Market & Sourcing

Managing transition and transformation in IT sourcing

by Thomas Hauzenberger

Most IT organisations misjudge their own involvement in the transition and transformation (T&T) in IT sourcing. The customer's resources play a decisive role in the success or failure of the partnership. How do you get the client and provider to negotiate the services provided on an equal footing and manage a smooth transition?


IT outsourcing has recorded strong growth in recent years; according to Statista, the overall market in Europe is growing by around ten per cent annually. Companies hope: IT will become faster, more innovative and cheaper. This is certainly feasible - if you can manage your organisation well, through the sourcing lifecycle. However, many customers focus primarily on negotiating prices and contracts (transaction) and then sit back during the technical and organisational changeover in the transition and transformation phase (T&T) - despite the fact that a long-term partnership is threatened by many challenges.

Take customer involvement as an example: most companies are not prepared for the extent and requirements of services they have to provide during T&T. If internal resources which are necessary, are not available, the joint journey starts with the handbrake on; when delays occur in the further course of T&T, the culprit is quickly identified. In the early stages, suppliers therefore try to impose obligations on the customer which they cannot meet and which put them under pressure. This is an advantage they can exploit throughout the sourcing relationship, especially in the form of additional costs.

Mechanisms to protect the client

It is therefore important to develop mechanisms to protect the client when drafting the contract - for example, to formulate exactly what the client needs to provide in order to minimise the scope for interpretation. This can be done by systematically asking vendors how many resources the client will need to provide at different stages of the transition, and with what skills or roles. This also allows the client to estimate the investment they will need to make in the course of T&T, more accurately.



Cultural differences between suppliers

There are also differences between providers when it comes to estimating the customer's contribution, presumably due to different attitudes and corporate cultures. For example, North American IT service providers tend to involve the customer heavily from a contractual perspective, in the T&T work and to phrase this in positive terms. Indian providers, on the other hand, sometimes take the opposite approach by setting a relatively low level of expected customer involvement. Both approaches have implications for the T&T phase.

Overestimation: If the requirements are not managed actively in the transaction phase or are not presented in an understandable way (graphically), customers do not have enough resources available to fulfil their obligations. The blame for delays therefore lies with them.

Underestimation: Here too, the customer is not prepared for reality. They may blame the provider for giving incorrect information, but he will still miss his target: to get the service at a certain time with good quality and without side effects. The transition is generally perceived as "not successfully completed", and despite the "culprit", a shadow hangs over the outsourcing partnership.

Actively manage the T&T phase!

A goal for clients must therefore be to manage the assumptions for the T&T phase, actively - before the contract is signed. This is the only way to determine who will deliver what and when, and how the customer's additional work will be charged against the transition fee. In this context, the resource curves for both phases (transition and transformation) should also be aligned. This is because tight schedules are usually designed which are reminiscent of a Gaussian distribution. The belly in the middle, where the customer has to work on both T&T phases at the same time, can push IT organisations to their limits. It is important to consider postponing the transformation phase to a quieter time. After all, the old adage applies to the IT organisation: transaction, transition and transformation should be invisible.



Conclusion: Especially in 2nd generation outsourcing deals, many customers believe they can sit back in T&T while the vendors pass the ball to each other. This is a fallacy, as providers have conflicting interests. Customers who do not manage the sourcing phases actively in their own interests will quickly find themselves caught between the two sides.

Thomas Hauzenberger

Thomas Hauzenberger

Thomas Hauzenberger has been leading major transition and transformation (T&T) projects in IT sourcing for over 25 years - because he loves it. His insight: the shirt-sleeved approach leads straight to a dead end. That's why he focuses on a standardised procedure.