In outsourcing, your approach to the management of how your deal is going to change is possibly the most important thread that runs through your contract. After all, the contract you strike is the only reference point that ultimately counts when you turn an in-house function to an outsourced one.
Change management should not then be relegated to mere ‘tick-box, paper control system’ – it should be a philosophy, a core commandment of outsourcing. Put simply, deal with change or lose your deal.
The building blocks to change management are everywhere in your contract, from basing your pricing structure on a predictable unit price basis to creating service descriptions and service levels that focus on what you want your service provider to do, rather than how you want them to do it. This is so that if there is a change in underlying processes or technologies, this does not trigger additional costs for you.
The goal is to eliminate as many ‘free radicals’ (the areas of your deal that might have an unpredictable outcome) as possible by pre-agreeing as much of the outcome up-front.
Of course, there is a balance to be struck here to ensure that you do not lock down so much that your deal becomes unwieldy or, at worst, very expensive as you try to treat your service provider like an insurance carrier.
The old maxim that ‘risk must follow control’ is as true here as anywhere.
By taking this approach you are effectively narrowing the factors that could cause arguments and threaten the relationship with your service provider. Once you have minimised this list then your change process can step you through the analysis, quantification and qualification of any change.
It is then a secondary step to wrap a workable change control process around this framework. The purpose of this process is to put in place structures about how you analyse and agree changes that have not already been dealt with.
The critical issue to bear in mind is that the change control process will still end up as an ‘agreement to agree’ – which is why it is the last jigsaw piece, not the whole puzzle. You already have a lot of information that will provide the building blocks to predict outcomes. Through the negotiation process you will have discussed different eventualities, tested many scenarios and know where a lot of the boundaries are. So write them down. What is the point of spending all those hours in negotiations discussing the supplier’s potential response if you do not capture this in the contract?
Your scenarios can provide a baseline for those areas that are truly important to you and where you will want to apply most rigour and resources to identify the impact and outcome of potential changes. They are a good source of identifying potential thresholds that set a standard to judge what constitutes a change – and in doing so you have removed a lot of things you never need to bother about.
In effect, you are creating a filtration system to weed out those events that do not constitute a change and those events that do but which have an automatic adjustment mechanism in the contract and require no further analysis.
What you will then be left to deal with are the true ‘free radicals’ that need more scrutiny and, ultimately, an agreement with your service provider on how to deal with them. With a good process, this list should be quite small.
Change management has to be more than just an internal governance process. Structuring a powerful regime in your deal is all about taking a holistic view – focusing on the potentially large or significant moving parts, buttoning-down as much scope as you can up front and writing it down.
After all, change is an inevitability which impacts everything that purports to be frozen in time in your contract. Don’t think you can say to a supplier ‘let’s agree it all later because we’re all reasonable people at the end of the day’.
When it comes down to pounds and pence, you want to be able to challenge the status quo by uttering those two magic words: ‘prove it’ – and having a contract that backs you up.
The old maxim that ‘risk must follow control’ is as true here as anywhere
– Andrew Giverin, associate, Latham & Watkins