| First, know what your business is all about? Next, only outsource what you know. Finally, get rid of the idea that outsourcing translates to immediate cost savings.
Do your due diligence before making outsourcing your preferred mode of operation. I would recommend that organization first operate the “proposed outsourcing work” internally to get a feel of what needs to be outsourced. A wholesale outsource without proper planning will hurt bottom-line and impacts business performance. Plan as though you will be recruiting full time staff to carry out the tasks. Then where applicable, perform the activities in house and measure the performance.
The decision to outsource becomes clear when there are no internal resources available to fulfill the requirements and when the activities are taking up too much of your internal resources time and do not deliver the quality that you are asking for. By actually running through the whole process in-house, you know exactly what you need to outsource. Pick out the parts where it is easy to manage. Setup good performance metrics for measuring and guide the outsourcing contract.
Below are 2 typical scenario where businesses pops up the option of outsourcing.
Case 1: The organization does not have existing resources to support the strategic intent.
What to do: Clearly define what are needed to be done in your organization/project with a well crafted work package document. Next, deliver the job descriptions (JD) of individuals who will be working on this new work package. Analyze the cost of operating in-house vs outsourcing and identify the tasks in the work package that can be easily outsourced without incurring additional management and administrative overheads.
Case 2: Expansion in business has led to increased demand in resources to fulfill orders.
What to do: Perform a thorough review of the current process, scope of work and people operating in each of the organizations function that are affected. Take measurements of current performance and compare that with desired result (for example, you need to improve your time to market to stay competitive).
Case 3: To achieve security compliance, the company is required to segregate roles and responsibilities.
What to do: Review the job scope, workload and quality of the affected individuals. This is a good opportunity for you to hire a new headcount if the quality has been compromised because of overloading. If the segregation results in minimal work to be performed by the new role (or function), then it makes more sense to outsource that position (please clear this with your security department).
There is no rule of thumb on what you can outsource. You must be aware that outsourcing does not mean a reduction in operating cost (at least not in the short term). It may increase cost of operation as it improves other aspects of your business such as time to market, quality of deliverables, higher customer satisfaction level. In the first place, never compare the cost of outsourcing with your current cost baseline since your company may not be running optimally due to poor resource allocations or quality (for example) was not in the equation. Perform a cost/benefit analysis and judge the outsourcing outcome objectively.
Please feel free to share your outsourcing experience with us.
Other must read articles:
- Focusing on Cost
- Adding value in your organization
- Don’t be doomed by outsourcing
- Stakeholders are critical to your success
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I want to highlight the fact that depending on the cost structure of an organization, the baseline cost may not be adequate to throw out “expensive” outsourcing options. We have to understand that companies are never running on 100% cost efficiency. If that is the case, the cost of outsourcing does not have a good comparison and we should not claim that the outsourcing contract is more expensive than current practice. The current practice may not be the best way and therefore cost less.
Hi Vince,
One thing to note also, is that outsourcing providers are so specialized that they bring immediate benefits to an organization that it wouldnt otherwise be able to acquire within the critical time frame.
Outsourcing also enables organizations to grab on to opportunity withouth having to wait for key resources to turn into organizational capabilities.
While I agree with your suggestions to do your due diligence and to begin to operate in an outsourced environment internally, the latter can be costly. In order to esablish track and manage service levels, tools and processes need to be in place and the business to agree. This is often a challenge internally and an outsourcer will do that as part of their base solution.
Another case where outsourcing can be beneficial is cost savings. Outsources will agree to a fixed price based on agreed, established baselines. This enables the client to effectively manage their IT costs and the outsourcer to implement their best practices and productivity improvements.
While this is a subject I am very passionate about, if considering outsourcing, my suggestion is to: (1) understand your company’s pain points. What is it you want a vendor to help you with? (2) understand your metrics. What is your base case? What are your baselines? (3) Understand and have senior management buy in to the service levels your business needs. For example, don’t necessarily ask your vendor to provide a 7×24 Help Desk if your existing Help Desk gets a handful of calls per month …or …don’t ask for Platinum Server support for non critical servers or test/development. Just because you’ve done it this way before, doesn’t mean you should keep doing it that way.
last, a good outsourcing vendor will ‘partner’ with you and recommend ways to reduce cost and improve service. Make sure you have a good relationship with the vendor with trust, confidence and their executive commitment.