Some rigorous thinking is necessary before you contract out a part of your business. Here are some key questions to ask your management team

“Outsourcing is the answer to all of your problems.” You have probably heard the sales executive from an outsourcing provider say something along these lines or you may even have heard it from one of your own management team. But you also read the newspapers and remember several high-profile outsourcing disaster stories that have resulted in poor customer service and bad publicity.

What’s right for you and your business?

All kinds of businesses outsource elements of their operations, such as back-office services, distribution or elements of manufacturing. Unfortunately, sometimes the outsourced relationship doesn’t work as well as it should.

In many cases the relationship has become an adversarial one, and whatever goodwill and trust that once existed has evaporated. But surely nobody enters into an outsourcing deal with the expectation that it will end in tears? Of course not, but poor preparation and an unclear initial definition of how the relationship will work can fundamentally undermine the relationship before it has begun.

So if you are considering any kind of outsourcing activity, what sorts of questions should you be asking of your management team – and of potential partners?

1. What benefits are we looking for?

In many cases the driver is cost reduction but other reasons for looking to outsource could include a desire to focus on core in-house activities, a move to reduced fixed costs by making elements of the business more flexible or a need to improve quality.

It’s really important to remember that outsourcing in itself will not necessarily reduce costs and that you will need to be very clear about any trade off between cost and quality that is inevitably required when outsourcing activity to a third party.

2. Have we clearly defined the details of the service to be outsourced?

One of the most common reasons for the failure of outsourced relationships is poorly defined service definitions that fail to spell out adequately what will be provided by the third party, and what roles and responsibilities there are for both sides. It is just as likely that the relationship will fail because of defects on the client side rather than any failures by the outsourced provider.

3. Does the business case stack up?

Having made sure that services have been clearly defined it’s essential that the business case is compelling. All options should be fully explored, including remaining with the status quo, and the costs, benefits and risks should be clearly identified and quantified. Outsourcing any element of your business is a major decision that should not be taken lightly. Only if there are clearly defined benefits should outsourcing be considered.

4. Can we deliver cost savings by improving the way we operate?

In most businesses there will be opportunities to simplify and standardise processes that should be explored before outsourcing key activities. After all, this is what your outsourcing partner will do so why should they take the benefit when you could do yourself?

5. Have we done sufficient due diligence details on our potential partners?

Once you begin the process of identifying suitable partners you must get as much assurance as you can on their strength. Visit their operations, check on their creditworthiness and, most importantly, consider whether they are a good fit with you and your business. You are looking to enter a long-term partnership with them and you need to be sure that you have a good chance of making it work.

6. Do we have the right skills and experience to manage the relationship?

Outsourcing will change the way you do business and require new skills. For example, if you outsource financial transaction processing, you may need contract and performance management skills that may not exist in the current finance team. You need to be brave and ensure that you have strong people managing the relationship.

Above all, ongoing communication is key to making a relationship work. It’s important to build in space to resolve issues at the lowest level and promote collaboration between partners. Conflict between partners can become adversarial very quickly. Find ways to solve problems quickly and efficiently.

In summary

Instinct says that outsourcing must be a way of reducing costs; reason says… but only if we clearly define our requirements and business case.

Outsourcing can be a really great way of delivering efficiencies in your business but it isn’t an easy thing to do. If you remember some of the questions above, you’ll have a much greater chance of forging long-term, sustainable relationships.

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