Successful Transition in Outsourcing

Successful transition in outsourcing

By Morten Kamp Andersen (Aspector) & Peter Ankerstjerne (ISS A/S)

This White Paper shows how job transition impacts productivity, job satisfaction and customer satisfaction, and how a robust transition management plan can alleviate some of the negative consequences that such a transition may cause.

A job transition is a big and very personal event for the employees involved, and the process must be managed effectively, professionally and, above all, with deep respect for the individuals involved.

Table of Contents

Executive Summary

This White Paper shows how job transition impacts productivity, job satisfaction and customer satisfaction, and how a robust transition management plan can alleviate some of the negative consequences that such a transition may cause. A job transition is a big and very personal event for the employees involved, and the process must be managed effectively, professionally and, above all, with great people skills.

During job transitions employees go though four psychological phases that affect how they feel and how they approach the outsourcing situation. And they go though the phases at different speeds. Some will find themselves quickly embracing the new job situation and see the road ahead as a positive challenge. Others will be stuck in a depressive and reactive mood and see the new conditions as a threat.

All stakeholders (customer, employees and service provider) benefit from a world-class transition management process. Good transition management will help the employees pass safely and quickly through the four phases, whereas poor or nonexistent management will do the opposite. A successful transition process can take productivity and job satisfaction to a higher level than prior to the outsourcing process.

Our research, which includes interviews with recently outsourced employees, concludes that there are 10 best practice activities that any robust transition plan should include. On the face of it, these 10 steps are easy to implement, but they require a strong commitment from both the customer and the service provider as well as a set of good transition management skills. The 10 best practice transition activities fall into four categories: project planning; communication; psychology (or people management); and job design.

Introduction

Work is an important part of our identity as human beings. Major changes to our working conditions are therefore a change to our self-understanding. Work is also a place where we look to fulfil some of our most fundamental needs such as the needs for income, socialisation, recognition and more. It should not therefore come as a surprise that any change in our work – or merely the suggestion of a change – will impact us in a significant way.

Outsourcing is often associated with changes to several aspects of work. Firstly, it is common for the service provider to take on employees from the client. That means that many workers experience a change in employer, which in itself is a significant change. A second change may be in the working conditions themselves. Examples may include pay and benefits, which might be changed, an increase in job scope, or new ways of working.

The process of transferring employees from one company to another during outsourcing is often referred to as a transition process. A transition process ultimately has three goals. The first is to ensure a smooth transfer of responsibility so that the client does not experience any disruptions to the service. The second is to handle the people side of the transition in such a way that the employees are treated fairly and with respect. The third is to design the jobs to optimise working efficiency. Research shows that most transitions fail to meet all three goals simultaneously.

Change projects affect important psychological emotions in a negative way. These include anxiety, frustration, resistance, motivation, sense of well-being, and loyalty towards the organisation. Research into transition management shows that the results are similar in job transition situations.

The many benefits of a successful transition are both tangible and financial benefits for the client as well as for the service provider. Research suggests higher job satisfaction, lower employee turnover and lower absenteeism as the most significant benefits, but case studies also point to better customer service as a potential benefit. By building on the experience and knowledge of transition psychology and best practice from service providers and clients, we can understand and handle the natural (and often predictable) reactions of employees.

This White Paper will answer two key questions. Firstly, what reactions can we expect from employees during outsourcing? Secondly, what transition management steps can ensure a successful outsourcing process?

The psychological effects of a job transition

To understand the reactions of employees during a job transition and thereby plan a successful transition management programme, we need to understand the psychological effects of such a change.

There are two important things to know about transition management:

During transitions people go though four phases that affect how they feel and how they approach the outsourcing situation. And they go though these phases at different speeds. Some will find themselves quickly embracing the new situation and see the road ahead as a positive challenge. Others will be stuck in an introspective and reactive mood and see the new conditions as a threat.

The reactions are 90% about the process and 10% about the change itself. At its core transition management is about managing a change well. Research shows that it is rarely the outsourcing itself that is the issue when things go wrong. Although many employees have a negative association with outsourcing when first confronted with the term, however this rarely stands in the way of the process. The problems are most often related to how the process is handled. This is down to leadership and transition management from both the customer and the service provider.

There are some common traps along the way in getting through the four phases. It is the job of the transition team/manager to be aware of these traps so that the faster and more skilfully the transition team/manager can navigate through the phases, and in so doing avoiding the traps, the better the overall transition will be.

Figure 1: The transition phases

Source: Aspector

Phase 1: Shock and disbelief

When an employee is faced with the news that his/her employer wants to outsource, the first reaction is usually shock, often followed by a sense of disbelief. How big the shock is depends on a number of variables such as whether the news was or could have been anticipated. If the company has already outsourced many other divisions or if their financial results are quite poor, employees may anticipate the decision to outsource. Other variables that affect the level of shock are the perception of the consequences of outsourcing, attitude towards the service provider, the general job market in the local area, how the news is delivered, the perceived job threat, and many more.

The long list of variables also explains why employees display such a range of reactions to this initial news. Some are deeply shocked, visibly shaken by the news, and unable to work for the rest of the day or week, while others continue working as if nothing has happened. Generally, however, managers tend to underestimate the level of shock that employees experience.

Phase 2: Resistance and frustration

Once the initial shock fades, the employee will evaluate the situation and ask the question: “How will this affect me?”. Most employees will display some level of resistance towards the outsourcing process. This is not because they are bad employees or because they will be in a worse situation than before. It is because this is a human reaction. We humans prefer status quo even if the promised future is better than where we are right now. We tend to stick with what we know. A common reaction from managers is to use rational arguments and try to convince employees that things will be better. But this only works to a limited extent. The manger must also deal with the emotional side because the real issue here is that people are afraid.

This fear will lead to resistance to change, which can take many different forms. The most visible is active and open resistance, where the employees may protest loudly at meetings or directly confront the manager or representatives of the service provider.

However, the transition manager must be aware that there are many other more subtle forms of resistance. Examples include sabotage, forming coalitions, isolation, having little energy, not showing up for meetings, deliberately doing a bad job, talking badly of the outsourcing with the client, etc. This may also be a time when some employees feel depressed and alone, and possibly take more sick-days.

Table 1: Forms of resistance to change

Phase 3: Transformation

At some point the employee will experience a transformation towards the change involving a shift in perspective from looking at the past and wanting to stick with the status quo to looking towards the future and the possibilities. This is principally a cognitive and internal transformation where the employee discovers that “this may not be such a bad thing after all”.

The manager can support the employee in several ways during this phase. At this point the employee is more open to listening to some of the possibilities that the change may bring. The manager can emphasise the general advantages of outsourcing such as becoming part of a company whose core competencies are the same as the employee’s, better training opportunities, better use of skills, personal development within the new organisation, etc. This may also be the best time to conduct a one-on-one meeting to discuss the design of the new job as well as listening to any issues or suggestions that the employee may have regarding the future.

Phase 4: Embrace and try

Finally, the employee will embrace the new situation with renewed energy and desire. He/she will no longer mentally be stuck in the past, but instead see the present and the future as realistic and desirable. In practice, this means that the employee no longer wishes that the outsourcing had never taken place or hopes that the decision will be reversed.

The manager’s role during this stage must be a subtle one. This is not a good time for micro-management and killing initiatives, but instead it is important to let the employee use his/her energy to try out new things and see that the new environment is bringing with it new opportunities. If the fragile hope of a better future is brutally met by unnecessary micro-management, the employee is likely to go back one or two phases.

The connection between transition stages and productivity

The transition process will impact productivity, job satisfaction and customer satisfaction. All three variables depend on how the employees feel about their work, and some level of disruption is inevitable.

The connection between the four transition phases and productivity is illustrated in the figure below. The shock phase will bring some initial volatile change in productivity as the employees get to grips with facts. During the resistance phase, productivity will be greatly impacted; how much will depend on the level of overall resistance and which employee groups display the resistance. The low point occurs just prior to the transformation, and once the employees embrace the new situation, productivity and job satisfaction will increase dramatically.

Notice that a successful transition process can take productivity and job satisfaction to a higher level than prior to the outsourcing process.

Figure 2: Transition phases and the impact on productivity

Productivity/ job-satisfaction

Source: Aspector

Best practice in transition management in outsourcing

We have identified 10 best practice elements that will make a significant contribution to a successful transition. The 10 best practice elements will work across industries and countries but need to be adjusted to the individual context. Our best practice elements are based upon four sources: interviews with a number of ISS employees who had recently been through a transitions process; existing public case studies; existing research; and our own experience.

The people we interviewed were from four different countries (Denmark, Finland, Singapore and Australia). They represented a broad range of different age groups and job functions within the blue-collar facility management industry and were chosen randomly within randomly chosen contracts in pre-specified countries. The interviews, which lasted an average of 1 hour and 12 minutes, were all conducted with people who has now been transferred to ISS.

Interestingly, despite the fact that the interviewees spoke different languages, had been through different transitions, worked in different types of organisation and had different jobs, the interviews showed a remarkably high number of similarities. This suggests that many reactions to outsourcing come down to some basic human traits.

The 10 best practice elements, which are listed in no particular order, are as follows:

1. Follow a clear and robust transition process

The transition process must be planned well in advance of the opening initiatives. The transition phase itself – i.e. when the employees are notified and transferred from one employer to another – normally starts about three months prior to the official handover. Prior to the transition of employees, the customer organisation will have worked through a planning phase . Michael Corbett (2004) suggests that the timeline for preparing employees for change and assisting them through the process begins about 12 months before the official handover and runs through to about 12 months afterwards. This is illustrated in the figure below.

Figure 3: Transition process

The entire process consists of several phases with many projects. Research show that if this is not carefully planned in advance using a tested and robust transition process such as the one outlined above, critical elements will not receive the proper attention or will be completely overlooked.

Our interviews identified several examples where the customer – especially the HR department – lost all interest in the outsourced employees several months before the official handover. This left the employees in disarray, not knowing which organisation they belonged to and feeling unwanted. An important point is that a successful transition is the combined and successful effort of both the customer organisation and the service provider, and that only through a planned, aligned and combined effort will the transition be successful.

2. The first meeting is very important

The importance of the first meeting cannot and should not be underestimated. This is the meeting where the employees are told that their jobs will be outsourced. As mentioned above, all employees are initially likely to experience shock and a feeling of disbelief. The first meeting is decisive for the level of shock that the employees will feel, and indeed how the transition process will succeed going forward.

In many cases this meeting takes place before a vendor has been selected, and consequently it is handled by the customer itself. In other cases the meeting is held after the provider has been selected. In one instance the customer decided to let their employees know by means of a letter, but not everybody received the letter and the service provider ended up being the one to break the news. Unsurprisingly, this was not well received by the employees. Regardless of whether the first meeting is held before a vendor has been selected or not, a few things are important regarding the first meeting. Firstly, the CEO or another high-ranking representative of the customer should be present and explain the rationale for the outsourcing decision. This type of information must not come from middle management.

A second point relates to the content of the meeting. At the first meeting, the employees are only concerned about things that matter to them and their job. For them this is a very personal thing. They will therefore have question such as: What does this mean for me? Specifically, they often want answers to questions such as: Will I lose my job? Will I face a reduction in pay? Will I lose any of my benefits? Will I have to do a different type of job? Will I have to travel further to my workplace? The first meeting must address these questions.

The meeting should be all about announcing the initiative, answering as many of the above questions as possible, and explaining the process ahead in simple terms. Details should be left for a follow-up meeting that can be held a few days later. An in-depth introduction to the service provider – if one has been identified – should also be left until later.

3. Communicate, communicate, communicate

It is often said that there are three things that are important in a successful transition: communication, communication and communication. Our interviews suggest that this is indeed true. Communication was highlighted in all our interviews either as the element that made the whole thing a success or the element that caused the most grief and upset.

Three rules should be followed regarding communication; it must be honest, plentiful and meaningful (Corbett, 2004). Honest communication about the process and the likely implications such as headcount reductions, changes in job content and alterations in pay and benefits is essential. Some managers cannot be honest with their employees because they do not know what is going to happen themselves. If that is the case, the managers must communicate this to their employees because otherwise they will assume that their managers are withholding information from them. Likewise, giving false assurance is not a good idea.

The communication must be plentiful. If the communication space is not filled with deliberate, optimistic and honest communication from the leadership and management team, then it will be filled by rumours, gossip and speculation from a disgruntled group of employees. People need to find meaning in their job, and they will look for any explanation – even if it is both unlikely and negative. Rumours can impact all levels of the organisation, causing fear and apprehension and leading to lower productivity and job satisfaction. Other functions that could be outsourced will start to wonder if they are next, and rumours are likely to persist in those departments if communication is not addressed at them. The transition team must consider the full range of communication channels: letters, e-mails, meetings, posters, company newsletters, etc.

Finally, the communication must be meaningful and situation-relevant. Whenever the leadership and management team communicate something, it should be followed up with a “and here’s what we’re going to do about it”. During the initial phase, the employees are only interested in communication that relates to their specific personal situation. Issues relating to their department and company will be more meaningful to them later on.

It often comes as a surprise to managers that people do not hear what is being communicated or hear different things. We interviewed people who had attended the same meeting but had heard and experienced different things. One said that nothing was said and that the lack of information and ability to answer questions had upset him, whereas another felt that the level of information was adequate and correct. This was because one could immediately see that the change had very little impact on his job, whereas the other was still looking for a clear answer to fundamental questions. Understanding what people are concerned about makes it possible to understand whether they have heard the message or not.

The communication coming from the customer and the service provider must be aligned. It is important to manage the communication between the two parties because any differences will be interpreted with suspicion and anger. The responsibility for communication gradually shifts to the new employer after the initial meeting when the vendor has been announced, but employees will pay close attention to subtle information from the customer until long after the official handover.

4. The social aspect matters

The outsourcing process has consequences beyond the actual job for most employees. Many of the people we have examined in our surveys and the case studies have pointed to social networks and benefits as important concerns during the transition process. These concerns are related either to the loss of access to social settings in the company or changes in their relationships with old colleagues.

Many organisations offer benefits that also serve as opportunities for social networking. Examples include a gym, arts club, travel club, etc. Other opportunities for social networking within the customer organisation include the canteen, smoking areas and, importantly, the Christmas party. Once the department has been outsourced, it is common for the outsourced employees to no longer have access to these opportunities and networks, and while many countries have employment laws that ensure monetary compensation for any loss of such benefits, the loss of social networks can be significant and difficult to replace.

Another aspect relates to the attitude towards the outsourced employees. Research has shown that once the outsourced employees become an external support function, previous colleagues change their attitude towards them. There are many reasons for this change: change of union membership, cutbacks in service levels as part of savings, new uniforms, and different company image. Outsourced employees say that the customer’s employees start to blame their department for things that they previously blamed on the customer’s leadership team.

The transition team should consider how the social aspects can be best handled in advance of the actual transition. It may be that the outsourced employees should be allowed access to the gym and clubs following the handover. The transition team could also conduct a workshop where the outsourced employees are helped though the expected changes in important social relationships.

5. Identify key people and concentrate efforts on them

It is important to retain and keep most employees happy during the transition process. A few, however, are crucial to the success of the entire project. As part of the planning stage, the transition team should therefore identify key people and concentrate special efforts on making sure they are happy with the process.

There are three types of key people that it is important to identify:

• People with important knowledge
• People with formal power
• People with informal power

The number of key people that should be identified varies depending on the type of contract and the situation. A rule-of-thumb figure often given in research is 20%, but in site-specific, knowledge-heavy contexts the figure might exceed 50%.

In some outsourcing situations the service delivery is based upon knowledge of the customer domain. This is particularly true for site-based services and, even more so, services that are highly technical. In these situations the success of the entire contract may depend on retaining a few key people.

The key people should be identified before the actual transition phase begins. However, it is common that some of the key people with informal power and/or heavy social influence can only be identified after the announcement has been made. In one of our interviews the transition manager gave us an example where a person with social influence was identified though observing that many colleagues spoke to him about their feelings on the outsourcing process and that he was able to reassure them. In this case, the person with informal power had a positive influence on the process, but in many cases people with informal power may exert a negative influence.

6. Increase in job scope must be handled especially carefully

The service provider will sometimes try to negotiate expansion of some of the job roles so that the outsourced employees have to take on more tasks or work in teams. This is done in order to increase flexibility and cut costs.

Research shows that multi-skilling – as this job expansion process is often referred to – is generally an effective way to design jobs in outsourcing as it improves flexibility and quality of work as well as increasing job satisfaction through better use of skills, better training and higher job status. In other words, it has the potential to be of benefit to the service provider as well as the employee.

All the people we interviewed were asked to take on new tasks as part of the outsourcing process, which for the most part meant that they had to perform jobs they had never done before. They all said that they were happy with this new job role now, but a few said that the process had been difficult. This supports research on multi-skilling, which shows that it can significantly enhance productivity and job satisfaction if handled well but, if not handled well, will actually lead to lower productivity and higher employee turnover. The transition team must consider prior to the transition phase which jobs will be expanded and subsequently design a process to implement this. Surveys show that a high degree of employee involvement in this process correlates with a high success rate.

7. Bridge the culture gap between the employees and the service provider

The facility management division of the company is likely to have a significantly different culture to the customer organisation. While the outsourced department may not mirror the entire culture of the customer, evidence suggests that the overlap is significant.

It has been documented over the years that a successful relationship between the customer and the service provider hinges on how similar their cultures are. If the culture gap is too wide, the service provider does not fit into the customer’s environment and the customer cannot work with the service provider. Indeed, surveys in the US suggest that over 50% of firms believe that cultural fit is a key criterion in the selection of vendors.

The effect on employees during a transition between two companies has not received much attention in research and surveys. However, some evidence suggests that a ‘culture shock’ can greatly affect the execution of the outsourcing contract. The service provider should therefore assess the culture of the outsourced department(s) and perform a cultural risk assessment. It may be that the transition period should be extended if the culture gap is wide and shortened if it is narrow.

8. Overcome resistance as soon as it is observed

Resistance to change occurs in all transitions; how much and in what forms is different from case to case. A robust and well-structured process will certainly limit the resistance, but it will not entirely remove it.

One thing, however, seems to be the case in all transitions; managers underestimate the level and intensity of resistance. The primary reason for this is a lack of knowledge of the different forms as highlighted above. Managers are simply not aware of the resistance because they think that unless it is visible and they are openly confronted, it is not present. This is a common mistake.

Training of line managers in resistance management is therefore important. Managers must be trained to be aware of the levels and forms of resistance, and also to deal with conflicts and resistance. The majority of issues can – if discovered early – easily be dealt with through honest and proper communication, most of which needs to be done on a one-to-one basis.

9. A dedicated transition team is an ideal solution

A transition team should be set up as early as possible in the process. The purpose of the team is to ensure that the people side of the contract is dealt with in a professional and proper manner. It is important that such a team is involved as early as possible.

The transition team is responsible for designing a transition plan (such as the one outlined in item 1 above, but obviously in much more detail). During the entire transition process the team will coordinate with HR, finance, the internal communication department, procurement and other relevant departments within the customer and service provider organisation.

Who should be included in such a team? We would strongly encourage people from the service provider side to be included as early as possible. They are likely to have experience and even a dedicated central transition team who know how to bring these issues into a contract negotiation phase. They will also have the proper transition assessment tools as well as a tried-and-tested transition plan that can be used. In many cases, this may not be possible as the contract may go out to tender and much of the communication will already have taken place and the contracts, SLAs, KPIs etc will have been drawn up. In some cases, the contract is even awarded shortly before the date of the handover. However, the earlier a transition team can be established with representatives of both companies, the greater the likelihood of a successful transition.

10. Generate short-term wins and celebrate them

The entire transition process may take a long time. Ideally it will not take more than three to six months, but in some cases it can take over a year. During this period employees will often lose sight of the purpose of the outsourcing project, feel loss of direction, and wonder if things are going well. Setting short-term goals, and thereby having multiple short-term wins, has proven to help alleviate these problems.

John Kotter (1996) highlights the many roles of short-term wins. They provide evidence of progress, build momentum, remove resistance, reward change agents, and bond teams together. A good short-term win has at least three characteristics:

• It is visible, i.e. a large number of people can see if the result is real and has been achieved
• It is unambiguous
• It is clearly related to the change effort

Putting this into the context of an outsourcing situation, the transition team’s project plan should include an overall goal for the project as well as several short-terms wins. These could be related to the time when all individual contracts have been negotiated, the first working day with the new job roles, etc. The celebration does not have to be big or fancy. Our interviewees highlighted things such as a bowling evening with the team and a dinner at the local restaurant as good celebrations.

Conclusion

A job transition is a big event for the employees involved. It is likely to be one of the most significant events for many years in their job. It is therefore important that the process is managed effectively, professionally and, above all, with great people skills.

Employees go though four phases during job transitions that affect how they feel and how they approach the outsourcing situation. And they go though the phases at different speeds. Some will find themselves quickly embracing the new job situation and see the road ahead as a positive challenge. Others will be stuck in a depressive and reactive mood and see the new conditions as a threat. The first phase is ‘shock and disbelief’, when the employees cannot believe the news and are shocked. Managers generally tend to underestimate the level of shock that employees experience and its consequences. ‘Resistance and frustration’ is the phase when the employees assess how this will affect them and resist if the effort is deemed too great or the effect too negative. During the ‘transformation’ phase the employees will look towards the future and conclude that “this is not so bad after all”. Finally, the employees will ‘embrace’ the new job situation with renewed optimism and energy.

How the transition process is managed will greatly impact productivity, job satisfaction and customer satisfaction. In other words, it is to the benefit of all stakeholders (customer, employees and service provider) that a world-class transition management process is put in place. Good transition management will help the employees pass safely and quickly through the four phases, whereas poor or nonexistent management will do the opposite. The connection between the four transition phases and productivity is clear: the shock phase will bring some initial volatile change in productivity as the employees get to grips with facts. During the resistance phase, productivity will be severely negatively impacted. A successful transition process can take productivity and job satisfaction to a higher level than prior to the outsourcing process.

Our research, which includes interviews with recently outsourced employees, concludes that there are 10 best practice activities that any robust transition plan should include and any transition manager should be aware of. On the face of it, these 10 steps are easy to implement, but they require a commitment from the customer and the service provider as well as a set of good transition management skills.

The 10 best practice transition activities fall into four categories: project planning; communication; psychology (or people management); and job design. All the activities are important and none should be left out. However, the most important thing to remember is that people do not mind change, but they do not like being changed in the wrong way.

References

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Company profiles

Aspector A/S

Aspector is an HR consultancy company. We offer services within HR strategy, organisational culture, change management and HR value impact analysis. Our aim is to enable our customers to meet strategic goals in a sustainable and profitable way by aligning HR activities with their business strategy. Aspector is based in Aarhus, Denmark, and help clients across the world. We combine the hard-core disciplines of strategy and finance with the soft areas of psychology and human relations. This combination provides the best platform for effective HR management. We believe that all organisations have unique employees in unique situations, and our methodology, approach and tools are always tailored to each special context. For more information on Aspector, please visit http://www.aspector.dk

ISS A/S

The ISS Group is one of the world’s leading Facility Services companies, providing integrated service solutions based on the core business areas of Cleaning, Catering, Property, Security and Support Services. The ISS Group generated revenue of more than EUR 9 billion in 2009 and employs 485,000 people in more than 50 countries across Europe, Asia, North America, Latin America and Pacific.

Everyday, ISS employees create value by working as integrated members of our clients’ organisations. So a key part of the ISS HR strategy is to develop capable employees in all functions. Team spirit and self-governance are encouraged, as is voluntary participation in additional training and multidisciplinary workflows. Besides developing our employees, ISS ensures compliance with Health, Safety and Environment (HSE) regulations. We demonstrate our social and ethical commitment through the ISS Code of Conduct, our membership in the UN Global Compact and through honouring the principles stated in the Union Network International (UNI) agreement.

For more information on the ISS Group, visit http://www.issworld.com