CIO Tips

Eight Phases of Successful Outsourcing (Part 1 of 2)

By CIO-Office

We have identified eight phases of outsourcing activity required for a successful outsource of services. 

This article covers phases one to four, with phases five to eight to follow in the next post.

Phase 1 – Define scope and Target Operating Model

It is important to bring together all key stakeholder feedback and involve them in the creation of the Target Operating Model (TOM) and gain agreement on the governance model to ensure a successful project delivery.

A key deliverable at this stage is the financial and business benefits case, along with clear success criteria. Something that should not be overlooked is the cost to transition, ensure your business case has factored in the cost of change.

Determine the required deal structure to ensure alignment with business benefits and establish a high-level implementation road map, with all key stakeholders understanding how they will help make the project a success.

Phase 2 – Sourcing Strategy

Document your requirements, including an assessment of Make vs Buy and the different outsourcing options available. Start a pre-market engagement exercise to understand the market capability and select the appropriately qualified suppliers to assess during your selection process.

Have clear assessment criteria and perform supplier due diligence, ensuring throughout this process your Critical Success Factors (CSFs) are understood and suppliers assessed against them.

Clearly document the evaluation criteria, Non-Functional and Functional Requirements along with any commercial and any specific regulatory requirements are known and understood.

Phase 3 – Negotiation

When moving from phase two, shortlisting one or more partners to start contractual discussions, it is important to ensure all decisions made are auditable and that you focus your negotiations on key points that are important to you (including your Critical Success Factors).

Prior to the negotiation it is good practice to set out your ‘asks’ including must haves and red lines along with what would be your least acceptable position and gain internal signoff on your negotiation plan.

Having an evaluation team with the appropriate skills should not be underestimated, the recommendation from this team is going to shape the future of the service and your organisation for potentially years to come. Ensure your team are experienced and qualified to make the assessment, having a mix of technical and end customers is usually a good thing. Once in place trust them to do their role, with peer challenge along the way to ensure different points of view are considered.

Phase 4 – Business Case Sign Off

Once you have selected your preferred supplier, it is important to establish a ‘Deal Team’ with one goal – Getting the deal across the line. Ensuring all details are captured to build the final risk assessed business case covering both the financial and performance aspects, to demonstrate how your recommendation will support the business objectives of your organisation.

At this stage you should only be finalising the contracts e.g. service descriptions, SLAs, KPIs and pricing model to include fixed charges, service charges (fixed and variable), transition charges, implementation charges, exit charges and project rate card.

Consideration of the next phase should commence with an impact analysis in preparation for the transition activities (phase 5) – Note in some cases this could lead to a formal engagement with unions.

Part 2 will look at phases five to eight (Transition to Renewal/Re-tender) and the key activities required.

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