Five steps to effective outsourcing – Part One

Five steps to effective outsourcing – Part One

Introduction

The jury is still out as to whether outsourcing can deliver measurable business improvement and better-cost performance. Many outsource deals fail to live up to the grand promises made in the press releases and back sourcing or early closure of deals is becoming an increasing trend. Having said this there are key principals that if followed can greatly increase the chances of success of the whole process.

1.0 Scope the demand

There must be clear scoping of the demand and what is being put to the market. This need to be on the basis of knowledge of what and how the service is being carried out now and how much is being paid for it. Outsourcing on the basis of lack of understanding or frustration is the poorest reason and almost certainly will lead to poor decisions and no benefit. It is best practice to fully assess the current service as provided even to the extent of allowing the internal organisation to prepare an ‘ internal’ bid for the service. This allows a thorough scoping of the service and an accurate benchmark. It will also expose the fat which contributes to high cost in the current ways of working and the profit to be made by the outsource vendor should you go to market without assessing the current cost structure.

2.0 Clarify the objectives

Within the objectives for the outsourcing there must be consistency and reasonableness of demands – cost reduction, as a key aim coupled with a demand to increase service may be inconsistent. Sign off and agree internally why we are doing this and determine what is driving the whole process within the organisation – this is important from the vendor’s perspective as well. If the vendor knows that cost reduction or technology refreshes are key objectives the response can be tailored to precise needs.

We should be aware that objectives can change over time and the original case for an outsource can be undermined by events. Revisiting the rational is an important task during the process – don’t be driven by the running train. And be prepared to get off if the rationale changes. It makes no sense to go on when the entire rational and benefit case has disappeared.