Would you trust your managed services transition to a coin flip? Without proper planning you may be taking just such a gamble. For nearly every managed services deal that goes without issue, another one goes poorly. Heads you win, tails you lose.
Most enterprises think they understand the desired outcome and timing of a managed services transition but more often find themselves struggling with the results, cost and ultimate impact on the business. ISG Research indicates that a typical transition will take five to six months depending on the size and scope of the contract and will cost three to four percent of the total contract value (TCV) – which amounts to a significant investment.
To take the risk out of transitioning to a managed services provider, enterprises need a solid contract and careful planning. The contract must carefully stipulate exactly what is being handed over and how the relationship will be governed over the long term. The planning must be based in the enterprise’s reality and comprehensive. A transition represents the first real test of a new provider, and the outcome sets a tone that can potentially resonate for the life of the contract.
How to Write a Contract for a Managed Service Transition
A solid contract will outline the initial situation and target scenario and will specify the transition approach. It will carefully define the services to be delivered by the provider, critical delivery components, work packages, dependencies and milestones, and it will stipulate the rules for delivery, inspection, acceptance and defect resolution.
Planning is the essential foundation for a successful transition.
Ideally, the contract will include verifiable acceptance criteria for all critical delivery components. This includes early determination of templates or samples for all deliverables to clearly delineate the scope of services and deliverables. Attention to detail and clarity strengthen the enterprise’s position before its negotiating power diminishes after contract signing.
The contract also should describe in as great a detail as possible the planned transition governance, which expands during the transition phase and later evolves into operational governance after the service commencement date.
Since employees from managed services providers usually bring different experiences from prior engagements, the enterprise buyer should establish a competent transition management team to oversee the transition. This team will need to ensure a common understanding of how the transition should be executed in terms of transition approach, method, client contribution and deliverables. We recommend a transition simulation or “dry run” at a very early stage and as a part of the transition planning.
Tactical and operational decision-makers from both the service provider and the enterprise client will need to have authority regarding budgets and personnel resources to decide on issues and problems. Particularly in large enterprises, effective governance should fall to actual decision-makers to avoid later inefficiencies.
What To Do Before Signing the Contract
Before signing a managed services contract, an enterprise should be sure the provider has an accurate picture of its initial situation, scope of work and performance objectives. A maturity assessment will help the provider make a realistic estimate of the effort required for the transition.
During negotiations with providers, the enterprise team should carefully scrutinize the contract documents for “assumptions” and “risks” that may hide exclusions that could later expand the scope. Be sure to resolve all assumptions before signing the contract.
A solid transition plan should be based on key data points. These include information and metrics on the ITSM platform, ticket analyses, policies and standards, reporting requirements, the quality of existing IT documentation, the scope and condition of the IT landscape, and the maturity level of the IT organization. The more meaningful data the provider receives, the lower the risk of unpleasant surprises. The risks identified during due diligence should be precise, enterprise-specific and include concrete counter measures for all parties involved. These measures will be a critical part of the transition plan.
While the time it takes to transition managed services used to vary widely, providers are getting to the point where we can expect predictable timing based on technology, vertical and geographic locations.
One of the first steps should be to determine the organization’s “outsourcing readiness,” including the maturity level of the services, service management and the provider steering organization. This also involves conducting internal pre-transition preparations in parallel to contract negotiations. Define the future roles for provider management and prepare future staff for these roles.
Organizations often underestimate the effort required for reorganizing and managing personnel development, especially in cases of first-time outsourcing or when previous service areas have not operated under a managed services model.
Please fill out this form to continue.
Create a Transition Concept and Plan
Enterprises transitioning to a managed services provider need to tailor the transition plan to the specific circumstances of their organization and include those specifics in the contract. Avoid cutting corners on details due to time or cost considerations – or accepting only generic standard approaches from the provider.
A transition concept includes a detailed project plan, role-based and service- and phase-specific effort planning for customer contributions, and a specific risk analysis with defined countermeasures. A scope catalogue or work breakdown structure helps ensure transition plans are comprehensive.
Many providers resist committing to detailed effort estimates before the contract is signed. Customers also often shy away from this effort because the added value is not immediately apparent and therefore not budgeted. But only with a concrete, enterprise-specific transition plan can the provider fully know the required contributions, both qualitatively and quantitatively, and build an appropriate team in a phased manner.
Similarly, negotiations with the new services provider should include specific exit plans with the previous provider if there is one. Detailed daily workshop plans should be part of the fine-tuning of the transition plan with the new provider.
By meticulously drafting and aligning contractual documents, an enterprise can define the initial situation, goals and framework in such a way that sets up the new managed services relationship for success. However, these measures are not sufficient on their own. Only through consistent, transparent and joint implementation will they become fully effective.
How to Create Detailed Transition Planning
If an enterprise does not complete transition planning before it signs the contract, it must refine the transition plan after signing the contract. Transition planning should include:
- Detailed contractual guidelines that align with all stakeholders
- Sharpened acceptance criteria for deliverables
- Documented milestones in a project timeline using MS Project for larger transitions or Excel for smaller ones
- Regular feedback or playback sessions to be held during knowledge transfer
- Checklists, questionnaires and scoring methods described in the transition concept to validate the knowledge transfer
Be sure to clearly identify financial terms and timing of payments to the provider. In a recent study of the contracts with detailed transition plans, 62% of the contracts had milestone-based payments. In these situations, the managed services provider was paid when the team hit predefined project milestones. Nearly 30% of the contracts had time-based payments scheduled on a monthly or other predefined increment as the provider successfully progressed through the plan. Many contracts have termination clauses in case the transition hits major issues. Placing the risk on the provider with milestone-based payments and identifying clearly what the expectations are for completion will help ensure a smooth transition.
Preparing for Transition Governance and Management
Most enterprises align the transition to their established IT organization and enterprise project standards. That means the service provider needs to understand and adopt the enterprise’s internal project management standards. It should consider scheduling a meeting cadence to ensure the appropriate information and decision requirements flow from operational to strategic decision-making levels. The provider also should prepare decision templates and materials in advance and create a system for committee members to review them to enable informed governance-level decisions.
The transition team should continuously review the success of the transition, its progress and the approval checks of critical deliverables based on what was stipulated in the planning documents. Numerous field-tested templates and tools support this task. It must be conducted accurately and with discipline from the very beginning for it to be meaningful and to avoid losing track early on. One challenge lies in providing "decision relevant" information in progress reports to tactical and strategic governance bodies. This is not trivial, as it requires assessing the information needed by management to make key decisions without delving into every detail.
Knowledge Transfer
Knowledge transfer is a critical component of any transition and requires precise planning. Due to varying requirements and specific coordination needs, the planning is often too complex to document effectively in project timelines. Therefore, a separate, structured tool—such as an Excel sheet with reporting functions—is recommended for scheduling workshops and daily appointments and which must be updated regularly.
Ideally, knowledge transfer sessions should be recorded, provided all parties agree, so the team can revisit key details and avoid overburdening the existing organization. If recording is not permitted, the team should implement alternatives, such as allocating additional resources for documentation. Weekly playback sessions validate whether the new provider has understood and correctly documented the knowledge transferred.
An agreed-upon evaluation methodology ensures that this feedback is objective and transparent. These sessions also serve as synchronization points with the project plan and feed into the transition reporting process. Updating and completing documentation remains an ongoing task throughout all phases of the transition.
Staffing Plan for the Operations Team
Sufficient and qualified staff on the provider's side is critical for a successful transition. Continuously monitor the staffing plan to ensure that adequately skilled personnel are available at agreed milestones. Recommended minimum levels of provider staff, depending on service scope and different modes of operations to be achieved, should meet roughly these guidelines:
- staffing coverage of over 50% during the knowledge transfer phase
- staffing coverage of over 75% during the shadowing phase
- staffing coverage of 100% before the start of the reverse-shadowing phase.
Clearly define key personnel and include these terms in the reporting to ensure the required expertise for service delivery over the long term.
A service level that measures continuity in experience and performance will help prevent less qualified personnel from taking over roles over time. Designing such a service level is not straightforward, as permanent retention of the same personnel cannot be guaranteed. However, be sure the provider guarantees timely replacement and training to maintain the required qualification level.
A technical onboarding process will equip new employees with the necessary access and permissions to work effectively in the enterprise’s environment. A professional onboarding process assesses the new employee's qualifications against the required profile and addresses customer-specific knowledge and skill gaps. Enterprises should define the technical and professional onboarding processes, so they can verify and improve the quality of the process through an onboarding checklist.
Managing Performance and Reporting in a New Managed Services Relationship
Close collaboration is essential between the transition manager, future service delivery manager and contract and finance managers. Regular coordination meetings will help identify contract changes during the transition or later in the operations phase, ensure consistent interpretation of the contract and address financial issues related to payment plans, approvals and possible withholdings for underperformance. Enterprises should establish a structured procedure and process for clarifying contract interpretations, as different interpretations of the contract will always arise, which must be clarified as quickly as possible, in partnership and by mutual agreement.
Performance management and associated reporting should include new service-level measurements along with existing ones. If the provider operates within the enterprise’s environment, it must analyze all existing service levels, describe them in technical detail and clarify any ambiguities before operations begin.
Clearly define, implement and test new service levels in production. Be sure the new managed services provider has all necessary technical information, test environments and system access as needed. Extensive testing ensures that measurements align with contractual definitions and specifications before going live, which helps prevent potential disputes.
Careful transition planning and implementation – including contractual foundations, thorough due diligence, appropriate organization, detailed transition planning tied to financial terms, professional knowledge transfer, proactive recruiting and staffing, close collaboration between key roles, and consistent performance management – will be the basis for a successful transition.
About the authors
Michael Maicher
