When transitioning to a new delivery model, determining its optimal specifications for your business needs is only the first step. A risk assessment of likely obstacles throughout the transition is essential to achieving target outcomes.
Identifying risks enables you to minimize delays and unexpected costs as well as anticipate potential hurdles. Every model transition is subject to 5 functional risk areas:
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Strategic
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Financial
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Organizational
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Operational
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Legal
Each risk area comes with distinct threats to its dimension of the business transition. Understanding these risks, how they interact, and the mistakes that lead to them is key to keeping your transition on track.
RISKS TO BUSINESS TRANSITION SUCCESS
Strategic risks: erroneous top-line planning
Strategic risks misalign the planned model solution with top-line organizational objectives from the business unit, bringing severe consequences. Models that fail to contribute to strategic imperatives can render solutions ineffective no matter how well-developed they are, producing multiple risks:
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A loss of competitiveness in the marketplace as the new model’s calibration for different business outcomes disperses effort in wrong directions
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A lack of adaptability to anticipated strategic factors (e.g., the need for additional suppliers or the assimilation of emergent technologies)
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Unoptimized model services that waste or strain capabilities, sapping efficiency and triggering a rise in operational costs (e.g., deploying a managed services model for short-term objectives when an augmented one is more efficient)
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Knock-on effects that compromise development and implementation goals before they begin, endangering the success of the entire model
Financial risks: unseen transition and operating costs
The fluctuating operating costs that follow make reliable financial projections and evaluations of model effectiveness difficult. In worst-case scenarios, such costs make achieving financial outcomes wholly inefficient and force redevelopment. Common financial risks include:
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Supplier costs rising with consumption at a linear rate. Persisting with inefficient suppliers neutralizes any economy of scale benefits garnered by contracting them in the first place
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A lack of transparent communications and processes, which will uncover hidden costs such as:
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Delays in consumption-based billing for business units
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Unexpected administrative costs to transition, severance, and ongoing governance of the model
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Emergent complexities with solution development and interfaces
Operational risks: problems with the model
Unlike strategic and financial risks, which are focused on outcomes, operational risks hinder the efficiency and viability of the model itself.
Operational risks comprise faulty processes that result in under-performance, inflated costs, and prevention from meeting current and evolving technical requirements. They are process-centric and emerge after the transition process is complete, affecting the continued operation of the model. These risks include:
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Stringent, multilateral, “three-way associates” agreements that slow down change processes and hamper efficient governance
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Rigid, self-contained model architectures that resist adaptation to new products, geographies, and emergent technologies
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Prolonged periods of cutover to SAP software or other ERP equivalents that delay regular operations and disrupt business continuity
Organizational risks: problems with the model operator
Both operational and organizational risks are process-centric. But organizational risks concern the operators of the model, not the model itself. Organizational issues can sabotage the new model’s operation even in the case of successful development by preventing optimum function.
Retained organization internal practices can resist transition efforts, prevent cohesive action, and obstruct the adoption of best practices to operate the new model effectively. These cultural and communications practices represent organizational risks to transition success:
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Unclear delineations of roles and responsibilities lead to uneven governance and siloed stakeholders who cannot engage cohesively, prolonging transition
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Lack of change management for the retained organization can cause cultural clashes that drag widespread model adoption and incur additional training costs
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Chronic operational instability prevents accurate estimations of the model’s resource needs and skill requirements for staff
Legal risks: regulatory and data management errors
Changes in delivery model specifications, suppliers, and architectures also entail adopting new best practices to ensure legal conformity. Erroneous and negligent adoption processes result in legal risks that put the model in breach of regulations that could incur financial and legal penalties:
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Poor reporting practices might place the organization in non-compliance with regional operating and data regulations
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Careless data control, movement, and security might result in accidental disclosures or theft of confidential data which could result in litigation
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Limited model adaptability to major data regulations (e.g., the GDPR) might necessitate costly model redevelopment
Legal risks are reactive and often happen because of negligence, whether intentional or not. They are very preventable with thorough due diligence.
Transitions to new delivery models are complex operations with risks from multiple functional areas. A comprehensive risk assessment of business needs and objectives is a crucial first step to identifying potential pitfalls and charting a transition that achieves outcomes.
Planning a delivery model transition? Talk to a Wavestone expert for advice on risk assessments and ensure a successful business transition.
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