the 10% you need to know about -

Outsourcing

Outsourcing is widely accepted as a viable business tactic to achieving one or multiple goals, including reducing costs, improving efficiencies, improving effectiveness, and improving competitive advantage. In fact, outsourcing has been called the most important management development of the last decade.

Even the largest of organizations, those whose annual revenues are larger than the GNP*s of many countries, lack the resources to be excellent at everything. Global competition and the free flow of capital toward countries, regions, and organizations that are best at delivering their value to their clients is forcing executives to understand that diluting their organization's focus away from becoming and remaining world class is deadly. Remaining ahead of the pack in more than your core competencies is unsustainable. Attempting to do so comes at the cost of overall mediocrity and means eventual decline of the organization.

The principle emerging is that if the activity or business process is outside your core competency, then you need to contract it out to supplement the excellence of your own core with the excellence of the core competencies of your best of breed outsource partners.

If you question the relevance, consider that your mail and parcel delivery, banking, investment management, payroll, collections, auditing and portions of your IT are outsourced right now. In fact all non-core functions or processes needing specialized expertise but where your organizations lacks the self sustaining critical mass of knowledge, skills and infrastructure needed to be world class might benefit from outsourcing.

Although a common tool of business strategy for years, many pitfalls face those who fail to establish a firm foundation for their outsourcing relationship. Some of the largest and most mature of organizations can point to outsourcing failures despite the best intentions of the parties involved. Outsourcing is indeed a complex business relationship. processes needing specialized expertise but where your organizations lacks the self sustaining critical mass of knowledge, skills and infrastructure needed to be world class might benefit from outsourcing.

Although a common tool of business strategy for years, many pitfalls face those who fail to establish a firm foundation for their outsourcing relationship. Some of the largest and most mature of organizations can point to outsourcing failures despite the best intentions of the parties involved. Outsourcing is indeed a complex business relationship.

The hallmarks of a successful outsourcing relationship are trust and a mutual commitment to common goals. Without a solid foundation, trust and mutual commitments crumble due to intense pressures created by significant, inevitable changes in the technologies supporting the business requirements or in the business requirements themselves.

The potential rewards of adopting and then leveraging the economies of scale, the breadth of scope or innovation capacity of a partner are high. But so are the risks. To minimize the risks, all processes leading toward and sustaining the outsourcing relationship must be well designed and well managed. There are no substitutes for due diligence, clearly defined expectations, performance and outcomes measures, clear communications, and contingency planning commensurate with the risks perceived!

You may wish to expand on the following to arrive at your own approach to investigate and if appropriate, implement outsourcing.

• Identify, associate and test the fit of the business need with the strategic goals of the organization.

• Evaluate the feasibility and appropriateness of satisfying the need from within versus from outside your organization. Perform a benefits-cost analysis for the investment needed, the lifecycle cost, time available, added flexibility, effort to manage, expertise on hand, opportunity cost of diverting management focus, potential for economies of scale, scope, or innovation, and the likely impact of change within AND around the function under consideration.

• Identify, quantify, qualify and develop a response for each risk event for transitional, operational, technology, contracting, and relationship risk categories.

• Define expectations in terms of service levels and statements of work and their measurements

• Develop evaluation criteria, trade-off preferences and define your evaluation process.

• Develop effective performance measures and reporting mechanisms to keep the designated manager informed and accountable for managing to the outcomes intended AND your senior management.

• At least annually, formally review and make changes to improve alignment between the outcomes produced and the outcomes needed to satisfy your current business strategy driven needs.

• Develop an exit strategy AND contingency plans.

Jules Selymes

Managing Director

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