ASSOCIATION OF CORPORATE COUNSEL
Webcast Transcript
Critical Strategies for Successful Outsourcing
April 24, 2007
Page 1
ASSOCIATION OF CORPORATION COUNSEL
Desktop Learning Webcast Transcript
Critical Strategies for Successful Outsourcing
April 24, 2007
12:00 PM ET
Presented by Hogan & Hartson LLP
Operator: Just a reminder today’s conference is being recorded.
Female: Karen please go ahead.
Karen (Boutros): Hello I am Karen (Boutros) senior legal counsel of Websense and
former chair of the IT&E Commerce Committee. Thank you for joining us today. The IT&E Commerce Committee is proud to present this “webinar” on Critical Strategies for Successful Outsourcing. You may ask a question at any time by typing in your question in the question area in the lower left hand corner and clicking send.
Any questions we don’t get to today will be answered by the presenters by Monday and then will be attached to the archived web cast as well as the transcript, which will be in the (YAKA) virtual library. Please also fill out the web cast evaluation if you would. And that is in the links box in the left hand box of the slide.
We are lucky today to have an expert panel. They are Phil Porter who is the head of the outsourcing practice at Hogan and Hartson a law firm with over 1,000 attorneys and 23 offices in the U.S., Europe, Asia and Latin America.
We also have Robin Everett who also is a partner at Hogan and Hartson who has considerable experience in structuring, drafting and negotiating outsourcing and technology related agreements. Including IT, VPO, HR, manufacturing and telecommunications outsourcing agreements.
Finally we have Kathy Stokes, Assistant General Counsel and Assistant Corporate Secretary of the Graduate Management Admissions Counsel, which is a non-profit association of graduate business schools that owns the Graduate Management Admission test that I am sure some of us took; and related products and services. A service provider delivers the GMAT test in 93 countries worldwide. Kathy handles the contracts and outsourcing legal function as well as data security, security litigation, employment labor and other matters.
Thank you very much. I will turn this over to Phil, Robin and Kathy.
Robin Everett: That you Karen. We have divided this discussion into two parts. One is a look before you leap and then the second part deals with particular issues dealing with off shore outsourcing. And we believe that the look before you leap is important because it is real important that you be prepared before going into an outsourcing transaction. They are significant undertakings and they require substantial commitment of internal and external resources. And you do not want to learn on your own transactions so we hope you find this to be helpful.
Phil Porter: This is Phil Porter and I am going to be easy to identify because I am going to be the only male voice on the web cast. I just want to point out briefly that any presentation on outsourcing that is done in an hour is necessarily not going to be complete.
And last September Robin and I and our colleagues offered an info pack that is available through the Association of Corporate Counsel website that will take much more than an hour to read. It is approximately 110 pages long. But it will give you an opportunity to take a look at many of the outsourcing topics that we will not be able to cover today.
The first topic that we want to talk about is due diligence. And it kind fits in the look before you leap category because we are not trying to suggest that people should not leap into outsourcing. Outsourcing is a very valuable business transaction but it is not the sort of transaction that you can just say let me sign the paper and then the outsourcing service provider will solve all of my problems.
It is absolutely essential for the customer who is considering outsourcing to take a look at what their current operation is. What is going to be outsourced and be able to give the service provider or maybe several prospective service providers a good strong idea of what the transaction is?
So you start by taking a look at what services you are going to be outsourcing. And a common problem that we see among our clients is that they immediately identify the problems they are having. And they are fully prepared to tell the prospective service provider about the problems that have to be solved but they do not spend so much time at looking at the good things that they are doing and sometime give the prospective service provider an unbalanced view.
Not only are the problem areas going to be taken over but the areas that are being done well are going to be taken over. And those things all need to be focused on. It is important to look at what you are now achieving. That is very, very easy for prospective customers who are already outsourcing and are not really changing their outsourcing service provider because they already have some fairly good performance metrics.
For the first time outsourcer who is just trying to take some services that have been performing for it and give them to a service provider there is often less understanding because there has been less measurement in the past about what has been going on.
Third topic we are going to cover a little bit more in the future, identifying the outsourcing objectives. Everybody says I am going to outsource because an outsourcing service provider is going to be more efficient. This is what they specialize in and they are going to be able to do it less expensively than I can.
And what is over looked in those two goals, both of which are admirable, is the fact that when you do something more efficiently and you do it less expensively the only way you can achieve those goals is by changing it. And one of the things that are often overlooked in outsourcing service transactions is the prospect that there is going to be a change in the way the services are performed.
And that leads us to the next one about obtaining buy in from the stakeholders. These are the people on the front lines who are going to experience the change in the services. And it is not good enough to sign a contract and all of a sudden download new services on the people who are responsible for getting the operations of the company done on a day-by-day basis. It is important to prepare those people and let those people have input into what is going on.
You are going to be very interested in the costs of the transaction. There is really no way to compare what the service provider is offering you unless you have figured out what your own costs are. And that can be something that is more of a challenge than you initially think about.
You need to identify any third parties who are already contributing to the services that are going to be outsourced. Robin and I worked on a transaction where the client tried vitally to identify all of the third party services that were being offered and only found out after the go light date that they had not identified all of the service providers and they found themselves paying some service providers for the same services that they were paying the outsourcing service provider to provide because they had contractual obligations so they pay both parties for the same services.
You also want to identify any assets that are being transferred. If you have an IT outsourcing transaction you may be sending computers out to the service provider. You will certainly be giving the service provider access to software. All of these assets need to be identified.
Robin Everett: Ok. Since following on this presentation. This is Robin Everett. I will be speaking the voice of the service provider and addressing their concerns and where they are coming from. Phil will be talking in the voice of the outside counsel representing the customer. And Kathy Harman-Stokes will be giving the perspective from in-house counsel of the customer. So you can understand the perspective that all parties have and then some successful ways to resolve those different issues.
So starting first then with the identification of the services (inaudible) as Phil said it sounds like that might be an easy task to undertake. But really documenting and putting down in writing what the services are can be quite challenging. And it is very important speaking from the service provider perspective that we understand what we should be pricing and what is actually included in the services.
Additional services that Phil mentioned would increase the price.
Phil Porter: Let me interrupt my colleague the attorney for the service provider to say that customers often are wooed and lulled into the situation where the service provider is prepared to provide a list of services. And they are often grateful for the service provider to do that because it saves time. But remember that the service provider is in the position of giving you its experiences based on other customers and is not necessarily familiar with the services that that particular customer needs.
If you accept the list of services from the service provider you have to recognize that you may not be getting exactly what you need and there is no substitute for looking at that critically.
Kathy Harman-Stokes: And this is Kathy Harmon-Stokes in-house counsel, Graduate Management Admission Counsel. I think this is one of the most important steps is to clearly understand your business and what your needs are in a service providers. It requires a great deal of collaboration and discussion with all of the business people internally who are going to be impacted by the retention of the new service provider. So just keep in mind a lot of collaboration it is going to take time to do it the right way. Do no make any assumptions.
Robin Everett: And often times the customers will want what is a suite clause to lump in all the services that they might not have actually specified in the details. And a couple of ways that they can do this is they will say the employees, the displaced employee services that were performed during the previous 12 months or they may have some language similar to services that are apparent in the performance of the services.
From a service providers perspective that can be quite problematic. For example, inherent in the services if you have a for example payroll outsourcing transaction and prior to the outsourcing it was handled in-house. You had the payroll administrator walk around and pass out paychecks, is that activity actually inherent. So does the service provider have to play someone on site to pass this around, probably not? But that would be a question as to whether or not that is inherent or stamping or mailing the paycheck is that really inherent in the services. So from a service provider’s perspective, it is much better to nail down just specifics.
Phil Porter: Oh tut-tut. From a customer perspective there is absolutely no way that any document can give a comprehensive description of all the services that are going to be provided. Not only do you not have the time or space to write it all down but you are not going to remember it all. And so from a customer perspective a suite clause is really essential because if the service is not described in the description of services then the service provider may be asking for an additional fee to perform services that were left out.
And you walk a tight rope here because we are not trying to take the service provider to the cleaners. We are not trying to get services that were never contemplated. On the other hand we want the operations of the customer to continue in a manner than reasonably allow the customer to do business without having to pay extra money for services that are just really part of the services that are described in the description of services.
Robin Everett: Phil I think what you are saying is very important and when we get to the governance section I think we can just highlight how important governance and communication is.
Phil Porter: And that is the point on which Robin and I both agree.
Robin Everett: Ok continuing on the identification of the services. Often times service providers will want to use the current base line at which the services were performed to measure whether a service credit would be provided, be available or if they are actually meeting their service obligations.
But when you are identifying what your service levels or service performance levels you really need to be thoughtful and diligent and identifying what it is that you should be measuring. For example you may currently be measuring if you have an outsourcing of call center and you are paying for your agent, they are your own employees. One measurement may be the number of calls; the actual numbers of calls the agents’ handle in a day and that is because you are paying per agent.
But that may not be so important if your outsourcing the call center and the pricing is based on the number of calls handled or is based on a per subscriber basis. And those instances the number of calls handled per agent and the efficiency does not matter so much but you might consider what really does matter. Maybe the call times resolution or the issue resolution time. So you need to look at what you have but also what you really want.
And it is also important that you define and measure your service levels in the same way. One project that I worked on had a, it was for a call center, it had a first call resolution metrics. And the customer defined the metrics at they met it at 100 percent and they defined resolved including escalations to Tier 2 support. So when the service provider came in they said there was no way that they could reach 100 percent because they also provided Tier 2 support and anything that would be escalated would not be considered a first caller resolution in their view.