Managing your outsourcing options

It’s no coincidence that the rate of success in outsourcing contracts matches the roughly 50 per cent failure rate of North American marriages. Both are relationships typically entered into with idealistic expectations and then often not as carefully nurtured as they should be. Significantly, both types of relationships require all parties to possess strong communication skills from the beginning to the end.

Surely lessons can be learned from the minority of successful relationships. A shining example is the human resources (HR) business process outsourcing (BPO) agreement between the Canadian Imperial Bank of Commerce (CIBC) and professional services firm EDS.

Now in its fourth year, it appears to be one of the most mature and successful HR outsourcing projects in North America. CIBC reports that its goals being realized include capital cost avoidance, cost predictability, risk mitigation and improved HR productivity. CIBC has moved from 30 HR systems in 1999 comprising 330 processes and more than 1,000 procedures with about 100 HR interfaces to a single integrated Web-based HR environment implemented and managed by EDS. The original $227 million seven-year deal was expanded last fall to a $300 million deal over 10 years.

Hugh MacDonald, CIBC’s vice-president of HR operations and knowledge management, freely admits that “providing services to almost 50,000 employees and retirees and executing scores of projects each year means that there are continual opportunities for misunderstanding, conflict and communication problems between the [bank’s] management team and EDS’ business process management team.” CIBC and EDS have never had to resort to the formal dispute resolution processes documented in the HR BPO agreement, so obviously the relationship is strong and effective. Typical of most outsourcing deals, when it was first signed in March 2001, it brought with it job offers from EDS to about 200 employees at CIBC.

While MacDonald recalls “there was energy, enthusiasm and excitement about moving over to EDS,” he quickly adds that they managed the change very carefully. “Obviously the people were supporting CIBC employees in the past and they would be supporting CIBC employees at EDS in the future and clearly we wanted to make sure it was a delightful, positive experience, going from CIBC to EDS. We had a lot of town hall meetings, one-on-one meetings, project meetings where they could get weekly updates.

“We ensured that the job offers from EDS to move over were very attractive — at least as good if not better as their working conditions at CIBC. We even did things like making sure the average commute time between the employees and their CIBC location was as good as or better at EDS. EDS brought brand new equipment and designed it in their new state-of-the-art facility purpose-built around providing HR services.”

Staff affected by any outsourcing deal could have reason to be alarmed. Clearly an outsourcer will not maintain every transferred IT staff job over the long term if it is not cost-effective to do so. Hopefully eventual lay-offs are based on performance rather than pure numbers, although one industry watcher suggests that is not always the case.

Because of potentially upsetting productive and essential employees, management tends to a ‘better if we don’t say anything’ approach. “It amounts to the absence of communication,” worries Lars Hansen, vice-president, technology communications at Canadian public relations firm National. “A company should communicate out front with their employees and let them know what they are trying to do.

“Change usually creates uncertainty,” he continues. “If you’re going to deal with that effectively, you need to strategically plan how you’re going to communicate that environment. A vacuum will be filled by rumour and by gossip. You have to think more proactively about what you’re going to say and how you can be somewhat disclosing.”

Closing the rumour mill

Hansen says some organizations wisely announce to their staff their decision to outsource and why, stressing what the commitment is to employees in the middle of that situation. “They pointedly address the notion that ‘we’re going to look for a type of deal that fits a certain criteria’ and then they share that criteria. If you’re listening to that as an employee, you at least have a degree of certainty that a: there is a plan in place and b: that the organization is taking time to share that plan as best they can under the circumstances of negotiation.”

He points out that the focus when many of these deals are being negotiated is on the legal agreement, the SLA terms and the teams associated with that. He argues that creating a legal document is “abundantly important work, but it has nothing to do with answering questions that people may have.”

National offers Transcom, a portfolio of communication strategies for a company’s many groups of internal and external stakeholders, and the media. The PR firm stresses the need to view outsourcing as a people issue, not just as a business and organizational concern.

Get your communications plan in order early when the negotiating begins, Hansen counsels. “Communication has the most positive impact when it tends to be proactive as opposed to reactive. The human equation can be too often a reactive afterthought. Not properly dealt with, it can threaten the success, efficiency and productivity of the deal and the point of doing it in the first place. The first order of business is to make sure you have a clear and consistent message going out to the whole organization.”

Chris Lord, senior vice-president for financial services in Canada at EDS, sees the merit of planning your communication in advance, including being prepared to deal with a leak of the news of an outsourcing agreement. Still, as the vendor, he finds companies need to be prepared for the typical surprised reaction of a new outsourcing customer’s staff.

“Our focus at the town hall event needs to be on every single individual as being unique,” he says. “How do we ensure that as the information is shared that their world has been outsourced that that person feels valued, respected and that it turns into the best thing that has happened to them in a long time? We create individual offer letters, custom packages, town hall meetings, one-on-one meetings with managers very quickly in the process. We create a custom Web site for every single significant transaction that we do so individuals and their families have Internet access to discover EDS very quickly and to learn about the transaction, the transition, the process, how important their role is in the success of this project and that their career opportunities have been enhanced.

“The people providing the services today are going to continue to provide outstanding performance in the future, just under a different service provider,” Lord points out. “We want to augment their skill and give them tools to be successful.” That assumes the skills are there, of course, and that the employee will adjust well from a low profile support role to a front line revenue generating role. And, just as that under-the-gun pressure hits home, the challenge of implementing change begins.

The challenge of change

“A contract maybe 300 or 1,000 pages long implemented by 500 people across various groups who had nothing to do with its making — it is easy to see how there can be confusion over the first year or two or however long it takes to sort all those details out,” Hansen speculates. CIBC created the Alliance Management Team, a full-time unit of twelve employees, to manage the EDS relationship and provide governance support and liaison services. This executive team meets weekly with EDS counterparts to review the previous week, upcoming events, significant challenges and the like.

“That allows us to quickly get the feedback that we need to be successful,” says Lord. “Business results, services, services level, financial implications — both positive and negative — are reviewed. Any broader relationship issues, challenges, opportunities get identified.” MacDonald says CIBC learned from previous joint outsourcing ventures that it is important to have as a governance model full-time dedicated people.

Still, by the third anniversary of the CIBC/EDS deal, a few of the original players had been replaced with new people who had not participated in the initial team-forming process. The upcoming anniversary was used to prompt a two-day off-site group session with the CIBC team and their counterparts at EDS. Facilitated by relationship expert and author Greg Hicks, they worked at reaching higher levels of performance through improved communication.

“Specifically it was about the need to communicate intention,” MacDonald explains. “Too often with these deals where you have a vendor and supplier communicating over a wide range of complex issues, you just communicate information without ever explaining why or the intention behind what you’re trying to do. We discovered jointly the power of making those intentions more explicit, transparent and clear. As a result of understanding your partner’s or your supplier’s or the vendor’s intentions, it allows you to be more helpful, quickly get to the meat of an issue and avoid conflict.”

Lord believes that the relationship that gets established through the pre-contract discovery process sets the tone for the success of the relationship long term. “The process of exploring the cultures, the alignment, the human aspects of how the service provider provides for other customers, how they treat their employees, how they focus on the customer service excellence — that discovery process is something that happens informally. The people at one point are sitting across the table in negotiations. Through that discovery process of getting to know each other organizationally and our personal skills as well, that table kind of becomes a round circle. Now both parties are aligned to ‘what are we trying to do’ regarding organizational principles, business principles, client focus — both our client, the bank, and their customer, the end user.”

Finally, then, it is establishing and maintaining that alignment which should never be taken for granted — in any relationship.

— Maclean, freelance writer/editor, covers a wide range of IT applications. She is based in Guelph, Ont. and can be reached at

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