Outsourcing these days is synonymous with cost-cutting – in the face of economic down-turn, reducing costs is the main motivator. Sending your non-core work out to a specialist third party will inevitably save you money, and will also will free up resources to concentrate on the business you are truly in. ‘Sticking to the knitting’ will make you more nimble in your core markets, which in turn, should increase revenue. So outsourcing is an effective strategy for growth, as well the obvious cost benefits of letting experts optimise your back office.
Outsourcing is even more beneficial for small businesses. Smaller teams, and less capital to invest, amplifies the impact of the benefits. SMEs employees’ time is better spent on activities that bring money into the business, and factors such as costs of software can prove prohibitive to buying outright.
This advice focuses on sending work out, but should help SME supplier companies understand their customers better as well.
When sending work out, it is important, right from the outset, to know exactly what you hope to achieve, for you cannot outsource until you have clearly defined business objectives and an idea about how outsourcing fits into your existing strategy. For sometimes outsourcing is not the answer at all. Many organisations decide to outsource first, then decide who talk to, without deciding what they actually want. This is a recipe for disaster. Before you speak to suppliers, you must be clear about what you want to do. For example, you want a faster network. More first time resolutions on customer service issues. A slicker supply chain.
Once you know where you want to be, you need to assess where you are already. A comprehensive as-is assessment allows you to establish the clear baseline of performance data. How fast is your network? How many faults? It will help you understand your current weaknesses, and might give you an opportunity to fix them without outsourcing. Even if you feel sure your issues cannot be fixed without outsourcing, preparing a business case for both routes – in or out – will forearm you for the request for proposal stage.
Before you set about preparing to solicit tenders, you need to assemble your deal team. Ensure all key stakeholders are represented here – their motivations may well be at odds. Only by communicating business objectives and involving all groups from the outset will you achieve the universal buy-in required to make your outsourcing deal work.
The next step is to find the right vendor. Engage the market with an attitude that gives the supplier the freedom to succeed. It is the results you should focus on, the innovations and processes that the vendor will use is up to them.
When selecting a vendor, closely examine their credentials. Do they have a track record of successful delivery of similar projects? All backed up by references? Thorough checks need to be made on financial stability, technical competence, infrastructure and working practices. Meet a selection of companies face to face; invest time assessing the various proposals. Rigorously explore the range of operating and commercial models on offer. Find the one best-equipped to deliver your needs.
Another thing to consider at the tender stage is cultural fit. Management teams will be working together on a daily basis. Employees may be transferred to the partner organisation as part of the contract. It is absolutely vital that the values and culture of the organisations are aligned. The only way to truly assess this is to spend time with the team and monitor the chemistry. Speaking directly to managers already dealing with the vendor is another great way of getting a feel for their working culture. This is particularly pertinent when considering offshoring, where you can often find differences extend much further than the challenges of being in different time zones.
When negotiations begin, focus on getting to the right contract. By that, I don’t so much mean the legal document as ‘the deal.’ But, as the actual legal written agreement will form the basis of the on-going relationship, it’s crucial to get it right at its inception. The Service Level Agreement sets out the expectations of both parties in detail. It should clearly define success and failure, but should not be overburdened with excessive metrics. Some outsourcing contracts have about 80 metrics. Truly optimised contracts have less than 10. Less is definitely more; there is a tendency, under a deluge of information, not to use it wisely. Concentrate on the big issues at the centre of the original business case. Also, beware ‘real time reporting,’ which can lead to rash decision making.
Before you sign the contract, consider your exit strategy. All too often, exit doesn’t get the attention it deserves until it is on the horizon – when it’s too late, and you are painted into a corner, surrounded by exit charges. That’s when costs can skyrocket. Although it is not possible to design a detailed exit strategy at the signing stage, a good contract includes covenants to test and update exit clauses throughout the outsourcing life cycle. The full plan will include provisions for replacing supplier-owned technology, secure transfer of intellectual property and avoiding supplier lock-in, keeping your options open on a re-tender.
Beware contracts stating ‘no additional costs on exit’ – these regularly lead to suppliers under-servicing at the contract’s end, incurring additional, unplanned for costs.
Although the SLA is not something to wave in your vendors face, you will require strong governance through the life of the contract. Build in incentives to reward positive behaviour. This is the best way to ensure supplier compliance, and get the best out of the deal through the outsourcing life cycle.
Over the years, we have learned that optimal collaboration needs to be taught. To level the outsourcing playing field, we created the post-grad NOA Pathway Programme. Honing outsourcing relationships for true partnership is never easy. Accreditation will smooth the way; it engenders trust and respect, fostering the spirit of collaboration and shared values required for true outsourcing excellence. For outsourcing relationships must never be one-sided. By their very nature, successful contracts are a joint effort, designed for mutual satisfaction.
Working together to create value for each other.
Remember – outsourcing is a relationship. There will be good days and bad days. There will be teething troubles. There may well be arguments. Resolving issues, quickly and amicably, is all about communication. Regular meetings - both formal and informal – should be a feature of the relationship, and, therefore, should be built into the contract. Signing the contract is just the beginning – think of the SLA as a living document, to be amended as circumstances change throughout the outsourcing life cycle. For more information on the National Outsourcing Associations Life Cycle Model, visit www.noa.co.uk