Outsourcing Analysis and Avoiding Failure

February 6th, 2007

In today’s economy, businesses face enormous hurdles no matter what their particular business endeavor.  Competition from larger, more established firms, globalization, the looming potential for technological obsolescence and the need to keep costs under control can make management of most companies an extreme challenge. Focusing on the core business can be difficult especially when growth – and success – force management to shift its attention from the market and ‘getting ahead’ to the company’s own, internal structures. A strategic tool for CEOs is business process outsourcing. Through the process of outsourcing, analysts say, companies can regain focus on their particular business, become more efficient and even rival the systems and control level of larger companies in outsourced processes and most importantly focus their efforts on the value-added functions of their business.  According to many respected reports, it certainly can help a company’s bottom line.  However, there are many factors to consider before venturing into the burgeoning world of outsourcing.

Mistakes typically made with outsourcing

  •  Trying to outsource a function that has high costs, minimal processes, and is causing considerable management angst; at least try to take the excess costs out before you outsource.  Don’t give someone else your savings margin.

  •  Not developing a business case and strategy on what to outsource, thereby making it difficult to assess cost and process improvement proposals from vendors.

  • Not establishing a method of performance measurement upfront during the contract phase.

  • Failing to consider the long-term relationship dynamics.

  • Not planning upfront how the relationship might end.

  • Failing to understand and manage this new organization dynamic.

  • Failure to explicitly define boundaries, with clearly defined roles and responsibilities.  Never outsource one piece at a time without a master plan.

  • Outsourcing imposes discipline on your organization. Adapting to the rigorous processes required by an outsourcer may be difficult in some corporate cultures.

  • New laws will essentially make security breaches at your outsourcer equivalent to security breaches at your own company.

Standard Conflict Management Practices and Tools

Outsourcing customers and providers usually enter into agreements with optimistic intentions and expectations.  Customer executives look forward to quality service, new thinking, extraordinary responsiveness, and a vendor that shows both a partner-like caring about the customer’s success and an intuitive understanding of the business.  Making outsourcing relationships work takes a lot more than good faith and committed people, and too few such arrangements actually come anywhere near reaching their desired goals.  Even with the best of intentions, relationships can end up in with diminishing returns for both parties.

Once in this downward spiral, customers and vendors are headed down the spiral to failure.  Both seem to get stuck in negative perceptions and behaviors.Technorati