How To Win With Strategic Outsourcing
by Constance Kobylarz, CEO,
Updated 03/04/2004
I have been updating this white paper for our web site every 9 to 12 months for the past several years. It has been fascinating to watch the emergence of the use of outsourcing as a
general practice by companies. At this point in time, the prognosticators are indicating that outsourcing is here to stay in spite of all protests to the contrary.
Once limited only to the very largest corporations, outsourcing has now become common for companies large and small.
Outsourcing differs from the use of consultants or contract workers because the activities being outsourced are usually recurring, and the resources for performing the activities as well as the responsibility for making many of the decisions regarding the activities are transferred to another organization.
Recently, we are seeing a backlash in the US to outsourcing resulting from the volume of jobs in the US that corporations have shifted to lower cost areas of the world.
This is a topic of much political discussion right now. Sometimes the outsourcing relationship just doesn’t work. It has been reported that half of companies who have outsourced recently are unhappy with the results.
How do you manage the risks?
Your job is to produce measurable results. You need to do more with less.
Contrary to popular myth, producing outstanding results doesn’t happen by taking risks. The most skillful managers produce results by first carefully assessing risks and then, managing them along the way. In todays business climate, this becomes more necessary than before. You may have no margin for error.
First, look at your organization - Do you have dedicated project managers and a project management process that is geared for remote staff and projects? It will take more effort, not
less, to keep a long distance project on track. You need to plan for it. Offshore projects will require additional travel and communication costs. Does your budget cover it? Do you have
project managers ready and willing to travel? What are the political implications for your organization if your outsourcing is publicized? How do you minimize this risk?
Next, define your project
- Outsourcing, whether offshore or local, demands meticulous documentation and definition of what results you want and how you want them accomplished. If you don’t have the staff or time to do the front end documentation, or you anticipate numerous iterative changes, you may be setting yourself up for failure by outsourcing the project. Is it CORE to your organization’s mission? You may want to look for other opportunities to outsource and stay in control of a CORE project or function.
Third, break the project into smaller segments
- Smaller project segments help you minimize risk. For a new outsourcing relationship, a small, short turnaround project can help you evaluate the vendor, refine the project measurement and management process, and minimize your loss in the event of serious problems.
Fourth, measure, review and refine the process - The need to manage risk makes careful analysis and planning before initiating a project even more important than ever. Once set into
motion, every project needs well defined, periodic measurement and management to keep it on course.
Reviewing the basics of outsourcing
Outsourcing can be accomplished at the individual, functional or process level of the organization.
For example, a business experiencing rapid growth might decide to outsource a portion of an accounting clerk’s duties, the entire payroll function or the entire accounting process. Each level of outsourcing brings additional complexity, longer time to implement and a longer time for benefits to become apparent. The difference between success and failure in outsourcing is largely a matter of your preparation and communication with your outsource vendor.
Before attempting to embark on outsourcing, it is absolutely critical that you clearly identify what is CORE to your business and what is STRATEGIC.
As John Bruno clearly states in his article in Optimize, “CORE are all the activities that add to your company’s competitive advantage.” In most cases, you want to maintain CORE
activities within your organization. Non-CORE activities are more likely candidates for outsourcing. What make them STRATEGIC is how closely they relate to your company’s vision of its
future.
For example, most consumers think of Dell Computers as a computer company.
Yet, Dell doesn’t manufacture computers. That is done by outsource partners. Dell’s CORE business is direct marketing and customer service.
Sometimes, it may be necessary to outsource a CORE activity for a short period of time.
To avoid losing your company’s competitive advantage, the outsourcing relationship needs to be structured to assure a smooth transition back within your organization within a specific period of time.
People make it fail - people make it work
Many employees think that all aspects of their jobs are CORE.
Organizations that have been in business any length of time are naturally resistant to change. For outsourcing to succeed, every employee must understand what is CORE and STRATEGIC for the company as a whole.
Identifying the STRATEGIC activities is only the first step.
Your business must also have a plan that fits outsource partners into your overall business plan. This outsourcing plan must be communicated to all of your employees and reinforced with incentives for your employees. Employees who hear about your outsourcing plans via the rumor mill often feel threatened. Their resulting lack of cooperation with the outsource partner can defeat the goals of the partnership.
The next step, once a plan is in place, is committing the proper resources to develop and maintain effective outsourcing relationships.
It is not surprising that many companies who have tried outsourcing are highly dissatisfied with their results. Good outsourcing relationships take time and effort. They don’t just happen.
Without dedicated resources and clear understandings of the roles and responsibilities of both parties, the outsource relationship can devolve into adversarial combat.
Your outsource partners must clearly understand how they fit into your business plan. Withholding key information or devising bogus due dates prevents the outsource vendor from giving your company the best possible service. Having a clear escalation path for both sides to respond to problems or questions, can keep communication from breaking down.
Eight ways to maximize results
In his book Strategic Outsourcing, Maurice F. Greaver II, offers a list of best practices to maximize a company’s results from outsource partners. Our experience over the past 20 years closely correlates with Greaver’s key points. Planning, communication and mutual trust
contribute significantly to the success of a project.
Maximize Your Outsource Results:
“1. Build a trusting relationship that can become strategic -- don’t revert to an adversarial style;
2. Share the control and the decision rights with your outsource provider;
3. Use frequent communication to solve problems and design better ways of operating;
4. Recognize that low price is not necessarily the best way to select;
5. Overcome the ‘not invented here, thus it’s no good’ attitude;
6. Reward the outsource provider for input of all kinds, not just related to their service;
7. Explore ways to measure the outsource provider’s contributions to success, not just failures;
8. Encourage providers to also outsource to strengthen their supply chain.”
--Maurice
F. Greaver II from his book Strategic Outsourcing, 1999, AMACOM, an imprint of AMA Publications
The development of mutual trust is perhaps the most critical item for getting the most out of an outsource relationship.
The outsource vendor needs to know the real project plan and deadlines. The vendor needs to have its share of the control and decision rights.
Even the most well written contract is only a last resort when the human relationships get strained.
Ultimately, it is the attitudes of the people involved that will dictate success or failure. Employees who don’t understand the big picture and are not given incentives that foster STRATEGIC outsourcing will not support your outsourcing initiative.
Executive management commitment to STRATEGIC outsourcing, open communication and respect pave the way for solving the problems that inevitably arise in any business endeavor.
Both sides must have a commitment to find solutions that meet both the vendor’s and your needs. One sided solutions eventually fall apart. Planning and ongoing communication are critical to making it happen.
Aton International has the expertise to help your company get tech products to market faster with substantial ROI.
Technology works best when it is carefully tailored to support the business goals of the organization. We’re committed to developing technology that enhances your bottom line. Contact us for more information.
Copyright © 2004 Aton International, Inc. All Rights Reserved.
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