

outsourcing, they are hampered in the process. Yet a deeper understanding of the change process—from the


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strategy for and pace of deployment, to the client’s ability to manage internal stakeholders—eludes many on the

sell side.

There seems to be conflict for providers relative to what they sell and what the client’s stakeholders can adopt;

the provider develops a solution which is underpinned by a business case which calibrates scope and timing with

revenue and margin. If the provider does not push that business case, the deal will not be profitable. Adjusting to

the client’s ability to adopt outsourcing gets in the way of the deal at hand even though a smart provider may be

better off in the long run.

» Assumption that the client has all the bases covered. In the sourcing process, buyers often represent to the

provider that they have all their change management resources and methodology lined up. So most providers

take it as gospel that the client knows exactly what he is doing, in part to win the deal, or perhaps because the

provider does not have the experience to read the signs that the client may be ill-prepared for the change

challenges that they will soon face. As a result, the right questions are not asked, and in the heat of pursuit,

change issues are swept under the rug.

» No investment in developing a real change management methodology. As the survey results indicate, the

normative approach to change management is to focus on communications. Many providers construe examples

from other client experiences—templates for communications, task lists, client training course outlines—for

methodologies. So, upon request or as a matter of course, the client is given sanitized versions of announcements

or FAQs which address an immediate need but do not deal with the fundamental issue—how do you get an

organization to adopt and embrace a new way of working when they no longer have control over the process?

» Inability to consult at a sufficiently experienced level. The right support for change management requires a level

of skill that the provider community has not attained in many cases. To gain any level of credibility with the client

requires deep change experience that relatively young professionals with only sell-side experience have not yet

gained. Without an intimate knowledge of client challenges, industry nuances, organizational maturity, how

different cultures react to change, the majority of provider teams come up short when it comes to the ability to

add real value to the change process.

Change management consulting skills require skills that are different to solutioning or process improvement

skills. Good change consultants are not only methodological, but intuitive; good leaders but also good coaches;

know how to communicate but as importantly listen. Change management cannot be reduced to a series of tasks

on a transition spreadsheet. Additionally, since the requisite skills are softer and very nuanced, the forceful

process improvement approach that characterizes a number of provider consultancy approaches does not work.

» Inadequate communications skills. Change management support requires exemplary communication skills—the

ability to “read” a stakeholder situation and respond in a nuanced, not a rote, fashion, often calling up a deep

repository of experience to make a point. Command of language is also critical to communicating change

concepts. Many providers, especially those with an offshore legacy, do not yet have these skilled change

communicators on their team.

» Model which demands fee for service. Fundamentally, outsourcing in its simplest terms is a business model

change. When a buyer and provider enter into a relationship, they are causing change. Yet survey results indicate

that providers expect to be compensated for change management.

Because buyers view tasks integral to transition, providers must find a way to adjust their solutions, transitions and account maintenance methodologies to fully incorporate critical change management tasks at a high level of value at no extra cost. Whether the client is responsible or better positioned to deal with change management makes no difference;


July 2011


providers should ensure that their methodologies at every stage of the sourcing process incorporate those strategies, approaches and techniques which are the clients’ responsibility, taking a leadership role in change management.

At present, few providers aggressively brand themselves as having deep change capability throughout the sourcing lifecycle--during sales, solutions, transition or account management. The big, global firms maintain specialized people and change consultancies which deliver generic, not outsourcing, change management methodologies which are sold as a separate service and not necessarily integrated into the transition program, while a handful of the offshore players are giving lip service to change management competency. Yet there is probably no better approach to a buyer who must make the “fact” of outsourcing work than indicating that the provider understands the change process, knows how and is willing to calibrate transition and delivery strategies at a pace at which stakeholders can adapt, and indicate to the buyer that they have skin in the game.

Perhaps few buyers will allow the provider to take anything near a leadership position in sourcing change management. But whether or not the buyer pulls out a chair at the change table, the provider’s responsibility is to sense how stakeholders are making the change to a new model, advise and warn the client, and suggest tried and tested response models that could change the course of the program. This requires an understanding of the client’s change challenges at a much more comprehensive level, a cohesive approach, and staff with the credibility, communications and consulting skills to earn stakeholder trust.

About the buyer respondents

Respondents across the sourcing leadership spectrum respond

As Exhibit 11 indicates buyer respondents represent the full spectrum of outsourcing responsibility from global services

leader to process leader. The data indicates that respondents have a wide—rather than narrow--purview across the

organization, and suggests that they have broad exposure to the implications of sourcing change management.

Exhibit 11 Enterprise, Functional and Process Leadership Responses

What best characterizes your role in your organization?



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Experienced sample weighs in

Exhibit 12 confirms the authority with which buyer respondents speak. With 56% classifying themselves either leading or

managing sourcing initiatives for over 5 years, with the program deemed to be “business as usual” for over a year,

respondents have experienced first-hand the implications of implementing change management program. Almost 30%

have been implementing outsourcing initiatives for 2-5 years, and have reached the post transaction stage.

Exhibit 12 Degree of experience of the buyer respondents

How much experience do you have implementing large-scale outsourcing initiatives?


Buyer Respondents outsourcing across the horizontal spectrum

The survey focused on horizontal, rather than industry-specific functions, to obtain the widest response. There are no surprises here; respondents are most experienced with functions with the most organizational traction, finance and accounting, IT and customer services (see Exhibit 13).


July 2011


Exhibit 13 Outsourcing across the entire horizontal spectrum

Describe the business functions that you have been most often responsible for sourcing


Participation mirrors industry trends

The industries represented by the buyer responses present no surprises. With 27% of respondents from the banking, financial services and insurance industry, the correlation with those industries that are considered to be early adopters is as expected. Other industries with strong adoption of horizontal functional outsourcing also have strong representation—consumer packaged goods, manufacturing, and life sciences and health (see Exhibit 14).


July 2011


Exhibit 14 Participation mirrors industry trends

Please specify your organization's industry


Revenues indicate big and global

A wide majority of responses come from companies with annual revenues in excess of $3 billion (see Exhibit 15). This suggests that respondents have had to deal with change on a global level, which is by nature most complex.

Exhibit 15 Revenues suggest buyers operate on a global platform

What are your company's annual revenues?



July 2011


About the author

Deborah Kops

With experience as a corporate managing director, consulting partner and provider, Deborah has a unique perspective on the major challenge to outsourcing and shared services implementation—effectively and sustainably changing the way people work in light of the myriad implications of sourcing—new relationships, different cultures, enhanced technologies, different delivery locations, new cost structure, changed workflows, focus on the customer, increased quality, introduction of commercial structures, and other considerations.

As a client, Deborah had end-to-end responsibility for global sourcing implementation at two financial institutions. At a global investment bank, she served as the transformation leader for a market-first global procure-to-pay outsourcing implementation, and set up an enterprise-wide “smartsourcing” initiative. For a top-seven US bank, now part of Bank of America, she managed and sourced administrative processes, increasing customer satisfaction of the all-important retail banking division.

Formerly an executive with one of the largest offshore business process outsourcing (BPO) companies, and a founding partner of PricewaterhouseCoopers’ pioneering outsourcing line of business, Deborah saw the implications of change management issues from the provider perspective first hand. And, as an advisor, she has honed consulting and communication techniques that help clients institutionalize change leadership, working with major corporations in North America, Europe and Asia.

Deborah, a HfS Research Fellow, is a prolific writer who currently writes columns on change management for a range of publications She has presented at industry forums sponsored by such organizations as Deloitte, the Financial Times, Corporate Research Foundation, SSON, Das Shared Services Internationale/Management Circle, The Conference Board, HROA, and Global Services, and has delivered workshops at institutions such as University of Pennsylvania Wharton School of Business, Carnegie-Mellon University, and Lancaster University School of Management.


July 2011


About HfS Research HfS Research (www.HfSResearch.com) is the foremost research analyst firm and social networking community, focused on helping enterprises make complex decisions with their business process operations, IT outsourcing and shared services strategies. It has the largest audience and regular following in today’s global sourcing industry.

With 50,000 subscribers, HfS Research provides the most impactful and frequently-visited global collaborative community platform in the global services industry, providing rapid and insightful commentary, analysis and debate of enterprise outsourcing and shared services dynamics. The organization is unique in the fact that it integrates personable social networking with market research and expert advisory services.

The HfS Research mission is to provide a unique environment for collective research, opinion, experience and knowledge across the global outsourcing industry to help enterprises explore new performance thresholds. Led by industry expert Phil Fersht, the HfS Research team is a multi-disciplinary group of analysts across North America, Europe and Asia/Pacific regions, with deep domain knowledge in business process outsourcing, information technology services and cloud business services.

Launched in 2007, HfS Research's acclaimed blog Horses for Sources has more than 120,000 monthly visitors across the global outsourcing industry, and is widely recognized as the leading destination for collective insight, research and open debate of industry issues and developments. The HfS LinkedIn community, The BPO and Offshoring Best Practices Forum, is thriving with over 12,000 industry professionals sharing views and information daily. You can access information about HfS at HfSResearch.com and on Twitter at www.twitter.com/horses4sources.

To learn more about HfS Research, please email [email protected].

About Sourcing Change Sourcing Change is the first resource specifically designed to support change management for outsourcing and shared services. Sharing insights, tools and solutions, Sourcing Change is designed as a community for all stakeholders grappling with such issues such as change readiness and planning, capabilities requirements, change messaging, and dealing with opposition sourcing. Look through our resources to foster better change. Visit our website at www.sourcingchange.com.

misunderstood and poorly handled: change …...the survey set out to understand, for the first time,...

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