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Outsourcing Fundamentals - What is Outsourcing - You and Outsourcing
is a recurring theme in today's competitive marketplace. One way Organisations are handling change is by outsourcing, which simply means, handing off
certain processes and services typically handled in-house to an outside
It is important to establish that the outsourcing relationship must, and can yield long-term value and benefits. Outsourcing services, in the hands of an experienced partner with the right people, processes and technology, can offer many advantages.
Starting Point and Scope
The starting point for any Organisation considering Outsourcing, is to define its outsourcing goals, the expected benefits and measurement/success criteria.
While cost reduction is usually an outsourcing goal, other factors should also be considered. These include capability and skill gaps with the in-house staff, improved service levels, technology and infrastructure investment, and transformation potential. Careful consideration should be given in selecting the functions and processes to be outsourced. Outsourcing scope can be as significant as an entire IT department, or as finite as a selected business process like email support. Your outsourcing planning should develop a set of functions and processes to be outsourced along with a potential schedule for transition to the new suppliers. Potential risk to your core business must be evaluated in the selection process.
The following should be considered when planning to outsource:
Internal Resource Planning - It is essential that sufficient time and resources is committed to develop the outsourcing requirements, gather internal technical and process documentation, author the request for proposal (RFP) documents, and to define and execute proposal response evaluation and supplier selection.
Transition Planning - The supplier selected should be mandated to develop a detailed transition plan which will include all requirements for resources, documentation, and facilities from your Organisation. It is vital to also dedicate knowledgeable internal resources to assist the new supplier during the transition period.
Governance Structure - Changes to the leadership team structure will occur as a result of outsourcing, hence, the establishment of a governance team which will include executive leadership, RFP leaders, contract managers, legal representatives, and service level managers, is very important. The required interaction with the supplier's governance team should also be defined.
Terms and Conditions - Working with the contract and legal experts, detail contractual terms and conditions requirements that can be utilized for multiple outsourcing contracts should be developed. This will include invoicing and payment requirements.
Statement of Work - Each function or process to be outsourced should have - A statement of work (SOW). The SOW should be robust and include the specific requirements for services to be delivered by the supplier. Intending suppliers should be made to demonstrate how each of the detailed requirements will be delivered.
Service Level Agreement - The development of a service level agreement (SLA) which includes specific measurable items that indicate delivery conformance to the specified requirements is crucial. Measurement frequency, reporting format, performance incentives, and financial penalties should be included.
Organisations should never enter into an outsourcing arrangement without a good quantitative sense of where the starting point is as well as the destination. In most cases, organisations already have a set of metrics they've been using to measure performance prior to outsourcing. Where this is the case, the same metrics can often be transferred from the client directly to the outsourcer. This is especially useful because, instead of starting from scratch, the Organisation will be starting with a solid historical baseline of performance against which to measure future results. At a minimum, metrics should cover operational performance (including service quality), financial performance (what's being achieved for the money spent) as well as the overall health of the client-vendor relationship.
Due Diligence - A specified period of time should be allowed for the selected supplier to gather information from your team which was not evident in the RFP. The supplier will use this information to eliminate as many assumptions as possible in their final proposal and pricing quote.Keys to Successful Outsourcing
- A strategic vision and plan
- Appropriate vendor selection
- Strong vendor understanding of your company goals and objectives
- Clearly defined vendor scope, roles, responsibilities and service level agreements
- Vendor capabilities and track record that minimize delivery risk
- Consistent, ongoing management of the relationship
- A properly structured, mutually beneficial contract
- Open communication with affected individuals/groups
- Senior executive support and involvement
- Careful attention to personnel issues
- Absence of any of the keys to success mentioned above
- Overly complicated contracts
- Inconsistent vendor account/relationship management
- Lack of value-add services or delivery of value add-services
- Inability of vendor to deliver to the contract requirements
Femi Folayan is a Certified Project Manager. He has vast experience in IT project management, consulting and outsourcing. He provides services for a major player in the global information technology and business process outsourcing industry.
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