ISOPC259/ N00XX

Date: 2012-04-09

ISO/ 37500

ISOPC259

Secretariat: NEN

Guidance on outsourcing

Paris draft status report WG1:

-This document is a 0.52 version, stating its early draft nature. A draft should reach a 0.9 version in order to be submitted to a formal review process.

-All phases exhibit first draft content; no standardization is done on roles and terminology yet

-Roles and terminology are not defined, due to withdrawal of co-editors

-Phase Transitions was not finished in London

-Phase Governance is not reviewed by co-editors, this is the first draft.

-Co-Editors struggle for time; a face to face meeting London was very beneficial. In order to reach a 0.9 version we’ll probably require a minimum of 3 sessions like the London meeting

-

Draft Version: 0.52

1

Copyright notice

This ISO document is a working draft or committee draft and is copyright-protected by ISO. While the reproduction of working drafts or committee drafts in any form for use by participants in the ISO standards development process is permitted without prior permission from ISO, neither this document nor any extract from it may be reproduced, stored or transmitted in any form for any other purpose without prior written permission from ISO.

Requests for permission to reproduce this document for the purpose of selling it should be addressed as shown below or to ISO's member body in the country of the requester:

[Indicate the full address, telephone number, fax number, telex number, and electronic mail address, as appropriate, of the Copyright Manager of the ISO member body responsible for the secretariat of the TC or SC within the framework of which the working document has been prepared.]

Reproduction for sales purposes may be subject to royalty payments or a licensing agreement.

Violators may be prosecuted.

ContentsPage

Foreword

Introduction

1Scope

2Normative references

3Terms and definitions

4Roles (for writing standardization purpose, to delete for final draft)

5Outsourcing concepts

6Outsourcing process life cycle

7Phase 1: Identify Strategy (Bulgaria)

8Phase 2: Strategic Sourcing Analyses (Netherlands)

9Phase 3: Initiation and Selection

10Phase 4: Transition

11Phase 5: Deliver Value (UK, Jon)

12Phase 6: Governance (UK, Paul Hart)

Annex A (informative) Maturity Model (NL)

Annex B (informative) Guidance on Outsourcing Agreement Contents

Annex C (informative) Service Catalogue Framework

Cross reference phases – ISO standards and detailed processes (WHO?)

Cross reference phases – ISO standards and detailed processes (WHO?)

13Bibliography (Project Editor consolidates input from co-editors)

14Index of figures

15Index of tables

Foreword

ISO (the International Organization for Standardization) is a worldwide federation of national standards bodies (ISO member bodies). The work of preparing International Standards is normally carried out through ISO technical committees. Each member body interested in a subject for whom a technical committee has been established has the right to be represented on that committee. International organizations, governmental and non-governmental, in liaison with ISO, also take part in the work. ISO collaborates closely with the International Electro technical Commission (IEC) on all matters of electro technical standardization.

International Standards are drafted in accordance with the rules given in the ISO/IECDirectives, Part2.

The main task of technical committees is to prepare International Standards. Draft International Standards adopted by the technical committees are circulated to the member bodies for voting. Publication as an International Standard requires approval by at least 75% of the member bodies casting a vote.

Attention is drawn to the possibility that some of the elements of this document may be the subject of patent rights. ISO shall not be held responsible for identifying any or all such patent rights.

ISO37500 was prepared by Project Committee ISO/PC259, Outsourcing

Introduction

In recent years there has been a proliferation of sector specific methods and documents worldwide which have had no overarching standard to set the generic principles and procedures of outsourcing. In addition the outsourcing practitioners have had no common vocabulary on which to base their outsourcing communications.

This International Standard would provide overarching guidance for outsourcing and a vocabulary to enable practitioners to harmonize the principles, procedures and vocabulary in existing and future standards, for the benefit of the organizations engaged in outsourcing. Besides standardization this standard thus provides concepts and procedures to improve the understanding of all parties involved in outsourcing, by providing a common set of practices that can be used to manage the outsourcing life cycle.

The target readership for this standard includes:

-all involved parties engaged in facilitating the creation and/or management of outsourcing relationships

-decision makers or their empowered representatives

-all sizes and types of organizations

-all sizes and types of industries

-all levels of experience in outsourcing

This International Standard:

-Is for those involved in outsourcing, enabling the client and service provider to operate under a common level of understanding; written from a perspective of delivering and receiving the service in question.

-Is covering the entire life cycle and providing a description of the definitions, concepts, and processes that are considered to be good practices.

-Is in the form of an overarching standard, providing common language, lifecycle, processes and their deliverables;

-Is possibly complemented by more detailed application/sector specific documents from ISO or other organisations

-can be used before, during and after the decision making is done

-enables mutually beneficial collaborative relationships

1Scope

1.1Scope

This International Standard is intended to cover all aspects of outsourcing activity across all sectors of industry and commerce. It is intended to provide good industry practice to enable organisations to enter into, and continue to sustain, successful outsourcing deals throughout their agreed life. It is expected to embody the experiences and lessons learned for the future from the many outsourcing deals across the globe over the past 20+ years.

It is intended that the standard will focus on:

-Being a stimulus for good management

-Flexibility

-Simplicity

It will cover all aspects needed to establish successful outsourcing deals including the necessary processes, behavioural and cultural considerations. It will recognise and take account of the range in complexity of outsourcing relationships.

The standard will recognise that the various parties involved act separately in some phases of the lifecycle and together in others, for example the client and service provider work separately during the first two phases (Identify Strategy and Goals & Strategic Sourcing Analyses), they then come together and begin to operate interactively during the third phase (Selection and Initiation) before they work side by side in the remaining phases (Transition &Delivery).

The standardrecognises that a joint decision making process governing driving the desired outcome is required in order to create a sustainable outsourcing relationship. Governance is not to be viewed as a phase but as an ongoing stage optimizing value, cost and relationship.

In addition the standard will recognise the funnel process clients go through reaching an outsourcing decision as part of a normal and regular strategic make or buy management process. An outsourcing decision is a result of a sourcing strategy discussion within a client organization. Outsourcing failures are regularly caused by a poor understanding of the risks and organizational implications. This is why in the first two phases a broader term sourcing and sourcing strategy is used. This stipulates the availability of more types of make or buy decisions a client organisation can make, like

-Continue producing services and goods as before; the boundaries of the organizations are not changed

-Insource processes from another company into your premises and under your own command

-Outsource processes to another company (scope of this standard) , thus changing an organizational boundaries

The first two phases are written in way that a funnel process is created resulting is an overarching sourcing strategy and different ‘service towers’ that are eligible to outsource in order to create a sustainable competitive advantage.The term ‘Service towers’ reflects the layers people, processes and technology that combined creates complete service packaged that can be transferred to another company.

Furthermore the guideline acknowledges the timescales involved i.e. the first two phases can take weeks, the third phase can take months but the remaining phases last for years (3 years, 5 years, 7 years etc.) depending on the individual agreement between client and service provider.

1.2Application

The standard aims to be an overarching guideline on outsourcing regardless on industry or size. Therefore the guideline expresses high level processes and process outcomes that require to be tailored by the client and service provider for a specific outsourcing instance. Tailoring also encompasses the identification of local and specific laws and regulations. Laws and regulations might encompass subjects like environment, labour laws, health and safety.

1.3Objectives

This International Standard would provide an overarching guidance for the outsourcing of any type of service and/or process in a way that addresses the responsibility of the decision makers, inform them about risks involved and processes to be implemented in order to obtain the desired outcomes and facilitate sustainable competitive advantage and strong business relations with outsourcing partners.

1.4Benefits

This International Standard would provide guidance for the outsourcing of any type of service and/or process and the corresponding resources. This International Standard would cover the entire life cycle of outsourcing and provide a description of the definitions, concepts, and processes that are considered to form good practices in outsourcing.

2Normative references

3Terms and definitions

For the purposes of this document, the following terms and definitions apply.

NOTE: The following terms are to be defined yet. The term Outsourcing is defined in Sofia 2011

ISO37500 / Definition / Synonyms
Outsourcing / The process of engaging in having services delivered from an outside service provider, which historically have been operated internally.
Where the:
  • process is based on a strategic decision
  • resources may be transferred to the service provider
  • service is significant to the customer organization
  • service provider is responsible for the service for a substantial period of time
  • customer organization retains the accountability for the service

Service provider / Service provider; Service Provider; delivery organization, Supply Side
Client / Client organization, client, customer, service client, Demand Side
Agreement / Contract, Sourcing Agreement
Overarching agreement / Umbrella Agreement,
Service Agreement / Service Agreement
Demand
Supply
Outsourcing Governance / Outsourcing governance consists of the set of processes, customs, policies, laws and institutions affecting the way the joint leadership direct, administer or control an outsourcing arrangement. Outsourcing governance also includes the relationships among the many players involved (the stakeholders) and the outsourcing goals.
Governance structure
Governance principles
Governance framework
Sourcing
Strategic Sourcing
Transition
Transformation
Framework
Enterprise Strategy / Organization strategy, Corporate strategy
Functional Strategy / Functional strategy, department strategy
Service catalogue / Service catalogue (Service Provider)
Requirement specification / Requirement specification, Service Requirements (demand)
Objective
Goals
Business ecosystems
Organism
Enterprise / Enterprise, Business, Organization
Principle
Guideline
Risk Management
Service model
Business model
Performance
Value
Indicator
Key performance indicator / Key Success Factor, Key success indicator
Key risk indicator
Sourcing Strategy Execution Plan
Sourcing Approach
Service Delivery
Retained Organization
Target Operating Model
Sourcing Initiative
Sourcing Maturity
Security Management
Compliance Management
Quality Management
Project- & Change Management
Enterprise Architecture
Data Architecture
Application Architecture
Technology Architecture
Enterprise Architecture Report
Service Towers
Contract management
Service level management

4Roles (for writing standardization purpose, to delete for final draft)

ISO37500 Roles / Description
Accountability, responsibility / Synonyms
Executive sponsor / Appropriate management level, COO, CEO
Executive Committee / The Service Client’s Board of Directors / Executive Committee
Financial Sponsor / CFO, Executive Officer of Finance Function
Joint Management Team / Joint Management Team
Contract Portfolio Manager / Service Client Contract Portfolio Manager, Service Provider Contract Portfolio Manager
Contract manager
Service delivery manager / Service delivery manager, Client Service Delivery Manager, Provider Service Delivery Manager
Quality Manager
Risk Manager
Compliance Manager
Enterprise Architect
Project Manager
Relationship Manager
Account Director / Account Manager
Change Manager
Client Service Manager

5Outsourcing concepts

5.1Context of outsourcing

Organizations can be perceived as organism, continually adapting to changes in their environment (figure 1). They face many forms of pressure including those from ever changing socio economic, technology and business environment. In order to survive organizations need to constantly update and by changing their strategy and realigning to meet the demands from this complex challenges.

They are in a state of constant flux, adapting to the external environment which are typically underestimated when services are delivered using outsourcing agreements. This guideline reflects the continuous search to stay aligned with the business strategy andbeing programmed for change from the start of the outsourcing lifecycle.

Figure 1 Contextual model of outsourcing

It is fairly common for organizations to have a business strategy and per department a functional strategy in order to fulfil the overarching objectives and goals of the organization. By adding Sourcing Strategy in this process the organization is enabled to make a strategic choice on whether or not to have particular business functions provided in house or by an external organization. This guideline aims to facilitate all organizations to go through the process of outsourcing successfully and mitigate risk at the same time.

5.2Key Risk of Outsourcing

Depending on the size of an organization an outsourcing decision can be made on different levels of an organization. The strategic implication can be quite different too. Outsourcing staff functions or core business processes are not so different from an outsourcing process perspective, but from a business point of view they differ a lot. The following key risks always are always present, but the impact of the risk differs as per service stack that is eligible for outsourcing. Management should assess and weight the associated risks and rewards before reaching an informed outsourcing decision. The following key risks are addressed within the process of this guideline in order to improve the change of success:

  1. Absence of a strategy: if no formal strategy and vision of the leadership exists, outsourcing provides a comprehensive risk to the overall effectiveness. Outsourcing should be a means to an end.
  2. Poor understanding of environmental dynamics: as explained in the former section an organization constantly struggles to create equilibrium with his surroundings. The more strategic the Outsourced service stack is, the more important it is to acknowledge required flexibility in the outsourcing agreements.
  3. Blind focus on cost reduction: Although Outsourcing can lead to cost reduction an organization should pay attention to the overall impact and risks of outsourcing first, before installing an outsourcing project team. Far too often, especially organizations who a new at the outsourcing game, tend to focus too much on cost savings. They run the risk in forgetting to install good governance processes and a retained organization that can be an effective countervailing power.
  4. Underestimated business impact: outsourcing, especially when it concerns primary processes, can have a profound effect on an organizations culture, work morale and relationships. Therefore clear leadership is required to guide the organizational change.
  5. Poor cultural fit: an outsourcing arrangement generally caters for a 5 yearperiod. During this time frame organizations will collaborate on different levels. If the organizational and management culture differs a lot, conflicts and disputes are not managed in an effective manner. A client organization should understand his social fabric in order to be able to search for an eligible service provider.
  6. Poor understanding of the process: transferring responsibility and control are key elements of outsourcing. During an outsourcing deal the client understanding of the process will fade. People will change jobs and changes will be made in the process. Therefor in order to be able to outsource and have an exit, clear understanding of the processes is important.

5.3Outsourcing Life Cycle

In order to mitigate risk associated with outsourcing and improve the change of obtaining the desiredbusiness value this standard aims to create a high level, easy to understand outsourcing model. This model show in figure 2should be tailored to the specific needs of an organization. The outsourcing model contains five phases and one stage.

The first phase is in fact a high level risk management process in order to assess the outsourcing awareness and readiness of an organization. If no strategy or long term vision is available it will be important to address this, before moving forward to an outsourcing situation. By the end of this phase management should have an understanding that sourcing can be a means to realize the desired strategic outcomes and understands that risks are associated with this process. Organisations should therefore move informed to phase two.

The second phase creates a strategic sourcing analysis that ensures a sourcing strategy continuously meets business requirements and alignment with the broader business strategy. All make or buy decisions are a result of this strategy, imbedding all outsourcing decisions in a broader perspective. The solid analyses, addressing risks and opportunities, infuses the informed decision on which service towers are to be outsourced.

The third phase Initiation and Selection has two fundamental elements. The first is to write service requirements in a detailed fashion. The second is to identify the required governance and relationship model that must ensure a sustainable business relationship. Both elements are required during the selection process, resulting in an outsourcing agreement.

The fourth phase Transitions is in fact a very specific programme or project that handover processes, personnel and technology to the service organization. In this phase the service organization sets up his delivery process. Tests are performed in order to ensure that processes are delivering the required quality and performance. Test should also show that the governance model is working and all parties have clear understanding of their roles and responsibilities. By formal sign off the responsibility is transferred to the service organization.