The written or charted schedule also helps in coordinating the steps with the service contractor who, of course, must agree with the plan and cooperate to make it successful. There should be some guidelines about the termination steps in the contract, but they are never enough to be a working schedule at the time of the transition. Hopefully, the contract will set an elapsed period for the termination process that is ample enough to make it a smooth transition. If not specified in the contract, the pricing of the services in the termination period must be negotiated as one of the early steps.
RENEWING A CONTRACT
Long before the contract termination date, the computer services manager and others should be evaluating whether some other vendor might do the work better, whether the client has come to believe that it can do the outsourced work more advantageously in-house, or whether the contract should be renewed. If the decision is to renew, then the client should analyze in what ways the arrangement could be improved and whether a more advantageous price could be obtained, and begin to negotiate a revised contract — hopefully to the benefit of both the service firm and the client. The new contract should also reflect the many circumstances that undoubtedly have changed since the original contract was written, such as new technology used by the vendor and new products, customer groups, or geographical territories for the client.
SOURCES OF GUIDANCE AND SUPPORT
The operation and managing of an outsourcing or other downsizing program are matters in which it is helpful to talk with others who have been or are managing similar plans for their organizations. Informal meetings with peers in other such organizations about common problems can be a source of ideas and a feeling of support. There is considerable literature on these subjects; one thorough and pertinent source is Winning the Outsourcing Game: Making the Best Deals and Making Them Work by Janet Butler (Auerbach Publications, 2000).
Many organizations do buy, for a fee, the advice of experts who have experience in managing outsourcing and downsizing programs. These sources include the Outsourcing Institute and a variety of consulting firms.
The Outsourcing Institute
The Outsourcing Institute Inc. (www.outsourcing.com) is a for-profit membership group to which both outsourcing users and vendors belong. Membership is free.
Consultants
Consultants, especially consulting arms of large public accounting firms, have been engaged to advise and counsel on whether and what to contract out, vendors to select, and how to negotiate and manage outsourced work. Firms like Anderson and PricewaterhouseCoopers provide such advisory assistance, though their fees range from $250 per hour to much higher.
The leading consulting associations can also refer inquiries to members, who can provide outsourcing vendor advisory serv ices. These include:
§ Institute of Management Consultants (IMC): www.imcusa.com
§ The Association of Management Consulting Firms (ACME): www.amcf.org
§ Independent Computer Consultants Association (ICCA): www.ica.org Consultants’
capabilities can also be researched through the Internet via
Management Consultant Network International, Inc. (MCNI), reached via www.mcninet.com.
CASE EXAMPLE: SEA-LAND SERVICE
As reported in the November 1993 issue of Personnel Journal, Sea-Land Service, a major cargo-shipping company based in New Jersey, in 1989 determined that its modest profits were due to excess staffing that had developed over the years. To overcome its inefficiency, the company decided, after careful planning, to redefine all jobs by analyzing what functions and how many people were really necessary for operating the business. By comparing the skills and abilities of its employees with its analytically determined staff guidelines, from CEO on down, the company was able to reduce its employee number by 800, or 15 percent. The restructuring of its organization eliminated five levels in its organizational hierarchy. These downsizing changes enabled the company to reduce operating expenses by $300 million and increase revenues 30 percent to $3.3 billion and increase profits by 35 percent to $151 million. All this improvement took place during a period of intense competition in this global industry.
The plan was designed to be as fair as possible by giving employees reasonable choices, with those choices being voluntary. Employees whose new positions would be two or more levels lower, or who lived over 50 miles from work, were offered severance packages and outplacement services. Those who turned down the severance arrangement would be helped in relocating within the company, though doing so made them forfeit the severance benefits. In the end, no one was laid off without benefits.
RECOMMENDED COURSE OF ACTION
The following points are highlights of the actions a computer operations manager should take to oversee and manage the work of outsourcing service vendors:
§ Establish a relationship of cooperative partnership with the outsourcing vendor.
§ When obstacles and conflicts occur, resolve them rather than fight about them.
§ Even though there is trust and respect between client and vendor, monitor performance and demand results that were contracted.
§ Select and rely on a strong liaison representation to coordinate relations with the contracting services vendor.
§ Make careful and detailed plans for the steps to transfer the work to the outsourcing vendor and, at termination, to transfer the work to another vendor or in-house.
§ Make parallel runs, if possible, with each change.
§ Explain the downsizing reasons to employees — clearly, openly, and promptly
— and reinforce those explanations regularly.
§ Keep current copies of computer data and software in-house.
Chapter 30: Outsourcing as a Means of
Improving Process Maturity: An Approach
for More Rapidly Moving up the Capability
Maturity Model
Brian Keane
OVERVIEW
Because it can take years to progress to higher levels within the Capability Maturity Model (CMM), many organizations are outsourcing. Outsourcing is an approach for improving productivity and lowering costs by contracting the support or development of one or more software applications to a software services firm. Productivity and quality objectives can be aligned with the CMM and structured into an outsourcing contract.
Software services providers can be significantly effective in assisting the move up the CMM. This effectiveness is gained through the tight management controls, formal processes, and constant measurements that are the hallmarks of organizations high in CMM. IS managers can use outsourcing as a means for obtaining and implementing “best-in-class” processes in their organizations.
Most IS organizations are level 1 organizations — far from the level of flexibility required for today’
s competitive business environment. Even with the CMM providing guidelines for process improvements, lower-level organizations find it difficult to implement new processes and advance from their current level. Process reengineering of any kind is undoubtedly challenging, and in an IS organization it can be even more difficult. In fact, it can take years to progress from one level of maturity to the next, and the move from level 1 to level 2 requires the most commitment, effort, and expertise.
Outsourcing is a viable method for introducing and more quickly institutionalizing new processes within an IS organization. This section of the chapter provides background on outsourcing and discusses how outsourcing can be used to accelerate the implementation of process improvements. The discussion focuses on application outsourcing — contracting a software services firm to manage and be accountable for one or more software applications — as an example of the processes and methods that are available to IS organizations. In this presentation, highlights from the methodology of Keane for application management are included to illustrate the environment and processes required to move up the CMM.
A Note on Terminology Outsourcing is a term used to describe the contractual transfer of an internal corporate function to an external service provider. Typical IS
functions that may be outsourced include data center operations, help desk operations, new application development projects, and maintenance and support for applications. The term outsourcing is reserved for situations where the service provider supplies its processes and takes direct responsibility for the daily operations of specific portions of the IS requirements of a corporation according to a predefined
level of service. This mixture of processes, expertise, and accountability is the foundation for the major benefits that can be gained from outsourcing. In this chapter, supplemental staffing is not considered a form of outsourcing.
OUTSOURCING AND THE CMM
When measured on the CMM scale of maturity, the best outsourcers rank quite high.
While a consulting company may be successful in an occasional outsourcing engagement through excellent staffing, it cannot provide reliable and predictable levels of service, quality, and profitability across multiple projects without a well-managed set of outsourcing processes documented in a methodology. Highly experienced outsourcers develop a set of world-class processes that they customize and apply to each of their projects. The experience of the outsourcer over many projects allows it to select and combine the best and most effective practices from many organizations. These procedures are documented within the methodolo gy of the outsourcer and are used to train its staff. Since outsourcers tightly manage their projects, process usage is enforced. By using the same processes from project to project, the outsourcer is able to shift its consultants as needed between projects.