Improving customer satisfaction in infrastructure outsourcing

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1 Improving customer satisfaction in infrastructure outsourcing Influencing the different handshakes to increase customer satisfaction This is the Master thesis Part-time MSc General Management of Authors: ing. Mark van Tilburg bc. Willem Kuilman Breukelen, January 8 Nyenrode Business University Straatweg BG Breukelen Final Version

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3 Improving customer satisfaction in infrastructure outsourcing Influencing the different handshakes to increase customer satisfaction This is the Master thesis Part-time MSc General Management of Authors: ing. Mark van Tilburg ( ) bc. Willem Kuilman ( ) Faculty Supervisor: Company Supervisor: Second Reader: Prof. Dr. Andrzej Hajdasinski MEng Ir. Hans van Heffen Drs. Hans ten Rouwelaar Breukelen, January 8 Nyenrode Business University Straatweg BG Breukelen -III-

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5 Colophon Title: Improving customer satisfaction in infrastructure outsourcing Sub Title: Influencing the different handshakes to increase customer satisfaction Version date: Final, January 8 th, 2012 Authors: ing. Mark van Tilburg Prinses Irenestraat 31a 4671 CT Dinteloord mark.van.tilburg@businessmonitor.nl bc. Willem Kuilman Hongerlandsedijk LW Spijkenisse info@str84ward.nl Faculty Supervisor: Company Supervisor: Sponsoring Company: Second Reader Prof. Dr. Andrzej Hajdasinski MEng Nyenrode Business University International Center for Business and Diplomacy Straatweg BG Breukelen Ir. Hans van Heffen Head of Infrastructure Outsourcing Services Papendorpseweg BJ Utrecht Capgemini Nederland B.V. Papendorpseweg BJ Utrecht Drs. Hans ten Rouwelaar Nyenrode Business University Center for Management Accounting & Control Straatweg BG Breukelen Disclaimer: All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior consent of the authors. -V-

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7 Preface This paper is the final assignment of our study at Nyenrode Business University. During our Master of Science in Management course, we have gained great knowledge from various professors and assistant professors. For both of us this paper also marks a mature new start in looking at issues, in work, as in life. During discussions with Hans van Heffen (our company sponsor), on the outsourcing process, a research subject soon became apparent: the outsourcing process. The end result gave way to a research question that forms the basis for this thesis. But first a short introduction about us: Willem Kuilman works for Capgemini Nederland B.V, within the Infrastructure Outsourcing Services division. A big part of Capgemini s business is outsourcing, accounting for approximately 36% of the organization s revenue (Capgemini, 2010). Willem has fulfilled several roles within the organization from technician, controller, to delivery manager. Mark van Tilburg is one of the owners of BusinessMonitor, a marketing research company based in the Netherlands. The work BusinessMonitor does is (customer) satisfaction related research, on behalf of a variety of companies. Capgemini, our sponsoring company, is a global leader in outsourcing. Its collaborative business approach allows the customer to achieve a better, faster and more sustainable result. Capgemini has more than forty years of experience, is presently operating in more than thirty countries and has a global workforce of over one hundred and fifteen thousand professionals, of whom fifteen thousand are active in the outsourcing industry. Capgemini is currently collaborating on some of the world s largest outsourcing contracts. Leading companies entrust Capgemini as a results-driven business partner to solve their most complex business problems. Capgemini s diversified approaches to outsourcing range from traditional engagements that focus on quick cost reductions to value-added transformational arrangements that impact deeper, broader changes within organizations. As customers needs are changing, Capgemini provides flexible and scalable solutions through over one hundred integrated delivery centers around the globe. We would both like to offer a word of thanks to all those who have helped us in our thesis. We would especially like to thank Ir. Hans van Heffen, Head of Infrastructure Outsourcing Services from Capgemini Nederland, for enabling us to undertake our research without restrictions. Furthermore, we would like to thank Prof. Dr. Andrzej Hajdasinski MEng who, as our faculty supervisor, gave us lots of advice and inspiration. It was fun to exchange ideas (and Jantje jokes) with him. -VII-

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9 Executive Summary This thesis describes the diversified issues regarding the customer satisfaction during the outsourcing process in relation to the outsourcing lifecycle within Capgemini. Also, there are recommendations made to improve the processes to increase the customer satisfaction during the outsourcing lifecycle. The outsourcing lifecycle consists of different process steps. These steps are Sales - selling the service to a customer; Transfer - transferal and delegation of the old structure from the customer to the supplier; Transformation - changing the processes in place to the customer, to match the new processes that will be used; Delivery soll - when the customers' processes are upgraded to match the processes used by Capgemini. With regard to the lifecycle, there are issues that arise from the literature such as; not being totally honest with regard to the real costs. Project issues such as Student syndrome - starting too late; Parkinson s Law - when there is time, all time will be used; Task convergence - when one task delays all other parts of the project. Change processes involve emotions regarding the change that is happening to the people working for the customer, generating friction between the supplier and the employees of the customer. Third party involvement also plays a role in friction when another company maintains the project and creates a boundary between the supplier and the customer. This research focuses on the internal processes within Capgemini while delivering its service to customers. Handshakes are referred to; to describe moments where the work is transferred between the different processes during the lifecycle and project teams involved. The main focus is on the handshakes between the different steps in the outsourcing lifecycle, with special regard to the processes after the deal has been closed, and a formal contract has been signed with the customer. The process steps involved are sales, transfer, transformation and the delivery soll. To gather data on the handshakes, multiple methods are used in this research to gain insights on the subject. These methods include literature study, qualitative interviews with senior management and quantitative interviews with the people working in the various departments. During the research it became clear that the main issue lay with the contents of the handshakes and the people involved. During the handshake different teams are involved but when the handshake is finished, the old teams are not involved anymore. A second issue that arose, was that the people undertaking the project are also responsible for customer contact, which decreases the options to change the service during the process. Given the data collected, the main conclusion that can be made, is that during the entire process, a supervisory manager should be in charge to manage the entire lifecycle as well as the handshakes between the different project teams in particular. This person should keep an eye on the handshakes and make sure they are done correctly, but ultimately is not responsible for the customer relation, and just for the internal processes. One of the main tasks of this supervisory manager would be to remove the information asymmetry between -IX-

10 the departments by linking them closely together. Also the supervisory manager should be able to change the budget allocated between the steps in the process, so that budget overruns can happen when they solve issues further on in the process. As the supervisory manager is not involved with the process but only has an overseeing role, he/she should also be chairman of the steering committee to make the handshakes as smooth as possible. Another important suggestion for change is that the responsibility for a customer should be split between the project team and a relationship manager, where the project team delivers the product/service, while the relationship manager maintains customer contact and corrects the project team when something goes wrong during one of the implementation phases, without being involved in the actual execution. This should make it possible for customer to address issues properly at the right levels, for example CxO s on both sides linked to each other, without generating friction between the project teams and the customer. According to the collected data and its interpretation, the process could be improved by splitting the responsibility of the project and the customer. As such, it should make it possible for issues to be corrected faster and earlier on in the process. When the process steps are better linked, (because of management by a supervisory manager) with each other, the cost of the steps should decrease where the rework in the end of the lifecycle decreases. The supervisory manager should as such be able to shift budgets from one part of the process to another. A second optimization would be to check the specifications with the customer before the project actually starts; often the specifications are changing after the sales phase, as the world is moving so are customers specifications. Other companies that have a process in place where there is a handshake between the sales department and the department that has to deliver the service/product to the customer. These companies could also benefit by adding a supervisory manager to the process who makes sure that the handshakes are conducted properly and the sales department remains involved with the other steps as long as needed, to make sure that the expectations of the customer are met. -X-

11 Table of Contents Preface Executive Summary Table of Contents List of Tables and Figures Abbreviations -XI- VII IX XI XV XVII 1 Introduction Definition of Outsourcing The outsourcing lifecycle Research focus Types of outsourcing and scope The company problem statement and the research question Conceptual model Research design Relevance Structure of this paper 5 2 Theoretical framework The outsourcing lifecycle We are going to outsource The sales phase The transfer phase The transformation phase The delivery phase Prolongation or termination phase Known issues from the phases in the conceptual model Issues related to cost Outsourcing seen as a project Third party involvement Emotions The relation between the outsourcing lifecycle and Kübler-Ross Hypotheses 12 3 How the study was conducted Research Subjects Data collection Phase one, qualitative data Phase two, quantitative data Reliability and validity Qualitative phase Quantitative phase 15 4 Results of data collection and analysis The results of the qualitative research 17

12 4.1.1 Question Question Question Question Question Question Question The results of the quantitative research Handshake between Sales and Transfer (HST) Handshake between Transfer and Transformation (HTT) Handshake between Transformation and Delivery soll (HTD) Decrease or Increase in customer satisfaction Influence on the customer satisfaction Differences between groups on the perception of the handshake by groups Handshakes viewed from the different groups Discussion of the Hypotheses Relation between the process steps and responsibility 30 5 Conclusion Recommendations Further research Management implications 36 Appendix 1 - Open interview invitation Appendix 2 - Checklist open interview Appendix 3 - Summaries open interviews Interviewee A Interviewee B Interviewee C Interviewee D Interviewee E Interviewee F Interviewee G Interviewee H Appendix 4 - questionnaire Appendix 5 - questionnaire invitation Appendix 6 - questionnaire reminder Appendix 7 - Response distribution questionnaire Appendix 8 Sub categories of the categories mentioned in question three Appendix 9 Sub categories of the categories mentioned in question four Appendix 10 - Sub categories of the categories mentioned in question seven Appendix 11 Total results of the questionnaire Appendix 12 - Influence of the handshakes on Customer Satisfaction XII-

13 Appendix 13 - Effect on customer satisfaction of the handshakes Appendix 14 - Analysis of the open improvement questions with regard to the handshakes in the questionnaire Appendix 15 Analysis of the handshakes given a bad handshake between Sales and Transfer 92 Appendix 16 Grade compared to the handshakes Appendix 17 Deal compared with handshakes Appendix 18 handshakes compared to departments Bibliography XIII-

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15 List of Tables and Figures Figure 1 Process steps in the outsourcing lifecycle 2 Figure 2 Main types of outsourcing 3 Figure 3 Conceptual model 4 Figure 4 Process of transition based on Kübler-Ross theory (John M Fisher) 10 Figure 5 IT outsourcing Satisfaction Transition model 11 Figure 6 Hypotheses 12 Figure 7 Refined conceptual model 16 Table 1 The various departments and their involvement with the different handshakes 16 Table 2 Legend of Figure 8 20 Figure 8 Different handshakes in relation to customer satisfaction over time as seen by the interviewees 20 Table 3 Those who experience of the handshake between Sales and Transfer 22 Table 4 Influence on customer satisfaction of the handshake between Sales and Transfer 22 Table 5 Effect on customer satisfaction of the handshake between Sales and Transfer 22 Table 6 Those who experience of the handshake between Transfer and Transformation 23 Table 7 Influence on customer satisfaction of the handshake between Transfer and Transformation 23 Table 8 Effect on customer satisfaction of the handshake between Transfer and Transformation 23 Table 9 Those who experience of the handshake between Transformation and Delivery soll 25 Table 10 Influence on customer satisfaction of the handshake between Transformation and Delivery soll 25 Table 11 Effect on customer satisfaction of the handshake between Transformation and Delivery soll 25 Table 12 Effect on customer satisfaction per handshake 6 = High Increase, 0 = High decrease 26 Table 13 Influence of the handshake on the customer satisfaction 0 = No influence, 6 = Very high influence 26 Figure 9 Perception of the handshakes by grade 27 Figure 10 Perception of the handshake between Sales and Transfer by departments involved in Sales phase 28 Figure 11 Perception of the handshake between Transfer and Transformation by departments involved in Transfer phase 28 Figure 12 Perception of the handshake between Transformation and Delivery soll by departments involved in Transformation phase 29 Figure 13 Relationship between the lifecycle' phases and the responsible manager 30 Figure 14 Different handshakes in relation to customer satisfaction over time 31 Figure 15 Kuilman-vanTilburg IT Outsourcing Satisfaction-Transition model 32 Figure 16 IT outsourcing Satisfaction-Transition model 33 Figure 17 The expected result of the improvements of the handshakes on customer satisfaction 34 -XV-

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17 Abbreviations PON RFP TOC SDD SDM DM HST HTT HTD SPSS IOS RBR OTACE CxO Platform Outsourcing Nederland Request for Proposal Theory of Constraints Service Delivery Director Service Delivery Manager Delivery Manager Handshake between Sales and Transfer Handshake between Transfer and Transformation Handshake between Transformation and Delivery soll Statistical Package for the Social Sciences Infrastructure Outsourcing Services Run-Build-Run On Time and Above Customer Expectations (Capgemini s instrument for measuring customer satisfaction) Chief x Officer where x can be any sector -XVII-

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19 1 Introduction Technically speaking, outsourcing acquired a business strategy in 1989 (Brown & Wilson). The very first company to outsource some parts of their business was Eastman Kodak, which was at that time in an extremely difficult financial situation, due to various mergers and acquisitions. The goal of Eastman Kodak was to cut IT cost by 50% by turning over its four data centers and three hundred workers to IBM (Loh & Venkatraman, 1992). IT outsourcing became a hot topic in board meetings as a strategic choice, due to the fact that this was a deal between two giants and therefore acted as a precedent. Before this outsourcing deal, there were many other companies who outsourced, but never received high exposure in the media. 1.1 Definition of Outsourcing Firstly, we have to define what outsourcing means. There are several definitions of outsourcing: (Off-shore) Outsourcing as described by the Panel of the National Academy of Public Administration for the U.S. Congress and the Bureau of Economic Analysis as (OFF-SHORING: AN ELUSIVE PHENOMENON, 2006) (Kedia & Mukherjee, 2009): - Outsourcing: firms contracting out service and manufacturing activities to unaffiliated firms located either domestically or in foreign countries - Off-shoring: firms shifting service and manufacturing activities abroad to unaffiliated firms or their own affiliates - Off-shore outsourcing: a subset of both outsourcing and off-shoring in that it refers only to those service and manufacturing activities of companies performed in unaffiliated firms located abroad And the definition of the Platform Outsourcing Nederland (PON) (Delen, 2008): - The transfer of services, where if applicable, the accompanying employees and resources are transferred to a specialized service provider and consequently the rendering back of those processes by that provider as services for the duration of the contract at an agreed upon level of quality and a financial compensation structure. And the last definition used by Gartner (Gartner, 2011): - Using external service providers to effectively deliver IT-enabled business process, application service and infrastructure solutions for business outcomes. All the definitions cover the same matter, namely the use of vendors to execute non-core services formerly executed by the customers themselves. Now, having the definition of what we mean by outsourcing we can look at the major steps we recognize in the outsourcing lifecycle. -1-

20 1.2 The outsourcing lifecycle Six major process steps can be identified in the outsourcing lifecycle (Delen, 2008), (Richards, 2007) as shown in Figure 1. Transition Thesis domain decision by customer to start with sourcing Sales phase Transfer Disentanglement Transfer 350 Transformation Delivery Soll Prolongation of contract or termination Figure 1 Process steps in the outsourcing lifecycle The first step in the cycle lies in the willingness of the customer to outsource a part or parts of their organization, based on a solid sourcing strategy. It is not only a cost effective factor although this may account for a major part of the decision by the customer, but is also an opportunity to look at alliances to make a proper vendor selection. Once the supplier is selected, the sales phase will start. This is the stage where all agreements are prepared and formalized with the customer. The sales department takes the initiative in this process. When the deal is closed, most times there will be a transfer of goods and/or personnel. This process of disentanglement and transfer will be referred to in this research simply as 'transfer'. After the transfer, the transformation process commences. This transformation is done in a cost effective manner by standardizing the services and support. Standardizing refers to the possibility to reuse existing solutions and share the existing infrastructure as much as possible without compromising the independence of the customer. This is called the Delivery soll. The term soll refers to the preferred or desirable situation in comparing to the current situation what is called ist. These terms ist and soll have their roots in literature regarding change processes. When the contract term ends, it can either be extended, or the outsourcing process will repeat itself for the customer. In this case the existing supplier has to hand over the goods and in certain cases, its personnel associated with the account, to a new supplier or back to the customer. 1.3 Research focus Our research is focused on the handshakes between the sales phase and transfer phase, the transfer phase and the transformation phase and between the transformation phase and delivery soll. In this research the term handshake, refers to the transferal of all responsibilities, knowledge and other relevant information from one project team to the next one following the outsourcing lifecycle. This includes also the change of customer s primary or secondary point of contact. A research boundary set is that the focus on the first handshake is from the moment the contract is signed and the handover from sales to the delivery organization commences until the delivery soll Everything else regarding the outsourcing lifecycle will be considered ceteris paribus. The agreement between the supplier and customer is created between the sales, legal, and human resource departments and the delivery units, and is finally signed by both parties. The disentanglement can start directly. -2-

21 1.4 Types of outsourcing and scope The first definition mentions different types of outsourcing. In general, we recognize five general types of outsourcing although some will diverse even more (Delen, 2008). In this research Greenfield sourcing, follow-up sourcing and the outsourcing are considered. Figure 2 Main types of outsourcing In Figure 2 the main types of sourcing are depicted, as are the different relationships between the supplier and customer. In this research the focus is on the outsourcing deal with the transfer of goods and personnel. All other varieties are kept out of scope. Furthermore, the focus is on the so-called Run-Build-Run (RBR) situation whereby the existing IT environment, delivery ist, is taken over from the customer. During this period the new environment is built after which the old environment is replaced with the new one. The new build environment is the delivery soll. This process will be referred to in this research as 'classical' outsourcing. 1.5 The company problem statement and the research question All companies are looking for ways to improve their service. One way is to optimize existing processes to gain advantages. Capgemini is a company that always looks for ways to improve its processes and has asked us to investigate how the following company problem statement can be influenced. The company problem statement is: How can we mitigate the dissatisfaction between the customer and the supplier during the beginning of the outsourcing lifecycle after the deal has been closed? -3-

22 Academic theory offers a lot of written material regarding the subject of customer satisfaction and the relationship with the supplier. Customer satisfaction is a measure of how products and services supplied by a company meet or surpass customer expectation. In general satisfaction is used as a measure between customer attitude and future intentions (Garbarino & Johnson, 1999). With regard to the relationship there is already a lot of knowledge in the literature so the focus of this research is not on the relationship with the supplier. But the focus is on the processes within the supplier boundary, resulting in the following research question: The research is aimed at gaining knowledge and insights with respect to the influence of friction of the handshakes, in the process sales>transfer>transformation>delivery soll on the customer satisfaction, during the start of the outsourcing life cycle, concerning the customer and the people involved in the early stages of the outsourcing life cycle. The research will contribute to a better understanding what the impact is from the handshakes between the process steps sales>transfer>transformation>delivery soll and how to improve and manage the handshakes in the process more effectively to influence customer satisfaction in a positive way. This in its turn will result in a win-win situation for both customer and supplier in an outsourcing deal. 1.6 Conceptual model When studying the outsourcing lifecycle in Figure 1, we notice that there are certain moments where work has shifted from one process step to another. These moments are what we call the handshakes in the outsourcing lifecycle. The relationship between the process steps and the handshakes forms the basis of our conceptual model as displayed in Figure 3 SALES Handshake between Sales and Transfer (HST) TRANSFER Handshake between Transfer en Transformation (HST) TRANSFOR MATION Handshake between Transformation en Delivery soll (HTD) DELIVERY Soll Customer Satisfaction Figure 3 Conceptual model The aim of this research is to obtain an insight into how much the three handshakes influence customer satisfaction. 1.7 Research design The research is split into three parts. The first part is a literature study. The second and third parts are the more practical parts of the research. Part two is a qualitative study consisting of interviews with experts in the field, regarding the process and the different -4-

23 handshakes. The interviews are conducted with senior managers and executives or former executives involved with the outsourcing business. The last part is a questionnaire submitted to employees of Capgemini that are involved in the outsourcing process. 1.8 Relevance This research is relevant scientifically and managerially. First, we will make a connection between the different scientific approaches of this subject. In literature there is not much research found with the focus of handshakes in the outsourcing lifecycle or similar processes. Secondly, the managerial relevance is that the insight into the handshakes and the effect they have on customer satisfaction is clarified, which in turn makes it possible to control the process more vigorously. This particular method of research is also usable for other managerial questions regarding handshakes and the diverse processes in a variety of companies and not only for the outsourcing lifecycle in the IT business. 1.9 Structure of this paper Following the introduction, the first focus will be on the theories related to the research question, and there will be a discussion of concepts used. Also, a number of hypotheses will be exemplified in this part and what we expect from the research will be discussed. In Chapter Three the research methods are described; why they were chosen and what is expected from them. In Chapter Four the results will be presented and analyzed. Qualitative and quantitative researches are both presented. There is also a discussion regarding the hypotheses performed. In the last chapter, Chapter Five, the conclusions and recommendations as well as suggestions for further research will be presented. All interviews of this research have been done in Dutch; some parts of the appendices are in Dutch where they reflect actual answers of the respondents. Where possible the English text has been added to elaborate on the contents of the appendices. Two of the appendices are not translated entirely since they are the actual representation of answers given by the respondents; these are the open answers in Appendix 3 summaries open interviews and Appendix 11 total results of the questionnaire. Those open answers are summarized during the analysis. Appendix 8 sub categories of the categories mentioned in question three, Appendix 9 sub categories of the categories mentioned in question four and Appendix 10 sub categories of the categories mentioned in question seven are the summarizations of the open answers from Appendix 3 summaries open interviews and Appendix 14 Analysis of the open improvement questions with regard to the handshakes in the questionnaire is the summarization of the open answers of Appendix 11 total results of the questionnaire. -5-

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25 2 Theoretical framework Here the element of the conceptual framework is discussed in greater detail. The handshakes will be described, as well as the known barriers and pitfalls that are influencing factors on customer satisfaction, are also pointed out. Secondly, we will elaborate briefly on outsourcing as a project phenomenon. Finally, the emotional response to change and the relationship with outsourcing as an anticipated behavior is discussed. 2.1 The outsourcing lifecycle In this section the outsourcing lifecycle will be described. Companies decide to outsource parts of their business; they are obtaining services from an external resource (Brown & Wilson, 2005) We are going to outsource The reasons companies outsource part of their business is diverse, but all come back to the question of costs, as was the case in our example in the introduction, where Eastman Kodak was in financial difficulties. Some other companies have internal managerial challenges, like adequately managing an IT department or want to reduce their staff. Today, more companies use outsourcing as a strategic solution instead as a tactical. They want to outsource the burden of simple managerial work, allowing them to focus on the more core competences of the business. The commonality is that to enter the outsourcing lifecycle, they must first decide that they want to transfer parts of their business to a supplier The sales phase In this phase, the scope of the deal is established, the request for proposal (RfP) is developed and the customer assesses the responses from suppliers. During this phase it is common for sales to try to persuade the delivery organization in accepting exemptions in what it can deliver. Finally, a vendor is chosen and the negotiating part of the sales phase will commence. During this phase agreements are put on paper and boundaries are set and both parties sign the agreement. Once the signatures are exchanged, the implementation can start The transfer phase This phase consists of two sub phases. The first one is the disentanglement of the services, personnel, and hardware and software assets upon transfer to the supplier. In this stage the customer does not notice a big difference in the service provision. It can be said they get their former service but at a lower cost. The supplier will slowly start to improve parts of the service to make it more robust when possible but great changes are not to be expected. It is a learning curve for the supplier, as in this phase he/she begins to get an idea of what is acquired despite the due diligence in the sales phase. Also the customer begins to know their supplier better. -7-