Outsourcing is a cost effective and flexible way for organisations to quickly access expertise or resources to support their operations.
Outsourcing can reduce costs by 40-70% due to greater efficiencies, standardisation, automation, and training. In addition to the cost savings, organisations can also benefit from the following:
- Enhanced capabilities
- Better predictability of service delivery
- Reduced risk
- Improved scalability
Although outsourcing is most commonly associated with IT infrastructure, it is also common to outsource non-core business processes (BPO), for example, accounting and marketing. Realizing cost savings and accessing better capabilities in these activities can benefit customers and staff, while freeing resources to focus on core-activities.
But simply “outsourcing” an activity will not fix it if it is not currently working. As the name suggests, you need to have business process in place before you can outsource it. Proximity (talking to the person sat next to you) is not a processes. You need to be able to control a process to effectively outsource it.
Here are five areas to focus on if you want to successfully outsource a business process:
1. Clearly define the requirements
Before embarking on an outsourcing relationship, it is important to define what the success factors are for the process. These success factors should be primarily focused on delivering customer satisfaction. After these have been defined, you can assess if these skills are business critical. If not, it would be best to outsource the process.
After you have made the decision to outsource, use the process success factors to define the requirements for the relationship.
Although cost reduction is usually a major factor, the decision to outsource should not be purely an economic one. Cost is rarely the driver for delivering customer satisfaction. Depending on your business model, quality, predictability, velocity or scalability are going to be more important. After these requirements are established, cost control and potentially reduction over the mid-term should be a requirement.
Setting clear requirements for the outcomes and the relationship and how they fit with your organisation’s strategy will help guide you through the following steps.
2. Clearly define the process
Having defined the requirements for the process, you can set about defining the process you wish to outsource.
If you already have a process in place, all the better. If you don‘t currently have a process in place, you may need to rely on the expertise of the provider to help you define the process. They will have the expertise in this domain, so can advise on how to set up the process. If this is the case, having defined the requirements will put you in good stead to acheive this.
If you do use the provider to help define the process, ensure this is managed as a seperate project from the business-as-usual arrangement, and that the provider is also capable of delivering such a service (more on that later).
When defining the process, ensure that the following are covered:
- Process inputs and outputs
Define how and what your team will deliver to the provider and how and what you expect back from the provider.
- SLAs (Service Level Agreements) for each process operation
The SLAs should cover response time and turn-around times, but more importantly the quality metrics as well.
- Roles and responsibilities
Define which party is responsible for each operation as well as for specific roles within the process. The overall process owner must be someone on your team.
- Lines of communication
This should cover day-to-day communications between the teams as well as escalation procedures.
- Metrics and reporting
So you have defined the SLAs- how do you know these are being met? Capturing and reporting should be integral to the process. This means they don’t impose an additional management burden, thereby enabling resources to be focused on delivering the service.
- Exception handling
Nothing always goes to plan. Ensure there is a mechanism in place to handle possible exceptions.
3. Selecting an outsourcing provider
Outsourcing is a partnership, so you need to have confidence in your partner to make the relationship work. To give the arrangement the best chance, ensure that you select your provider well.
Too often the relationship is seen as a simple customer / supplier relationship where the customer is always right. This ignores the expertise that the provider should bring and leads to unnecessary tension and waste.
Both sides of the relationship bring their expertise to the relationship. If you have defined your requirements well and have a clear process defined, you will have a good understanding of what you require from your provider.
Consider the following when evaluating potential providers:
- Ability to deliver on requirements
Ok, this is a given; do they have the capability to deliver on your process and requirements?
- Sustainability and continuity
So they can fulfill your requirements now, but will they be able to do it over the time scales that you require?
If you have decided that a function should be outsourced, you need to ensure that the provider can deliver the service over your timescales. Does the provider have strategy to replace personnel, or to grow the team to meet your goals?
If the provider is reliant on an individual to provide the expertise, for example, a capable executive, does the provider have a succession plan in place, or the ability to cover if that individual leaves the company?
Outsourcing to an individual contractor or freelancer may seem like a cost effective option, but it is rarely sustainable. This may be suitable for a project, but unlikely to work for a process that needs to be delivered consistently over the longer term.
Generally we think of outsourcing and off-shoring as synonymous. But that is not always the case. The location of the provider may be an important requirement to deliver the service.
- For example, to provide customer support globally it may be more effective to have a customer support presence on the other side of the world rather than doing nightshifts. Or conversely, you may need a provider in the same time zone so that there is less delay in communications.
- Contract scale
The contract needs to be interesting for the provider. Too small and there is no value in it for them, nor any significant benefits for you.
- In addition, if you are a relatively small client of theirs, they are less likely to give you the quality of service that you deserve. Therefore, you need to ensure that the size of the provider organisation is aligned to the scale of your requirements.
- Cost control
Although the bottom line is always important, it should not come at the expense of fitness for purpose. Having defined your requirements, these should be the driver of provider selection rather than the cost.
- If you try to hold the provider on a tight leash they will lack the resources to innovate. This will impact their service over time.
- It is better to focus on long term cost control or reduction strategies. This allows the provider to continuously improve the process and, therefore, deliver greater efficiencies over time that will benefit you and your customers.
- By defining your requirement and process well, you will have a clear understanding of the current cost of the process. You can then use this as a benchmark to measure the efficiency savings over the lifetime of the contract.
You should treat the provider as part of the team – as if they were colleagues in another office. So when selecting a provider their culture is an important consideration.
- For example, if your organisation needs to be nimble and adapt to quickly changing customer demands, it is going to be frustrating having a slow, bureaucratic provider.
4. Monitoring and reporting on the process
As with any process it is important to monitor the SLAs and KPIs (Key Performance Indicators). These will have been defined as part of the requirements and process development.
Ensure that the provider is proving the necessary information about their operations so that you have a full picture of the process. But avoid the temptation to request excessive amounts of reporting as this will just waste their and your resources. For example, do you really need a daily report from the provider when you only report weekly? If there is a low volume of activity with little fluctuation, a monthly report may be adequate.
In addition to provider reports, you need to be monitoring the process as well to ensure the numbers from the provider are accurate. Focus on the outcomes and SLAs. If you feel something is not right, you will have your own figures to objectively refer to.
5. Maintain flexibility
Much of what has been covered so far focuses on requirements, SLAs and tight process. Too often outsourcing is associated with rigid contracts and red tape.
But with a rapidly changing business world, organisations need to evolve. Both your industry and the provider’s will be subjected to changes, so it is important to maintain flexibility to adapt to and take advantage of these changes.
Outsourcing should provide you with a flexible layer that can absorb fluctuations in demand – both up and down. The relationship should enable you to align resources with your business requirements.
You should be aiming to improve efficiency over the lifetime of the contract. A danger of limiting the provider’s flexibility is that you will hinder their ability to innovate, meaning the only way to find efficiencies is to use lower-skilled, cheaper staff. This will just lead to poorer quality output.
By focusing on your requirements and outcomes you can give the provider the flexibility to adapt to changing circumstances while your organisation still gets the benefits originally envisaged.
If you have defined your requirements well, selected a suitable provider and are monitoring the outcomes, you will be in a great position to work with your provider to innovate in a way that ultimately benefits you, the provider and your customers.