Some Thoughts on Outsourcing

Outsourcing can undoubtedly be an effective strategy. Such arrangements come in all shapes and sizes, but a small business considering this needs to take as much care as a large business undertaking a multi million pound deal. Undertaken without sufficient consideration and care its very easy for an outsourcing deal to go wrong, sometimes disastrously.

So what can be done to maximise the chances of success? Here are some important considerations that might equally apply to managing any supplier who is depended on for the business to achieve its goals and objectives.

Clarity of Purpose

Its absolutely vital to really work through the rationale for outsourcing and to be clear on the objectives for doing so. Once the arrangements are in place, only by measuring what is being achieved against the original objectives will it be possible to understand if the arrangement is working as it should.

A common objective is to outsource a function that is not considered a core competence for the business, thereby gaining expertise and hopefully a pool of knowledge and experience.

Another often quoted objective from outsourcing is to reduce costs. Be very careful with this one!  There may well be a lot of scope for an expert supplier to improve efficiency and run the function cheaper, but the supplier also needs to make a profit from the deal. There have been many outsourcing arrangements that are deemed to have failed because the hoped for savings did not materialise. Have clarity on the size of the expected saving and ensure that any potential supplier is not only aware of this, but can also run due diligence to assess feasibility.

Clear Contract

Without doubt the best outsourcing arrangements tick along without either party having the need to consult the contract on a regular basis, indeed having to do so is often indicative of problems.

However a clear and well worked through contract is imperative. It facilitates thorough consideration of all elements of the deal for both parties, and also goes some way to false assumptions leading to later rifts. The contract should set out very clearly what will be delivered and the underlying performance expectations.

Always use a lawyer with a good background in developing outsourcing contracts, they can be quite complicated and its easy to leave important components out. Some suppliers will want to use their own base contract, if this is the case a thorough review by a good lawyer is a necessity.

Contract Duration & Review

Markets change and organisations change, what is a good outsourcing deal now might become a poor arrangement in years to come. Equally the supplier needs some time to fully familiarise and make the best of the arrangement.

Build in an expiry date for the contract that allows extension if its felt to be appropriate, but it is not recommended to make the initial contract in excess of three to five years.

Its also a good idea to build in regular reviews of the overall outsourcing arrangement to cater for changing circumstances, this can protect both parties and help the arrangement stay on course.

Picking the Right Partner

Its really important to be comfortable with supplier who is appointed. This means that their culture and style of business must be compatible and understood. Very often appointing a supplier company of a similar size can help things along. A large supplier can be very impersonal even with a substantial arrangement.

Always ask to meet the team who will form part of the outsourcing arrangement and have a really good look at them, they are effectively going to become part of your business if appointed.

Make It Win/Win!

Its very easy to squeeze a supplier so hard that their only way of making money is to cut corners or reduce quality. Don’t put yourselves or the supplier in that position. From initial negotiations through the lifetime of the contract the deal should represent a good deal for both parties.

Relationships are easily strained when money is at stake, get this agreed from the start.

Governance & Communication

All outsourcing arrangements require good governance, external suppliers require the same management discipline as internal teams and departments.

Agree regular meetings with the supplier and use these to discuss issues and also discuss performance against operational and service level agreements. If regular reports are required agree the required format, content and regularity as part of the contractual arrangement.

Also ensure that risks are understood and being mitigated and that any other dependencies (eg. third parties the supplier uses) are understood.

There is no substitute for regular communication, and a good relationship between management in both parties invariably makes for a happier and more constructive arrangement.

Summary

There are many factors to consider when considering outsourcing. Its always a good idea to bring in some experienced outside assistance if you lack experience internally, it can save a lot of time, hassle, and money in the longer term.

Above all don’t rush in without a clear understanding of how to manage and measure the arrangement. Articulate all expectations, assume nothing even if it seems obvious, the devil is often in the detail.

 

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