Transition Management

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Transition Management in BPO and outsourcing Projects
Transition Management is one of the most important roles in any organization involved in outsourcing or off-shoring. A Transition Manager is responsible for migrating the function or the process from the donor location or organization to the outsourcing organization. Because of the nature of the role, a Transition Manager needs to have a variety of skills and competencies - she needs to be a good communicator, as the role requires extensive interaction with the clients; needs to have strong Project Management skills, as most migrations are complex projects that require expert management skills; she needs to be comfortable in working in a cross-cultural environment, as most often, the donor teams are based overseas; needs to have a very good understanding of the existing processes and technologies as these play a critical role in the off-shorability of any function. Besides managing the day to day affairs of a migration, transition Management is also about change management. A Transition Manager is the face of Outsourcing to many people. To be successful, the manager needs to facilitate the changes that outsourcing brings about - by ensuring that the migrations are done in an effective manner, and by demonstrating the transformational power of outsourcing. The primary rationale to outsource or off-shore any function is to benefit from the resultant cost reduction. The role of Transition Management begins as soon as any company begins to consider outsourcing. Initially, the Transition manager is generally involved in creating the financial case for the project, and enabling the decision to outsource. While the cost reductions obtained, and the return on investment or payback period differ from case to case, it is generally accepted that outsourcing results in cost reduction of 20-50%. Returns on any outsourcing initiative can be maximized by ensuring that it is done as part of an overall strategy; there is adequate investment in the project and is implemented well.

Migration Procedures of Transition Management
A migration project can be very intricate because it always include teams based in different parts of the world, requires extensive partnering, and often there is significant emotion involved. This complexity makes extensive planning very important. This planning is the first task in Transition Management. Typically, a large migration may take 30 ± 40 weeks to execute. The life cycle of the project would include the following broad steps: 1. Create vision and strategy - One of the most critical tasks, and one that is often overlooked is to establish an end-state vision regarding outsourcing. This should be followed up with a clear strategy to achieve that vision. Very often, in a rush to catch the Outsourcing bus, or due to inadequate understanding of outsourcing and divergent interests within the organization, processes that are outsourced are generally the easiest to do away with, rather than most appropriate from a business point of view. When senior management is engaged in defining the outsourcing vision and strategy, it helps in two ways: it allows the business leaders to consider outsourcing in relation to the organization as whole, rather than small, disparate processes; and it also ensures that there is a clear buy-in of the senior management towards the outsourcing efforts. Both these factors are critical to ensure success.

2. Assess the current state - Once a clear strategy and sponsorship for outsourcing is established, its time to dive into the nitty-gritty's of the task. To assess the current state and determine the 'outsourceability' of any task, data needs to be collected on several parameters around the function like frequency of task performed, key dependencies on other teams, systems used, legal considerations and nature of task - process oriented or analytical. Once this data is obtained, all roles within a process can be evaluated on various parameters, or Outsourcing filters to determine what can be outsourced, and what should not be. These parameters should include considerations around the following: y y y y y y y Strategic importance of the function Complexity of the function Risk related to outsourcing of the function Employee impact of the function Future changes in the function, like significant system change Customer interaction and impact Level of business understanding, or domain knowledge needed. Evaluating all the functions on the above criterion will provide objective data for the management to make decisions on the functions and processes to be outsourced.

3. Design the future state - this stage involves envisioning the shape and form that the new team would take, how it would work and interact with other teams. Two aspects need to be worked on when designing the future state of the process. y Organization structure - the organization structure at the donor location and at the receptor location needs to be designed. While the easiest way would be to replicate the org structure at the donor location, it may not be the best way. Outsourcing presents a unique opportunity to set right the aberrations that might have crept into the org structure. Also, many times the structure and nomenclature at the outsourcing company will be different than at the donor location.

In-fact, in several outsourcing contracts, changing the span of control and corrections in the profiling of new teams has also resulted in cost saves. y Determining the operating model - An operating model delves into the nitty-gritty¶s of the service that the offshore team would provide. It contains details of how the performance of the team would be measured and assessed, agreements over timelines on output of the team, escalation procedures in case of disputes or issues, details of the shift timing that the team would work, etc.

A detailed and well thought out operating model addresses several issues and problem points that the team may face as they begin their task. By enabling a structured and quick resolution to such teething problems, this document goes a long way in ensuring quicker maturity of the new team.

The Operating model is often confused with the Service Level Agreement (SLA). But there's a significant difference - the SLA is primarily a legal document, and is therefore a high-level document with a focus that is different that that of the operating model. The operating model is a much more detailed document, and aims at laying down the service expectations for the offshore and the donor teams. 4. Implement, monitor and follow up - this stage involved executing the migration. The transition manager may be required to play different roles in this stage. If the migration involves a completely new set-up or a first time contract, the manager would have to play a larger role, to facilitate partnering and understanding between the donor location and the outsourcing company. For projects that build on existing mature relationships, the role of a transition manger is more consultative in nature.

There are several methodologies and tools available for managing the implementation of the project. The selection of methodology and tools would vary depending on the size and complexity of the migration. For migrations that are small and uncomplicated, tools based on Microsoft Project or Excel can be adequate. For more complex projects Six Sigma, PMI and RPPS are some of the popular methodologies in use. Effective execution would requires extensive monitoring and partnering with others. The key challenge is to co-ordinate between various groups like facilities and infrastructure, technology, HR, legal, donor teams and the offshore team, and ensure that each is performing the task assigned to them. Measurement tools like Project scorecards and regular status update meetings help drive the project forward.

Migration Methodologies of Transition Management
One the decisions that the Transition Manager needs to make in devising the migration strategy is weather the process needs to be re-engineered before it is migrated, or afterwards. This decision depends on the complexity of the process, and the extent of change the process is undergoing. For example, if the systems used in the existing process are changing, and that would result in changes in the way the function is performed, migrating the function in its present state would not be useful. Generally, 2 common methodologies are followed in migrating a function - 'Pick-and-drop', and 'reengineer and migrate'.

1. Pick-and-drop - This is the most common methodology used. When the process is mature, the 'Pick and drop' approach is used for migrating. Under this, the process is migrated on an 'as is' basis. This approach has some clear advantages: y y y 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

2. Re-engineer and migrate - this approach is 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.

Key focus Areas of Transition Management
When implementing the project, the Transition Manager may be required to play various roles - she may be required to help in the hiring process, in testing of technology build, or in creation of detailed training documentation. In such a situation, it is easy to lose sight of those areas that contribute significantly towards making the project a success. Some such key focus areas are:

1. Effective framework for tracking project progress - A migration project typically involves working with various teams representing different areas. For example, the transition manager has to deal with the legal teams to execute the Service Level Agreement (SLA), technology teams, donor teams, HR, new hires that will pick up the process, facilities and infrastructure team, etc. To monitor the progress of all these teams, an effective framework is required. Thus, the transition manager should develop a detailed project plan and scorecard to monitor progress and flag issues as they arise.

2. Focus on training - Training is the most critical piece of the migration process. When adequate time and effort is not spent on training the new team and developing detailed procedures and flowcharts, the process takes much longer to mature with the new team.

To ensure that adequate importance is given to training, there is a need to create a separate, day-to-day training plan. A comprehensive training program also includes on-job training and adequate parallel processing time. Besides this, the task of training should be given to employees who are expert in the process, and also have good communication skills - often, training may be conducted by an qualified trainer who facilitates the process, while experts in the process contribute. Training also requires close monitoring and frequent assessment.

3. Watch out for Compliance related issues - Most functions involve clearances from compliance agencies before they can be off-shored. These clearances vary in degree and complexity depending on the function. For example, moving a call centre offshore would require basic sign-off from the Company's legal department, while off-shoring functions that provide access to Private Banking data would require a nod from various central banks and monitoring agencies.

A Transition Manager should spend time understanding these requirements, and begin working on these upfront, to avoid potential delays at a later stage. Some of the compliance related points that the Transition manager would have to work on include: y Ensuring compliance with the Company's internal compliance policies.


Understanding the role that external agencies would play in the off-shoring process (For example, clearances need to obtained from the central bank in various countries, before any banking role can be off-shored). Understand the role that external agencies would play in the country where the off-shore team would be located. For example, in India, to set up a call centre permissions from the telecom authorities and the Software Technology Parks authority is required. Understand the implications that off-shoring would have on Sarbanes Oxley compliance for the Company. 4. Develop an operating model see above.



5. Develop a measurement framework - Its important to measure the performance of the new constantly. A comprehensive performance measurement enables assessment of the teams performance on objective, measurable criterion.

Metrics serve another important function: they take the emotion related to outsourcing out of any discussion by focusing on the facts.

6. Partnering with various groups - An outsourcing project requires inputs and efforts of various teams. And the project runs as effectively as the partnering between these teams. While each of these teams have a defined role in the project, the Transition Manager has to ensure that the partnering between them is effective. This requires effective monitoring, developing a relationship with each team, and escalating issues when required.

Transition Management - Traps to watch out for
Most of the issues with sub-par or failed outsourcing endeavors can be attributed to a few pitfalls. These can be avoided if the Transition Manager constantly re-focuses attention of all involved towards these. 1. Inadequate investment and sponsorship - Most sub-par outsourcing contracts are a result of not having adequate buy-in or engagement from the senior management. When this is the case, Outsourcing is done not within the context of a well thought out strategy, but as a means to achieve short term cost saves by middle managers. This prevents an organization to extract optimal value from its partnership with the outsourcing company, or to utilize outsourcing transformational potential.

Such unsuccessful outsourcing attempts build further resistance and an opinion in the business managers that 'it doesn't work', and prevents future outsourcing attempts.

2. Outsourcing only the routine or the mundane - Most of the companies make the mistake of the outsourcing only the routine or mundane tasks. While this may be good for a start when the company is

testing the waters and getting familiar with the vendor, mundane tasks drive the attrition rates in the offshore teams through the roof. Thus, as a part of the outsourcing strategy, the company must also look at outsourcing higher-value functions to the team. Not only will it result in increased cost saves per FTE, it will also enable better utilization of the knowledge base developed by the offshore team and reduce attrition. 3. Cutting corners in training - Often, business managers and donor teams don't want to make the extra time from their day-to-day responsibilities to create extensive procedure documents, flowcharts and other training aides. Also, there is a tendency to conduct training in the shortest possible time, and it focuses on the process (the 'how' of the task) alone, not the rationale (the 'why' of the task). Because the entire offshore team would comprise of employees that are not only new to the culture of the organization, but also to the systems and the process, significant time and effort needs to be spent training them before they can be expected to perform the task themselves.

One good example of training that doesn't work is remote training. With real time file-sharing, screensharing technologies and video conferencing it is now possible to train a large team in Bangalore from New York. However, the Transition Manager should be careful in evaluating what training can be done remotely, and what cannot. When processes are simple, remote training may work well (Eg: training for Call Centers). However, complex processes would require a mix of in-person and remote training (Eg: training for Financial Reporting).

4. Unclear roles and responsibilities - When the roles and responsibilities of every team that is involved are not clearly defined; there is a increased risk of things falling through the cracks. Clarity of roles and responsibilities to the lowest detail possible would enable fixing or clear accountability and ownership of the process.

5. Not retaining the experts - even when the new team is up and running, there is a need to retain some Subject Matter Experts (SME) in the process, to help them tackle complex or infrequently occurring issues. SMEs are needed to provide expert guidance while the team gains the necessary knowledge and sense of the process that comes from experience. SME also play the important role to monitor the team performance and identify issues as they arise. In many cases, SMEs are also assigned strategic reengineering tasks that could not be done earlier due to lack of time.

Measuring the outcome of Transition Management - Metrics
Generally, by the time any organization begins to realize the benefits from outsourcing, the Transition manager may no longer be involved. However, it is important to create a measurement framework that enables assessment of the offshore team.

When measuring the performance of an off-shore team, an effective framework revolves around the following parameters: 1. Financial benefit - it is important to quantify the real cost of the function before off-shoring (baseline costs), and also to measure the cost of the off-shore 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.

2. Performance of the team - While financial considerations are the key measure of success of the outsourcing project, it is also important to measure the on-going performance of the team. Though this is primarily done by developing performance metrics, from time to time it is also important to measure the changes in the risk environment and controls in the process. This enables identification and fixing of risks that may have crept into the process due to outsourcing (example: - Business Continuity risks change if a team is moved to another location)

The Transition Manager plays a key role in the success of any outsourcing venture. The role requires a person to wear many different hats - Project Manager, Change Agent, Strategist, effective partner and master organizer. And its not always plain sailing - since the Transition Manager is the face of outsourcing, she may have to bear the brunt of emotionally charged reactions and situations which may arise because many impacted people cannot easily accept the changes that outsourcing brings. All of this can be very challenging, but the joy of creating something tangible, and being on the forefront of change in any organization leaves a satisfying taste in the mouth when you end the day.

Transition management is a service usually offered by sell side institutions to help buy side firms transition a portfolio of securities. Various events including acquisitions and management changes can cause the need for a portfolio to be transitioned. A typical example would be a mutual fund has decided to merge two funds into one larger fund. In doing this, large quantities of securities will need to be bought and sold. Another frequent occurrence is a firm wanting to liquidate a large portfolio. The process of doing this can be very expensive. The costs include commissions, market impact, bid-offer spreads, and opportunity costs. A firm seeking to transition a portfolio will often look for an outside firm to perform the transition. Transition managers are generally able to transition the portfolio at a lower cost than what a firm could do internally. Companies offering transition management can also add value by helping plan the transition, managing risk during the transition, and generating reports after the transition. Such companies are often referred to as Transition companies. Transition managers have a number of methods to help transition a portfolio. Usually they are directly connected to multiple markets or liquidity centers. They can execute orders using algorithmic trading, and thereby minimize market impact. Since they may be transitioning

several different portfolios they can cross orders, reducing commission and exchange fees. Additionally, they may have specialist traders who handle illiquid securities. A fiduciary-friendly recent trend has been to remove all conflicts of interest associated with transition management by "unbundling" advice from execution through the use of a transition or brokerage consultant. In this way, the adviser's sole possible interest is improving performance and lowering execution costs, rather than having a trader and adviser under the same roof. Ten Pitfalls in Outsourcing Transitions
There¶s no shortage of methodologies and advisories on best practices and risk mitigation strategies for the transition phase of outsourcing relationships. Even so, many buyers encounter situations they didn¶t foresee when structuring their arrangement, which cause costs to rise and delay time to value. Outsourcing Center studied these types of situations by surveying companies nominated for the 2011 Outsourcing Excellence Awards program and found the following 10 pitfalls.

1. What you don¶t know will cost you
The Center asked the surveyed buyers this question: ³There is a well-known saying that what you don¶t know will cost you. Please describe something your company didn¶t know at the outset of the outsourcing relationship, which ended up costing you and led to a change in the outsourcing arrangement.´ The situations they described covered the gamut from technology issues to human behavior to lack of knowledge as well as operational structures that were too tight or too loose.

2. Technology connectivity
Challenges arose in the provider¶s ability to establish timely connectivity to all of its customers¶ necessary systems because they were not aware of the various groups and business processes that governed connectivity. Remedying this situation involved forming a dedicated connectivity team with both business and network members. The team then built relationships within the customer¶s technology group, seeking to understand the ownership and flow of information and also to help work through the issues more quickly.

3. Aggressive go-live date
Two different relationships faced the same challenge of having to extend their original planned go-live date, but the causes of the problems differed. In one, the service provider encountered difficulty in recruiting the right talent in a remote area in the short transition time frame. In the other case, the buyer was transitioning from an incumbent provider to a new provider, but the bureaucracy and contractual negotiations in ending the prior relationship delayed the planned transition time line. In both cases, the aggressive ramp-up was necessary to achieve the desired time to value. Both buyers also had to spend time with their management teams and other stakeholders to lessen the potential negative impression and increased costs from having to extend the go-live date.

4. Service level agreement
In a relationship delivering IT services to the customer¶s 25+ facilities, the customer made the mistake of including all the facilities in the metrics for downtime. The situations they encountered as a result of these problematic service level measurements led to a contract renegotiation. As the customer stated, ³Even if the downtime SLA is 99.9, it leaves a lot of wiggle room when you take that across all the facilities.´ The renegotiated arrangement now measures the downtime/uptime percentage per facility.

5. Total cost of ownership
A customer shared that, shortly after the outsourcing relationship was established, her company launched an initiative to determine its total cost of ownership (TCO) of various business processes. But the company was unable to determine TCO for the processes in its outsourcing scope because it lacked transparency into the service provider¶s underlying enabling IT costs that were variable rather than fixed costs. When they renewed the contract, they renegotiated the pricing arrangement to ensure cost component transparency. This ultimately also enabled the customer to understand whether it was getting the most value for the price at both a service line and transaction level.

6. Software licensing
Unexpected software licensing costs during the transition phase hit a company outsourcing several IT components. The transition involved moving from a standard database to a real application clustering database model (a cluster of servers to eliminate hardware downtime). The licensing cost structured across the CPUs was different than the buyer anticipated. It also encountered another issue around the server license component of a security product. Root-cause analysis found that these added-cost issues were due to a lack of communication. In some cases, the buyer assumed costs rather than communicating with the provider to determine if its assumption was correct. In other cases, the provider¶s communication to the buyer was inaccurate because of ineffective communication among the different divisions of the provider¶s business.

7. Managing the relationship
Several buyers reported they incurred extra costs because they entered into the outsourcing relationship with the wrong mindset. As one buyer stated to Outsourcing Center, ³There¶s a lot of difference between working with an outsourcer and working with a team of people who are subordinate to you.´ Not understanding that change up front, the buyers had to go through a learning process ± and often relationship struggles as well as delayed time to value ± to understand how to manage the relationship and the outcomes.

8. Learning curve
Multiple buyers stated their costs increased because the learning curve was more difficult and took longer than they had anticipated. In some cases, the learning curve was for the provider¶s team to learn the buyer¶s business and its IT systems; in other cases, it was for the buyer¶s end users to learn new systems and procedures. In either case, both parties had to step in and ³save´ the other by making sure they operated the processes and technology correctly and fixed the errors. Both parties lost money because the time to value was extended significantly.

9. Offshore readiness
It¶s not uncommon for buyers and providers to find out ± when in the midst of the transition phase ± that a specific component of an entire process scope is not ready for offshoring or, in some cases, is prohibited from being sent offshore. One buyer shared with Outsourcing Center that it encountered issues with the security controls of certain applications that were in the outsourced scope, and those controls prevented managing those applications from offshore locations. The costs in this case included suspending the transition midway through it and working together to redeploy teams and applications.

10. Communication around quality
The transition phase of an outsourcing relationship often erupts in ³noise´ from the customer¶s end users around dissatisfaction with the quality of services. Often, an analysis finds that the source of the problem is the buyer¶s lack of effective communication around quality expectations and needs. At other times, the buyer has no one in house with the in-depth knowledge to effectively oversee the quality of the provider¶s work. There are also cases where the

buyer begins the relationship with a light approach to governance and more of an ad hoc style of communication, which can lead to ineffective communication around specific needs and expectations. In one of the relationships Outsourcing Center studied, the buyer ended up with unexpected costs around not only resolving the quality issues but also investing in ³a few experts´ who would be liaisons between the buyer¶s users and the provider¶s service team. Heeding these insights shared by the surveyed buyers will help both customers and service providers avoid unbudgeted costs and delayed time to value. Additional tips on avoiding pitfalls in the transition phase are described in Outsourcing Center¶s free white papers: Best Practices for Risk Mitigation in Outsourcing Transitions (2010) and Haste Makes Waste: How to Avoid Outsourcing Problems (2003).

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