Many business leaders forget that outsourcing is actually a complex business strategy. They do not think much about its influence on the relations with their in-house employees and clients, or how to assess vendor capabilities. Nor do they fully leverage the process or mitigate the associated risks. As an outsourcing vendor for more than a decade, we have summed up some of the key conclusiones which - we hope - can facilitate the process and help you align outsourcing with your broader company strategy.
1. Is outsourcing a missing piece in your business strategy?
Some managers optimistically believe that outsourcing will solve a number of their problems. They dive into the relationship head-first and then start to drown. If there is no understanding of the influences of such a decision, the process can be really painful. Conflicts and frustration will arise, which will have a direct impact on your company. Outsourcing requires focus and involvement, so before you start to look for a vendor you should resolve any existing and potential issues inside the company and thus avoid passing any problems onto the vendor. Your management team has to consider whether:
- it is a right time to outsource
- you know the structure of your costs
- you have the right management strategies, people and processes
- outsourcing is really the missing piece to your business strategy
- you know the areas of our business that have the potential to be outsourced
These are some of the key points that have to be addressed before throwing yourself into outsourcing, otherwise the initiative may be at risk of failure.
2. Are you aware of the industry outsourcing best practices?
To have a successful outsourcing experience companies have to be aware of and use the industry best practices, i.e. identify them and implement them. There are second to none companies that are well prepared to start the outsourcing process and run it efficiently and effectively - they know how to craft the strategy, identify and select quality vendors, negotiate the terms of collaboration with the latter and finally manage the relationship well. Many of them try to adapt to the constant changes without any preparation, which never ends well. A ready and mature company is not only aware of the industry best practices but also invests in training their people to use proven methodologies.
3. Are you prepared to address outsourcing process risks?
Every business venture brings some level of risk. Outsourcing is no different. Before going through with the process ask yourself these three questions:
- what will happen if the vendor fails to deliver
- how will it influence your business
- what are the possible solutions - what is your plan B
The problem of security is something that should also be on your mind. The vendor you choose to work with should have a record proving their strong security precautions and procedures ensuring your IP or data remain well protected. You should consider limiting outsourcing to places where the practice does not pose too much risks. You cannot eliminate the risk altogether, but you can reduce and/or manage it. Think about aspects like:
- is your strategy executable
- are the schedules and time frames realistic
- have you properly researched the vendor
- what are the shared risks
- does the contract secure your interests
- is there a relationship management plan
- are metrics clear
Some organizations like to start the outsourcing process by discussing what will happen when the contracts terminate - reducing the risk in advance and eliminating unnecessary surprises.
4. Do you have a proven outsourcing process?
Companies often underestimate the complexity of outsourcing. They rely on their internal management systems even though theses systems lacks the knowledge and experience necessary for successful outsourcing. Consider leveraging experienced vendors that will guide you through the process. They should be qualified in both technology and business as well as experienced in dealing with different cultures.
5. Have you setup a team on your side?
As mentioned before, outsourcing is a complex process and it requires dedication from both parties. Not dedicating appropriate internal resources to manage the process is placing your project at risk. People from the inside know the company very well and understand your product, procedures, processes and culture. In most cases, your team should be cross-functional, with people coming from all departments including IT, management, operations, finance, human resources, etc. Your managers should be prepared to limit the responsibilities of the key people and involve them in the outsourcing initiative, which needs to be regularly attended to.
6. Are you ready to manage the outsourcing process?
The outsourcing process requires going through some specific steps. You cannot rush through the stages and expect such a process to work out. Creating requirements for your vendor, evaluating vendors, negotiating contracts all take time. Plan for all the steps needed and take time to implement them well. The initiative takes commitment, time and money and rushing may put your initiative at risk.
Every collaboration needs to be properly managed in order to succeed. A relationship management plan is what holds the relationship together. The plan should include a schedule of activities, resources, budgets, roles and responsibilities, communication plans, equipment, security, etc. The management plan can be prepared straight after the signing of the contract and be revised during the stages of the process.
Although seen as one of the benefits of outsourcing, cultural differences can also cause troubles. Some people tend to believe that the values they have will be shared by those they work with, but culture has an enormous and sometimes tricky impact on how people think and behave. The vendor may not share your views on your business approach, time management or organizational structure. Let’s not forget language differences. Even if your vendor is a native English speaker there still may be dialect differences. This is why it is important to address any problems as soon as possible, so that they will not escalate and have a negative impact on the whole project.
Businesses have to understand the complexity of outsourcing processes before they embark on the outsourcing journey. Their success depends on the understanding of the outsourcing lifecycle, commitment and professional management. An indepth vendor evaluation, planning, contract formulation are crucial in the process. If a company decides to outsource it should connect this process with its business strategy. Managers responsible for outsourcing should be familiar with industry best practices and be aware of the risks involved. With the proven process and experience team responsible for these tasks, an outsourcing can become a vital part of a business strategy.