February 15th, 2016
Outsourcing has many benefits – cost savings, access to experts, delegation of responsibility, increased ability to focus on core functions and more. For many large businesses, outsourcing has been the order for quite a while; but companies of any size can consider outsourcing and derive the same benefits.
Following are some fundamental rules that may be followed to achieve early tactical successes while establishing a long term strategy for outsourcing.
Evaluate your need for outsourcing
You must answer a number of questions internally. For example –
Once you have agreement on some non-core activities, which you can quantify in terms of current cost or time needed to accomplish them; then it is time to move forward with the next steps. Note that this internal evaluation also helps you get a buy-in for outsourcing from your organization as a side effect.
Identify parameters to track performance
Once a decision is made that outsourcing is the way to go, there is a need to think through what exactly you would like to achieve and in what timeframe. It is important to keep expectations realistic, while identifying the parameters that need to be measured. For example, your parameters could be Cost per Resource, Cost for Quantum of Work, Task Turn Around Time etc. At this point, you must choose parameters for which you have values available from your own experience in doing them or getting them done by on-shore partners. Then set the target values for these parameters for your organization and vendors to achieve.
Find a suitable outsourcing vendor
You need to define what kind of vendor is suitable. While the basic factors don’t differ in that you must find someone with the skills you require and the right credentials to deliver, but there may be minor variations in your selection depending on what you need done, scale of outsourcing, the management bandwidth you can deploy, availability of in-house experts etc.
Typically, if the idea is to establish a long term relationship and save costs, you must find a vendor at an offshore location and somehow ensure that they have the potential to deliver incremental value with time.
So, it is important to do a review of vendor capabilities, experience, processes, infrastructure, and management depth, before proceeding. The vendor’s experience in situations similar to yours, or their capability to suggest a solution and a model that helps you achieve the targets on your performance parameters is very important too. To assess the vendor’s maturity level, it is always a good idea to transparently share your performance parameters and targets for the vendor to provide a detailed proposal addressing those.
Start small and keep going
Big things start small, and so it is with outsourcing. Even if you have evaluated your vendor well, and are sure of their capabilities, it is best to identify small bundles of work that can help establish the working protocols and team relationships while giving the small early successes. If the need is to outsource a larger project, then explore incremental models and prototyping approaches.
It is also important to be not deterred by small setbacks, as the relationships, communication and processes get established. The best outsourcing strategy is to treat a vendor as your partner, and clearly set the expectation on them to commit to your business goals from the relationship. This helps everyone involved to keep the larger goal in mind and keep moving forward.
Once operational processes, communication channels, verifiable performance metrics and a strong core team are established, scaling the relationship is far easier and less prone to risk.
Look for higher value, not lower cost
The one mistake that is often made while trying to outsource is to look for the lowest cost vendor. It is important to look for the right vendor, evaluating several for suitability and making a balanced value v/s cost decision. It is important to be aware that projects are not delivered by putting resources together; rather they are done by creating teams that commit to them. The level of commitment and experience that a vendor can bring in to an outsourcing relationship often defines its success. Beyond a point, cost benefit delivered in terms of lower rates is meaningless in a long term strategic relationship. It has to be realized from the higher value that stems from smart execution of work, process excellence, and shared goals.