Outsourcing is becoming more popular as companies realise the cost benefits of allowing another company to manage a specific area of their business. This could be anything from outsourcing calls, to IT services, to HR and health and safety. Recently there has been a lot of media coverage about the cost advantages of outsourcing, with councils such as Gloucester City Council saving £220,000 a year by outsourcing some of its revenue and benefits services.
Outsourcing is different from other relationships in the business world in that there is usually some form of contractual relationship and quite often some geographic distance. It is important to compensate for these barriers by completing necessary work and taking sufficient care of the relationship.
Finding a Vendor
Finding the right outsourcing company is important, and even more important is maintaining and evaluating this relationship.
The vendor selection process should be well thought out. A decision based on entirely on lowest price may be a decision that is regretted a few months down the line. When choosing an outsourcing company, compose a list of desired criteria as it is easy to forget key factors amongst the stress. Conduct interviews to be sure the vendor meets the criteria set out. Suggested areas of criteria:
- Price – does the vendor meet your budget?
- References/reputation – Does the vendor have a portfolio of successful clients; are they proven in what they do? Are they willing to provide testimonials or references from clients past and present.
- Location – Is the outsourcing company located locally? Are you or the outsourcing company able to travel to hold meetings? If not, are there other forms of communication which will enable you to maintain regular contact?
- Contract terms – What are the contract terms? Do you need a flexible contract? Make sure contract terms are clear
- Resources – What resources does the outsourcing company have to meet your needs? How many members of staff will be working on your project, is this sufficient?
- Commitment to quality – Ensure your outsourcing company are proven to be committed to maintaining the high quality standards that are expected.
- Value – How will the company be able to add value?
- Expertise – A good outsourcing company has gained expertise over the years, having worked with clients with similar business and have gained experience in facing challenges. Find out about the vendors expertise, ask about challenges they have faced and how they were overcome.
Company requirements are a priority and a professional outsourced company will be willing and able to adapt and alter as business requirements indeed change over time. Therefore continually evaluating the business relationship is essential; is it continuing to provide the right service? Is it meeting all necessary needs and objectives? Is there a conflict of interest? Is the service still cost effective and worthwhile? A good outsource company will be able to adapt their services to these changes to ensure the services still meets your needs.
When specifying requirements, it is important for remember key principles. Firstly, be absolutely clear on all requirements as if there is a chance something in the writing could be misunderstood, it may cause problems in the future. Be sure to ask your outsource company if all requirements are clear and understood.
To ensure there are no ambiguities, be sure to ask a wide range of people their interpretation of the final requirements outline before agreeing with the vendor. There should be no room for assumption in the requirements and remember it is better to write too much than too little. The requirements process can be a lot more demanding and time consuming than other business processes due to the physical differences in an outsourcing relationship. However, this initial time spent will hopefully mean there is no time spent correcting misunderstandings in the future.
Contracts and Relationships
Once a suitable vendor is found and requirements have been agreed, a clear contract may need to be written, or read. The contract should include details of the relationship, any flexibility needed according to changing business needs, how success will be measured, who is managing the relationship and anything else deemed suitable to be written in contractual terms.
With outsourcing, a little more effort is required to manage the outsourced company’s processes due to the external nature of the business relationship. It is recommended to have frequent, formal review meetings. These meetings can allow both parties to discuss work in progress, future goals and conduct a review of work already completed whilst also being able to identify any problems that need to be dealt with which could affect the relationship. Clear and consistent communication channels form the basis of any business relationship.
Most businesses do maintain healthy working relationships with outsourcing companies, overcoming any geographical problems which may exist and ensuring efficient communication. Programs like Skype and Camtasia are just a couple of tools which can aid this process. This can be used in regular virtual meetings which can help to encourage healthy business relationships.
There are obvious areas of outsourcing that require regular management to ensure the relationship is successful, including:
- Financial management – ensuring the costs involved in outsourcing are fully considered and maintained to ensure the service remains cost effective.
- Communication – Perhaps the most important point, communicating with your outsource company on a regular basis is crucial in order to develop a mutual understanding and maintain a successful relationship.
- Privacy – it is important to manage who exactly has access to private or confidential information (such as customer records) in order to maintain expected security and privacy. Controlling the vendor’s access to this information is necessary.
There are undoubtedly other aspects which require careful management, depending on the business area which is outsourced, establishing a management program and keeping to it helps to ensure the relationship remains healthy.
Making the decision to outsource a key business area is a choice that can bring many benefits to both small and larger companies. Seeking long term cost savings is undoubtedly a major motive behind choosing to outsource, however, making this decision based solely with the intention of saving money can be detrimental to the success of outsourcing.
The outsourcing process requires time and investment in order to find the right vendor, build and maintain a relationship and to be able to adjust as a business to outsourcing, but when done effectively, can allow a business to really reap the rewards of outsourcing.