Monday, August 13, 2007

10 success factors - Outsourcing

There are many benefits to outsourcing. Companies are able to focus on their core competencies, benefit from cost savings and manage workloads more efficiently. With these benefits, there are also challenges. These challenges can relate to project management, cultural differences and management of expectations. To help companies benefit from outsourcing, we will have a look into the top 10 oversights companies frequently incur. Through these lessons learned, we hope that you are able to benefit from experiences gained by your peers.

1) Companies try to outsource project management responsibility:
It is often thought that once something is outsourced, it no longer requires attention. From a different perspective, when companies outsource - they are insourcing expertise, which is similar to hiring consultants. Without proper internal project management, companies can experience an increase in the project scope (reduction in cost savings); inefficiencies related to misunderstood expectations and increased tension between the service provider and the company.
Project management can be performed externally, however, this should be done with a third party provider that has clearly defined key performance measures.
2) Project scope is too big:
If the scope is too large or not well defined, it will cause problems for any type of project. Our partners have found that smaller pilots are an effective way for organizations to get their feet wet in outsourcing; gain crucial organization know-how and build relationships that will serve as a solid foundation for future, more comprehensive outsourcing initiatives.
3) Project definitions / expectations are not clearly defined
Reasonable, measurable, documented expectations are necessary to determine success or failure of the outsourcing effort. Without upfront investment in proper planning, the benefits of outsourcing will diminish quickly.
4) Key performance indicators are not properly defined or measured/enforced
It is critical to establish the key performance indicators(KPI's) prior to initiating the project. KPI's should includedelivery dates, quality measurements and financialmeasures. It is important to review the KPI's on a regularbasis and have mechanisms in place to resolveperformance issues when KPI's are not met. KPI's shouldbe viewed as a way to strengthen the workingrelationship.
5) Internal conflicts / politics are not managed properly
Outsourcing is a sensitive topic. Internal conflicts / politics can result from such initiatives. Managing these issues as soon as possible will help prevent them from escalating throughout the organization. Pro-active change management initiatives can help reduce the likelihood of such conflicts.
6) Mechanism to resolve disputes is not defined:
Even with best intentions, disputes can develop. It is important to define how to address disputes, define the escalation process and if necessary, the appointment of third party arbitration. A poorly defined dispute resolution process will affect performance and quality. This problem is closely related to poorly defined or poorlymeasured/monitored performance characteristics.
7) Business case / total costs are not realistic:
If it sounds too good to be true, it probably is. Costing outsourcing engagements requires more that the simple calculation of (number of hours) x (rates). Investment in process changes, infrastructure and external support should be factored into the equation as well as internal
project management time.
8) Capabilities of outsourcing company are exaggerated:
Detailed due diligence including multiple conversations with current customers is the minimum requirement for understanding the outsourcer's capabilities. Working with outsourcing providers with a solid track record will help minimize many of the headaches associated with being the first client.
9) Outsourcing company chosen based on personal relationship, not qualifications:
When choosing an outsourcing provider, it is important to define clearly the outsourcing provider profile. This should include location, language capabilities, reference requirements, industry expertise, etc. If the outsourcing company does not fulfill these requirements, the reasons for selecting the company should be questioned.
10) Proper consulting support / legal counsel is not involved in project:
Outsourcers negotiate contracts with companies all of the time, most companies do it less frequently. Acquiring proper consulting support / legal counsel will make the process more efficient and mitigate potential future oversights. When selecting a third party provider for
support, it is important to conduct a similar due diligence to the one used for selecting an outsourcing provider.


Anonymous said...

very useful. thanks.

Anonymous said...

Outsourcing is when you hire outside professionals or services to take on part of your business workload. You may want to outsource part of your work because you don't have the room, you need an expert, you have periodic busy periods, or you need more production to get orders out on time, etc. There are many ways outsourcing can save your business time and money.

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