Software OutsourcingFriday, May 13, 2005
Cyndi Joiner had been responsible for GMAC’s Corporate Real Estate and Facilities Management group for three months when she faced a major challenge: The large support operation appeared to be at a crossroads. The division needed to cut costs, manage suppliers’ performance better, and clean up the chaos engendered by a lack of internal controls, standards, and up-to-date technology.
Joiner presented top management with three options: continue the present course, reengineer the division, or outsource the entire operation. Management selected “Door No. 3,” Joiner says, primarily to reduce head count and improve processes quickly. But Joiner got more than she bargained for: GMAC executives were so excited by outsourcing’s potential cost savings and apparent ease of execution that they decided to shrink the standard timeline. Whereas many firms would have allotted more than six months to complete an initiative of this magnitude, GMAC executives asked Joiner to do it in six weeks.
In spite of notable obstacles, Joiner met the challenge. In doing so, she and GMAC learned valuable lessons about launching an outsourcing initiative.
The decision to outsourceCompanies outsource noncore business functions to third-party providers for various reasons: to reduce head count, to cut expenses, and to improve service. In GMAC’s case, the company believed it could not only trim personnel and other costs during a tough economic time but also might better fulfill its core purpose: ensuring that customers have a positive home-ownership experience. That meant focusing more on selling mortgages and properties. Thus, the real estate and facilities-management arm of the business became an ideal candidate for outsourcing. “The talent pool in our core competencies,” Joiner says, “was much greater than in this other function. We needed a deeper ‘bench’ in facilities management, and outsourcing would let us get that.”
Selecting an outsourcing partner As a first step in selecting an outsourcing partner, Joiner recommends canvassing your industry to come up with a handful of candidates. GMAC hired a consulting firm to handle the search, owing to the accelerated timetable. The consultants served as advisers on several levels:
Suggesting potential partners Helping GMAC develop a picture of what the new organization should look like after the software outsourcing was complete Offering recommendations for defining the partnerships Assisting GMAC in interviewing potential partners’ former and current customers Then look at each company’s standing in the industry, its flexibility, and its track record with firms similar to yours. “Look for companies that make a good cultural match with your own,” she adds. “Find out what you can about their portfolio of talent. Make sure they’re willing to explain the reasons behind both their successes and failures.” Savings and speed In proposing an outsourcing initiative to senior executives, managers need to do more than just stress the potential cost savings. Why? “Savings come in three forms,” Joiner says. “Immediate dollars on the P&L, eventual improvements in processes, and avoidance of costs. You won’t see all the savings show up immediately on your P&L, and some of them will always be hard to quantify.”
Moreover, overemphasizing the financial benefits of software outsourcing can cause firms to set too short a timetable. A rapid execution has pros and cons. As Joiner discovered, speed enables a company to get through the most painful part of the change process quickly and minimizes friction created by resisters. It also forces people to adapt quickly. As Joiner puts it, “You can’t know till you jump in the middle that you don’t know how to swim. But you learn how—really fast.”
On the other hand, speedy implementation can deprive the organization and third-party provider of that all-important “courting” stage before the “marriage.” Joiner is hard-pressed to say whether she would aim again for a six-week implementation. In some ways, “six weeks felt too short,” she says. “We were trying for too much radical change at one time.” Joiner speculates that it may have been better if the process had unfolded in stages rather than all at once; for example, facilities management first, then lease administration, and finally property management. Still, she concludes, “As the owner of an initiative, I’ll take all my pain in six weeks rather than have it drawn out over a longer period.”
Getting past culture shockGMAC’s software outsourcing initiative reduced staff by 85 percent in the company’s real estate and facilities-management function and saved $6.74 million in the first year. “No doubt, the staff reduction was painful,” says Joiner, “not only for those who left but for those who remained.”
The staff who found the layoffs the most difficult were often from other parts of the firm and hadn’t known the affected workers well. In contrast, teammates of the laid-off workers were more aware of the division’s lack of “bench strength,” and they presented Joiner with an opportunity to manage the staff reduction’s impact on morale. “This is all about change management,” she says. “As fast as possible, you have to mesh the newly shaped organization with the old assets still at hand. If you immediately make the survivors see the benefits of the change and the reasons behind it, they’ll become champions of the effort.”
Joiner also advises constant communication with both the workforce and upper management about the program’s goal and every aspect of its implementation. “Tell everyone about what’s going well—and what isn’t going well. Own up to your mistakes and missteps,” she urges.
Communication helps to combat the human tendency to blame outsiders for our own problems, Joiner says. At GMAC, this tendency was exacerbated by the unpleasant experiences many employees had had with previous outsourcing efforts. But no outsourcing initiative can work, Joiner says, unless the company as a whole accepts the third-party provider’s role.
To deflect unwarranted blame away from GMAC’s providers, Joiner continually communicated her own role in the new initiative through as many channels—and to as many recipients—as possible. When functional managers complained about being asked to take on budget accountability for expenses that used to show up in the corporate income statement, Joiner made sure to point out that it was she who had initiated the chargebacks.
In communicating about software outsourcing initiative, patience is as vital as consistency. “The real benefits of outsourcing take time,” Joiner says. “And before they kick in, things are going to get painful, ugly, and chaotic.” Though it’s easy to generate a “big bang” early in the execution of the initiative, “enduring change is harder and takes longer. People need to understand that.”
Finally, Joiner recommends involving “power users” from the outset in outsourcing-implementation decisions. For example, the regional managers of the more than 300 leased properties owned by GMAC’s retail organization were hugely affected by the initiative and had valuable input into its implementation. Though the speed of the effort’s execution prevented Joiner from gathering these managers’ input before the program rolled into action, she made sure to incorporate changes based on their insights during the execution phase.
Coalitions and championsJoiner’s handling of regional managers, employees, and top executives shows the importance of building supportive coalitions. You also need a strong executive champion, she says. To cultivate champions, Joiner suggests meeting with key people frequently; telling them about “the good, the bad, and the ugly”; and laying out the short- and long-term benefits and costs of the program.
“And even after you’ve ‘sold’ the idea of the outsourcing, keep going back to touch base. Let your champions know that you’re still there and still very involved.”
As Joiner’s experience shows, outsourcing requires top-notch change-management skills as well as the ability to select the right partners and build positive, enduring relationships with them. Managers who are charged with the software outsourcing effort will increasingly need to hone their awareness of these complex challenges. Understanding that outsourcing is a journey, not a one-time event with an instant payoff, is an important first step
By: Lauren Keller Johnson Source:[hbswk.hbs.edu]