Very few transformation programmes execute on time. Put another way, the vast majority of transformation programmes have failed to deliver the sold benefits of a deal 3 or 4 years down the line, even though most programmes promise benefits within 18 months. Why is this?
A common cause of failed outsource transformation programmes is that the assumptions made about time, cost and dependencies are bad assumptions. But in order to appear to have the best price and faster time to benefits, most suppliers will make outlandish assumptions. And the standard RFP processes followed actually encourage this type of behaviour!
Most IT sales people sell the end-game, the FMO. “Look at how good our flexible, scalable, resilient, virtualised, consolidated, cloud-based shiny new thing is. And here’s a price list for our portfolio of services.” The problem is that organizations are not starting from scratch, they are not in a position to buy a portfolio of offerings off the shelf; they have a going concern that must be taken on and transformed into something that is more flexible, more performant, more scalable, more secure, more resilient and lower cost. Whether this was ever a reasonable expectation to begin with, it will take years and there will be roadblocks.
Imagine a 5 year cost stack. If we assume that transformation takes two years, then we should be able to predict costs, given a stable baseline, in years 3 through 5, with some level of precision. But that’s only if we get to the predicted operational model with the major transformations completed. So why do we continually fail in transformation? The big issues seem to be:
- There is a lot of complexity in years 1 and 2. We tend to under-estimate the difficulty in making the necessary changes happen.
- Conflict with other changes happening in the business.
- Cultural inertia. People resist change.
- Transformation costs money. Before the delivery account in an outsource relationship can spend money, they need to overcome internal obstacles and produce a business case. But the justification for making the investment in the sales phase rarely matches the inheritied situation in the real world: original assumptions around costs were probably understated and those around benefits were overstated.
- The level of precision for mapping out the projects, timelines, costs and dependencies – in other words the transformation – is directly proportional to the knowledge of year minus-1 (the current situation), not to mention the skill and experience of the planning team.
- Account management in the start-up phase of an outsourcing relationship is focused on stability, setting up of governance, reporting and communications channels – there isn’t a priority on making major changes that might upset the sought after stability.
IT suppliers can differentiate by convincing customers that the real solution is not what lies at the end of the yellow brick road, but in the journey to get there. This presents challenges. To differentiate, the IT supplier has to be good at transformation in the first place! Suppliers have lots of experience but not a great track record in delivery. The good news is that they can get good at it but not without more corporate focus, leadership, training and reassignment of expertise currently focused on FMO.