Author: A.B. Maynard - August 13, 2005
1. Introduction
2. Where to Begin: Creating the Outsourcing Vision
3. Key Success Factors: Tactical Planning and Preparation
Introduction
Many companies base their outsourcing provider selection on only one aspect of the outsourcing relationship. Some decide on a perception of cultural fit and on the rapport and relationship developed during the sales cycle between the company's senior management and the outsource provider's sales representative and executive team.
A number of companies drive their selection process via a checklist-driven, skill-matching process that attempts to find and select the best fit, while other companies select their provider based solely or primarily on price.
With many different aspects to consider, how can a company ensure they have made the right choice in selecting an outsourcing provider?
1. Defining the Problem
2. Where to Begin
3. Key Success Factors
4. Selection Process
5. Recommendations
6. Conclusion
Defining the Problem
As there are many different categories of outsourcing services (see Outsourcing 101 - A Primer), there are also many outsourcing providers. Some providers only provide a single outsourcing service, while others provide many services, of which outsourcing is just one offering.
For example, a US-based, consulting firm might provide IT consulting services in the US and Europe, on-site data center or IT infrastructure outsourcing in the US, and application software outsourcing from India or South Africa.
On the other hand, an Indian-based application software outsourcing provider might also offer technical call center services and on-site consulting services in the US and Europe.
Today, there are literally thousands of outsourcing providers scattered around the globe looking to serve companies everywhere, with a primary focus on the US and European markets.
The multitude of different outsourcing providers, each with their own message or business proposition makes the selection process very confusing and somewhat overwhelming.
Many companies, especially small to midsize companies, do not have any experience with outsourcing. They typically have few or no available resources to research the market and have a lot to lose from a failed outsourcing effort.
On the other hand, a successful outsourcing relationship can yield tremendous benefits, significant cost savings, and allow the company to spend more of its energy focusing on its core competencies.
Where to Begin: Creating the Outsourcing Vision
As with any major effort, it is best to begin with the end in mind. A company should have a clear vision of where it wants to end up in its outsourcing or offshoring effort.
If the company doesn't know what results it wants to achieve, it risks being pulled in a specific direction for the wrong reasons- be it price, relationship, or technology.
In many cases, both the company and the prospective outsourcer are only looking at cost as the primary decision criteria. Although this might seem like an obvious and mutually beneficial path, it is not necessarily the best path, especially if the selected provider can't deliver the needed service, or worse, goes out of business.
How should a company get started? Research the web, read books, and hire a consultant. This is a place where investing in professional help from a consultant can be a very wise and cost effective decision.
To help create this outsourcing/offshoring vision, a consultant can help a company answer many questions such as:
- How does outsourcing relate to your business objectives?
- What is your core competence?
- What activities are not core to your business?
- What is your outsourcing strategy?
- Do you envision outsourcing or offshoring? Or both?
- Will you use an outsourcing provider? Or will you setup your own captive facility?
- From an outsourcing perspective, what is your anticipated future state in 3 to 5 years?
- What is the mix of onshore to offshore in the future?
- What tasks are performed onshore versus offshore? Application software? Call center support? Back-office activities such as accounts payable or payroll?
- Will you select a single vendor (i.e., a suite provider)?
- Will you select multiple vendors (i.e., best of breed)?
The essence or result of the answers to these questions is that the company begins to define its overall outsourcing and offshoring vision and strategy.
Key Success Factors: Tactical Planning and Preparation
After crafting the vision, but before actually embarking upon a selection process, a company should develop its tactical plan for moving forward.
Planning and preparation are critical to the overall success of an outsourcing selection process.
Companies should go through the following steps as they prepare for the selection process:
1. Conduct an organization readiness assessment
2. Decide what specifically should be outsourced
3. Decide what is needed from the relationship
4. Decide what is wanted from the outsourcing provider
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1. Conduct an organization readiness assessment
The goal is to assess the company's readiness for change and determine the organizational gaps that need to be closed to ensure a successful transition to the new arrangement.
The assessment, which is a major input to determine the profile of the ideal outsourcing partner, should evaluate people, process, technology, and risk:
People-What skills exist today and what skills are lacking? When will next generation skills be required? Does the company have strong middle management and project management resources? How effective is project management? What is the company's culture as it relates to using third parties for support? Does the company tend to build everything on its own, or does it purchase everything it needs from vendors?
Process-How good are the current processes? Are they ad hoc or are they repeatable? Does everyone adhere to the processes? Can they be replicated in an offshore environment, or will new processes need to be developed? What about metrics? Do they exist? Are they comprehensive? Can they serve as the basis for the service level agreements (SLA)?
Technology-Is the company a technology follower or leader? What specific technology skills are required? What new skills are needed?
Risk profile-What is management's appetite for risk? Are they looking for steady, guaranteed, predictable results, or do they want to stretch and try new methods and processes? Are they willing to trade off significant cost savings in exchange for increased possibilities of pain? How adaptable is the company's management?
The risk profile is directly impacted by the answers to the people, process, and technology questions.
2. Decide what specifically should be outsourced
Many companies only outsource a portion of their non-core functions or only part of their software development or information technology (IT) infrastructure.
A company may decide to outsource accounting functions first, human resources functions second, and IT functions third. Alternatively, they may elect to start in a pilot mode by outsourcing portions from each of the above three areas at the same time and then expand into more complete outsourcing a year or two down the road.
It quickly becomes obvious that companies need to decide which functions and what portion of the function they wish to outsource.
By way of example, companies who only wish to outsource a portion of their application software have the following common choices:
- Legacy application maintenance - the easiest and most common choice for initial phase
- New application development - the least risk choice
- Reengineer a legacy application and migrate it to a new technology platform - a common choice so that the application can be moved onto the web
- Port an existing application to a new database or platform - a common choice among software companies
Next: What is Needed from the Vendor Relationship >>
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