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Secrets to Successful Outsourcing - Part 1

Which factors are critical to successful outsourcing and successful outsourcing partnerships - whether you are contracting out simple tasks or huge projects?

Here’s Part 1 of factors you should consider, Part 2 is coming soon!

1. Preparation: Outsourcing should not be seen as an instant panacea for all a company’s operational, financial or other ills. Before tying the knot with a seemingly eligible outsourcing partner, the client company must undertake a complex decision making process. Approaches such as PRINCE2 and Managing Successful Programmes can be helpful in deciding whether or not to take the plunge to outsource, in managing an outsourced project effectively, and so on.

2. Core Competency: As a rule, it makes sense for a company to outsource repetitive or specialist tasks while retaining those core functions that are central and unique to its business. Calculating the correlation between the ability to complete a task successfully and its business value can help determine those areas that should stay in-house and those that should be contracted out.

3. Good Governance: Establishing a governance framework and an experienced governance team and steering committee could be said to be the cornerstones of a successful outsourcing relationship. The framework might include, amongst other things, contract and performance processes and will bring clarity and consistency for provider and client.

4. Stakeholders: Encouraging the involvement and balancing the needs of all the stakeholders would be wise in order to keep them on board, this is perhaps especially so where stakeholders include major stock or shareholders.

5. Goals and Objectives: Determine what needs to be achieved through outsourcing and share with all parties. Remember that the normal commercial tension that exists between a client and a provider may mean that their goals and objectives may not coincide. Clients normally want to pay the lowest possible price for the best quality; vendors normally want to maximise revenue and decrease costs.

6. Compatibility: Client and provider companies that have something in common are naturally more likely to stay together. Expertise, methodologies, ethos, values, working practices, language and cultural differences: these are some of the things to consider in establishing if there is a good business match between the two sides. For example, if a client and vendor use the same approach - such as PRINCE2 - they can be sure that irrespective of the component they are completing, it will dovetail with the other parts of the project.

7. Supplier Selection Process: Evaluation would include: total cost, expected benefits, financial stability, capability, competency, reliability, audit processes, quality control, location and size, with potential suitors being ranked against these. It is worth noting of course that the cheapest supplier is not necessarily the best since it may have left itself too small a margin for error which may lead to higher costs, which in turn could be passed on to clients. Service Level Agreements, Key Performance Indicators and Benchmarking naturally play their part at various points in the life of the outsourcing contract.

Useful links:

  • See in greater depth how risk management training can help you.
  • More information on using PRINCE2 and MSP to manage outsourcing.
  • Comprehensive information about the UK Data Protection Act.
  • For some background reading on outsourcing and the public sector then read OGC Code of Practice: Workforce matters in public sector contracts.
  • The University of Tennessee Center for Executive Education is the first step for more information about Vested Outsourcing.