Outsourcing is a powerful business strategy, if used appropriately and executed properly. Yet, some firms continue to under-perform in their outsourcing endeavors.
Fortunately, this is a management strategy that has been around for many years and a solid list of best practices is available. Here is my list of eight important best practices:
1. Management Commitment – the management team must have clear goals that are tied to overall business strategy, understand that discipline is required, and be willing to make difficult decisions. Management must dedicate high performing managers to lead and manage the outsourcing effort.
2. Management Awareness – the management team must not underestimate the time and effort required to outsource successfully. They must be very clear about the scope and expectations of the outsourcing effort and establish well defined and realistic metrics. Timelines need to be realistic.
3. Management Communications – management must communicate with all stakeholders to facilitate change management. Management must clarify the purpose, players, milestones and report progress regularly. An open management style, where restraints and objections are considered, will help facilitate a smooth transition.
4. Risk Management – a risk assessment and mitigation plan is necessary, just like any other change effort. Consider risks across four areas: strategic risk, operational risk, technology/security risk and financial risk. Assess your readiness before proceeding. Have a viable exit strategy.
5. Appropriate Due Diligence – invest in the effort to choose the right partner. Four critical areas to consider include:
- Company profile – business stability, service offerings, business model, flexibility
- People – quality of resources (especially management), performance management methods, recruiting/hiring, scalability, retention
- Processes – quality approach and certifications, IP and physical security, governance processes
- Technology – applications, infrastructure, software, network security/reliability
6. Focus on value, not simply cost. Do not overemphasize labor costs; look at the complete picture. Understand the suppliers’ reputation for work quality and client satisfaction, quality of the management team, how your resources will be recruited and managed, opportunities for process and productivity improvements, and so forth. Many outsourcing managers have been disappointed, or worse, by overlooking the importance of the overall value.
7. Build a business partnership relationship – start by negotiating in good faith and seeking win-win solutions. Be flexible and constructive, especially during the initial project launch and transition. Expect continuous improvements from both your team and your partner. Establish principles that will guide your relationship.
8. Invest in the Relationship – place significant emphasis on developing the vendor relationship. Take time to know your partner and appreciate cultural differences when dealing with off-shore firms.
I have never seen an outsourcing project fail when these best practices are followed. What are your experiences?