Editor’s Note: As we reflect on 2015 with our “best of” series, Ardent Partners would like to invite you to our Procurement 2016: Big Trends and Predictions webinar that we are hosting on Thursday, January 28 at 2 PM EST. This is a fantastic way to prepare for the year ahead. Register here!
Over the past four months, Ardent Partners has presented one Chief Procurement Officer’s insightful and fascinating foray into a procurement outsourcing project that has gone terribly wrong. [Readers can review all eleven articles in the “CPO Serial” series by clicking here.] What started out as a larger corporate initiative to reduce headcount and increase savings and efficiencies devolved into a poorly-executed playbook of what to avoid when planning to outsource your procurement and AP operations.
In the context of a larger initiative that began at the very top, our CPO volunteered to put his operation first in the process and have his department go through a “pilot” process. What followed was a real cluster____ of a process; at times frustrating, at times surprising, but always absolutely maddening. Our CPO should be commended for sharing his story and we are indebted to him for his time, his insights and perspective, but above all for his honesty. I consider it a must-read for any procurement group considering any level of outsourcing. Which brings us to today. Some time has passed and the procurement (and AP) outsourcing operation has reached a steady state. Things continue to improve, slowly and the outsourcing progresses forward across the company. Now, time for reflection – after eleven installments in the series as our CPO shares the first four lessons learned from this outsourcing adventure. Episode 12 of CPO Serial starts now:
CPO Serial: Four Lessons Learned, Our CPO Reflects Part II
Lesson Five – Prioritize Knowledge Transfer: Similar to lesson four in the first article in this series, the CPO and his team learned the hard way the value of proper knowledge transfer between incoming and outgoing business process outsourcing (BPO) providers. Perhaps because they were competitors, the outgoing BPO provider did not voluntarily share with the incoming BPO provider the nuances of certain high-touch transactions and the lessons they had learned. As a result, payments were missed and suppliers aired frustration with the organization. Had the CPO and his team mandated a complete and fully transparent knowledge transfer between incoming and outgoing BPO providers – or had they downloaded all of this knowledge directly and then briefed the incoming BPO provider – they would have saved all parties much confusion and headache. This lesson is also applicable in the more typical scenario where a company is transferring its knowledge to the BPO provider. The competitive nature between the displaced staff and the incoming provider is similar to what happened with our CPO so the leadership must work to ensure that the knowledge transfer is comprehensive and complete.
Lesson Six – Define and Validate Performance Metrics Early in the Process: One of the more frustrating moments in this whole ordeal was the realization by the CPO and his team that the BPO provider could not realize the savings that they had identified and proposed to deliver to the team at the outset. The reason? The BPO provider had identified and estimated these savings using incorrect assumptions and metrics regarding labor categories and costs. Work being performed by the outgoing BPO provider and the procurement organization as a whole was performed by fewer full-time employees (FTEs) who were paid substantially less than what the incoming BPO provider had estimated and applied to the entire organization, which inflated the potential savings opportunity for the enterprise. Had the CPO and his team worked with the BPO provider to define or even validate their performance metrics at the outset, both parties would have understood how to define and measure success, and for the organization, whether the project was worth the time, effort, and cost.
Lesson Seven – Establish Quality Assurance / Control Plan and Team: It’s not just quantity that matters; it’s quality work, as well. Throughout the outsourcing project – from transition to full implementation – the incoming BPO provider stumbled while trying to perform its duties in the accounts payable and shared services functions. But the procurement organization lacked an effective, formalized, and scalable quality assurance and quality control process to support BPO operations in their efforts. Issue resolution was often left to higher-level company employees with little bandwidth to get “down in the weeds” with the BPO. Had a QA/QC team – like an audit or troubleshooting team – been established at the outset to be a resource for the BPO provider, it could have saved the BPO, procurement organization, executive team, and supplier base much time, effort, and headache taking it on their own.
Lesson Eight – Develop and Communicate a Change Management/Stakeholder Engagement Plan: One final lesson to be learned from this ordeal is the value of an effective change management strategy that is appropriately communicated to all relevant stakeholders throughout the value chain. In this case, the procurement organization decided early on not to inform their supplier base that they were switching BPO providers and scaling up their BPO operations out of concern that they would be violating non-disclosure agreements (NDAs). NDA concerns aside, it would have been helpful to all parties had the organization informed their supplier base of the coming changes; that way, the suppliers would have had fair warning, and could have helped the incoming BPO provider and the organization better manage change at the tactical level. More broadly, communicating change to relevant stakeholders and winning their buy-in earlier in the process helps to make them partners in change, rather than targets – perceived or otherwise. The earlier that stakeholders are brought into the plan, the more value and assistance they can bring to the table.
Hindsight is 20/20, and few projects are implemented without encountering any sudden, unexpected complications. But it is our hope that these lessons presented today and last week and over the course of Season One of CPO Serial will help procurement professionals considering or preparing to implement a procurement outsourcing project take the good from the bad and avoid the pitfalls that this CPO and his team encountered. Stay tuned for my final thoughts on this series, coming soon.