Outsourcing Professional Body of Knowledge - OPBOK Version 10

Outsourcing Professional Body of Knowledge – OPBOK Version 10

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Outsourcing Professional Body of Knowledge (OPBOK) is a Trademark of the International Association of Outsourcing Professionals® (IAOP®)

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Copyright and use statement

The Outsourcing Professional Body of Knowledge (OPBOK) describes the generally accepted set of knowledge and practices applicable to the successful design, implementation, and management of outsourcing contracts. It provides:

■   a framework for understanding what outsourcing is and how it fits within contemporary business operations

■   the knowledge and practice areas generally accepted as critical to outsourcing success

■   a glossary of terms commonly used within the field

This publication is designed to provide accurate and authoritative information about the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal or accounting service. If legal or accounting assistance is required, the services of a competent professional in those fields should be sought.

Copyright © 2010, 2014 International Association of Outsourcing Professionals® (IAOP®)

All Rights Reserved.

The International Association of Outsourcing Professionals (IAOP) is a global membership-based organization shaping the future of outsourcing as a management practice, as a profession, and as an industry. Its members are line and staff, executives and managers, with the vision and expertise it takes to design, implement, and manage tomorrow’s global corporate ecosystem.

This new breed of outsourcing professional enhances the success of the companies they work with and advances their own careers by taking advantage of a wide array of association services including knowledge transfer, networking, research, training, and certification.

Preface and purpose of this guide

The Outsourcing Professional Body of Knowledge (OPBOK) represents a cohesive and comprehensive outline of the commonly accepted practices and skills required to ensure outsourcing success.

This guide does not attempt to capture the entire breadth of knowledge – which exists only within the field’s practitioners and evolves constantly – but to present a guide to the most common and generally accepted principles and practices within an organizational framework that facilitates its sharing and learning.

The first version of the OPBOK was created in 2005 for IAOP members, and the previous Version 9.0 was the first published edition. This current edition is the OPBOK Version 10.0 reflecting the most current industry standards.

On the latter purpose, this guide is the foundation for the International Association of Outsourcing Professionals’ (IAOP) professional certification, the Certified Outsourcing Professional® (COP).

Contributors

A major revision of the Outsourcing Professional Standards (OPS) and Outsourcing Professional Body of Knowledge (OPBOK) cannot be accomplished without the contributions of the field’s practitioners – the outsourcing professionals. Authors reviewed various contributions to IAOP’s Knowledge Center (including Summit presentations) and have included material that was submitted.

We want to acknowledge the leadership of Jag Dalal, COP Chief Advisor, Thought Leadership of IAOP, and the corporate and professional members who contributed in updating this material with their vast experience and knowledge.

Finally, 2007 marked the year when the COP Master Class went global. Since then it has been delivered hundreds of times around the world and the material provided here has been used as the basis for their teaching. This allows the material to take on a practical perspective through the class room discussion.

Encouragement:

A professional organization such as IAOP will grow and prosper when the professionals, such as you, contribute to the knowledge and experience database. IAOP’s Knowledge Center (Firmbuilder.com®) is a fountain of this knowledge and we depend on it to improve and enhance this OPBOK. We encourage you to provide articles and presentations for inclusion and expand our collective knowledge.

Contents

1   Defining and communicating outsourcing as a management practice

1.1   Standards

1.2   What is Outsourcing?

1.3   Why Organizations Outsource

1.4   Outsourcing versus Shared Services

1.5   Creating an overall business model

1.6   Outsourcing versus offshoring

1.7   Overcoming outsourcing’s challenges

1.8   The outsourcing professional

1.9   List of key terms

1.10 List of templates

1.11 Additional references

2   Developing and managing an organization’s end-to-end process for outsourcing

2.1   Standards

2.2   Sourcing alternatives

2.3   The process of outsourcing: stages and components

2.4   The Outsourcing Business Plan

2.5   Organizational capability assessment

2.6   Other feasibility assessments

2.7   List of key terms

2.8   List of templates

2.9   Additional references

3   Integrating outsourcing into an organization’s business strategy and operations

3.1   Standards

3.2   A strategic approach to outsourcing

3.3   Outsourcing Decision Matrix

3.4   Change management process

3.5   Stakeholder analysis

3.6   Communication with stakeholders

3.7   Managing outsourcing risks

3.8   Scoping outsourcing opportunities

3.9   Types of service delivery models

3.10 Prioritizing outsourcing opportunities

3.11 Special considerations: governmental/industry regulations and certifications

3.12 Special considerations: outsourcing at the customer interface

3.13 List of key terms

3.14 List of templates

3.15 Additional references

4   Creating, leading and sustaining high-performance outsourcing project teams

4.1   Standards

4.2   Skills required for the outsourcing project team

4.3   Outsourcing process teams

4.4   Outsourcing project leadership

4.5   Outsourcing project team management

4.6   List of key terms

4.7   List of templates

4.8   Additional references

5   Developing and communicating outsourcing business requirements

5.1   Standards

5.2   Objectives

5.3   Defining requirements

5.4   Baselining current costs

5.5   Defining critical success factors

5.6   Communicating requirements: RFIs, RFQs and RFPs

5.7   The RFP process

5.8   Alternatives to the RFP

5.9   Appropriateness of documents

5.10 List of key terms

5.11 List of templates

5.12 Additional references

6   Selecting outsourcing service providers

6.1   Standards

6.2   Provider selection process: initialization

6.3   Provider selection process

6.4   Identifying potential providers

6.5   Assessing providers

6.6   Scoring and selecting service providers

6.7   Selecting offshore providers

6.8   List of key terms

6.9   List of templates

6.10 Additional references

7   Developing the outsourcing financial case and pricing

7.1   Standards

7.2   Basis for financial analysis

7.3   Capturing current costs

7.4   Pricing and price levels

7.5   Understanding how a provider develops pricing

7.6   Management presentation of baseline and benefits

7.7   Projecting outsourcing’s benefits

7.8   List of key terms

7.9   List of templates

7.10 Additional references

8   Contracting and negotiating for outsourcing

8.1   Standards

8.2   Contracting

8.3   Forms of contract for multi-process; multi-provider services

8.4   Negotiating

8.5   Common areas of negotiation

8.6   Impact of laws on outsourcing agreement

8.7   Recent Trends and Impact on Contracts

8.8   List of key terms

8.9   List of templates

8.10 Additional references

9   Managing the transition to an outsourced environment

9.1   Standards

9.2   Transition management

9.3   Developing and managing the outsourcing transition plan

9.4   Managing outsourcing’s impact on the organization

9.5   Outsourcing communications plans

9.6   Knowledge management

9.7   Considerations for transitioning upon exiting an agreement

9.8   List of key terms

9.9   List of templates

9.10 Additional references

10 Outsourcing governance

10.1   Standards

10.2   Outsourcing governance planning and set-up

10.3   Outsourcing governance: management

10.4   Managing changes in governance - contract change management

10.5   Outsourcing governance: continuous improvement

10.6   Outsourcing governance: renewal and exiting

10.7   Assessing outsourcing process maturity

10.8   List of key terms

10.9   List of templates

10.10 Article on governance

10.11 Additional references

Index of figures

Figure 1.1: Maximize Value while Managing Risk

Figure 1.2: Outsourcing versus Shared Services

Figure 1.3: Decision model

Figure 1.4: Mapping activities: product company

Figure 1.5: Mapping activities: services company

Figure 1.6: Levels of Maturity

Figure 1.7: Outsourcing Professional Job Titles

Figure 1.8: Certified Outsourcing Professional (COP)

Figure 1.9: Outsourcing’s Global Value 34

Figure 2.1: The 5-Stage Outsourcing Process

Figure 2.2: Selected Deliverables and Go/No Go Criteria by Outsourcing Stage

Figure 2.3: Assessing Outsourcing Process Maturity 52

Figure 3.1: Outsourcing Process Framework

Figure 3.2: Top-Down Approach to Integrating Outsourcing into Strategic Planning

Figure 3.3: Business Strategy and Plan Development Framework

Figure 3.4: Outsourcing Decision Matrix

Figure 3.5: Summary of Key ‘Make versus Buy’ Considerations

Figure 3.6: Change Management Cycle

Figure 3.7: Communication Intensity

Figure 3.8: Communication Framework

Figure 3.9: Risk Management Process

Figure 3.10: Selected Sourcing Models 77

Figure 4.1: Team Skill Mix by Phase

Figure 4.2: Key Attributes of Successful and Effective Teams

Figure 4.3: Project Phases and Key Components 95

Figure 5.1: The Outsourcing Relationship Lifecycle

Figure 5.2: CSFs and KPIs for Outsourcing

Figure 5.3: Examples of Exit Costs

Figure 5.4: Appropriateness of Communicating Documents 111

Figure 6.1: Provider Selection Process

Figure 6.2: Due Diligence Framework

Figure 6.3: Scoring and Selecting Potential Providers 119

Figure 7.1: Direct and Indirect Benefits

Figure 7.2: How Activity-Based Costing is Calculated

Figure 7.3: How Pricing Works

Figure 7.4: Provider Pricing Development

Figure 7.5: Economics of Pricing 139

Figure 8.1: Contract Form

Figure 8.2: Top Areas for Negotiation

Figure 8.3: Top Areas of Disputes 153

Figure 9.1: Impact of Transition

Figure 9.2: Transforming the Retained Organization

Figure 9.3: Creating Positive Employee Outcomes

Figure 9.4: Knowledge Management Cycle 173

Figure 10.1: Value Loss from Inadequate Governance

Figure 10.2: Governance Framework

Figure 10.3: Multi-Layer Organizational Links

Figure 10.4: Project Management Office (PMO) Structure

Figure 10.5: Contract Change Management

Figure 10.6: Multi-vendor Governance

Figure 10.7: Sourcing Relationship Value Framework

Figure 10.8: IAOP - Value Health Check Survey

Figure 10.9: Exiting Decision Framework 198

Figure D1: Outsourcing Professional Skills

Figure H1: Governance and ‘Rules of Engagement’

Figure H2: Stages of Growth in Governance

Figure H3: Governance Model

Figure J1: Key Differences in the Scope of OPBOK and eSCM-CL 364

What has changed in Version 10

The following table highlights the major revision sections. In addition to these changes, minor edits were applied to the COP Master Class slides and the OPBOK to make them more consistent in terminology etc. Also, each section has embedded revised standards (as per previously published Version Rev. 9.01). Some of the changes were made to take advantage of a better presentation template (which gave more space for material)

Templates have been reviewed and revised. New templates have also been added for the new sections

Although outsourcing has been a common business practice for only the past two decades, its use has changed how businesses look at managing their functions. It is a new management practice and a profession and has created an economic market estimated at $3 Trillion globally. It provides employment to over 14 million people worldwide and has transformed some of the nations’ economies. Yet, as a profession it is still in a growing stage and management practices are still being defined and deployed.

1.1   Standards

Table 1.1: Standards for defining and communicating outsourcing

1.2   What is Outsourcing?

Outsourcing is a long-term, results-oriented business relationship with a specialized services provider. The services contracted for (including manufacturing services) may encompass a single activity, a set of activities, or an entire end-to-end business process. In most cases, and especially for larger organizations, what’s being outsourced was previously performed by the customer organization for itself and is being transferred to the provider. In other cases, however, these may be activities the customer organization never performed for itself.

The use of the term, ‘long-term’ does not necessarily imply a contract of a fixed length. Although many outsourcing contracts are 5, 10, or even 15 years in duration, others can be cancelled on 30-days notice. What long-term means is that it is the customer’s intention to essentially ‘divest’ itself of the capacity to perform the work itself, choosing instead (some might say choosing strategically) to acquire the services in the future from the marketplace of available providers.

The term ‘results-oriented’ carries specific meaning, as well. It suggests that the service provider is assuming responsibility for the people, processes, and technologies employed along with responsibility for ensuring that those resources deliver the results for which the customer has contracted. Responsibility for the results, not just for the resources, is what differentiates outsourcing from more narrow and more traditional supplier, supplemental staffing, and task-level contracting.

1.2.1   Continuum of Business Relationships

Outsourcing occupies a unique position along the continuum of outside relationships common to the operations of most businesses. These relationships range from the traditional procurement of specific resources to highly collaborative relationships, such as strategic alliances and joint ventures.

The axes of this continuum can be best thought of as ‘ownership’ ‘outsourcing.’

Ownership refers to the level of ownership of the people, processes, and technologies used to do the work that is assumed by the service provider.

Outsourcing refers to engaging a provider to be fully responsible for the effort and be compensated for it on the basis of results.

At the low end of the continuum are traditional supplier relationships. A traditional supplier only can assume the risks associated with ensuring that what the company supplies conforms to the agreed-to requirements. It cannot assume any risk associated with whether the customer achieves its operational outcomes through their use, let alone its sought after business outcomes, since it has not assumed responsibility for the people, processes, and technologies employed.

Outsourcing exists further along this continuum where the provider owns most, if not all, of the people, processes, and technologies needed to deliver the results the customer seeks. The provider now also assumes more of the risk associated with meeting the operational outcomes – service levels, throughputs, quality measures, and the like. Further along the continuum, the organizations take on shared investments and shared risks through a strategic alliances or joint ventures.

Most outsourcing relationships sit in the middle of this continuum. The provider owns most of the people, processes, and technologies needed to do the work and takes on many of the risks associated with achieving the customer’s operational outcomes. In other cases, however, the business relationship may, at its core, be an outsourcing relationship – that is a long-term contract for services – but have elements that reflect aspects of relationships on either side of the continuum.

Where a particular relationship should exist on this continuum depends on various factors including long term and short term expected benefits. For certain offshore related outsourcing activities there may be additional factors such as product and brand positioning in the marketplace, economic and political advantages/disadvantages from the relationship.

Figure 1.1: Maximize Value while Managing Risk

Another way to look at the outsourcing is to recognize that businesses are seeking to maximize value while managing the risks in achieving. This continuum (shown in the figure 1.1) indicates that value and risk are a part of continuum. When a business sees that it achieves greater value than risk, it will have reached a consideration point where outsourcing will be a solution. At the extreme end of this continuum, value is so far greater than risk that A business would view this as a compelling point for outsourcing. Many of the commodity types of processes have reached this stage where value far exceeds risk, due to the experience, environment and expertise of the provider.

This leads to a more practical working definition for outsourcing: When a business believes that managing a function in-house is ‘riskier’ than asking someone to run it for you (who is experienced in that field), the business will consider outsourcing. This definition also helps to explain why some providers experience resistance when proposing an outsourcing solution.

1.2.2   Definitions

Although different marketing terms have been used to describe outsourcing and forms of outsourcing; there are certain industry commonly used terms (also see the appendix B).