Sunday, October 14, 2007

Outsourcing Best Practices

If you are about to go through an outsourcing exercise do a lot of research before getting too deep into the effort. Informing yourself is always a good idea, especially when dealing with something as important as deciding upon a long term relationship with a provider. Two of the best sources to start with can be found at and

You may be surprised to learn that The Outsourcing Institute’s survey of Fortune 500 CEO’s indicated that improving company focus is the number one reason executives opt for outsourcing, with cost control coming in second. I suspect many of us would argue that order, but the survey says what it says. Other top rated benefits include access to increased capabilities, accelerating re-engineering benefits, and risk sharing.

To achieve these goals, concentrate on the “Two T’s” of outsourcing, technology and transformation. The former enables the latter and without the latter, your effort is in trouble. Why, you ask? Because transformation is the name of the game. If you are simply transferring the responsibility for performing the function without changing how it is performed, then it is likely that over time the outsourced option will become more expensive. Transformation is technology driven and provides time, cost, and quality improvements that you will not achieve otherwise.

Here is a starter list of things to be aware of, or beware of:

  1. Culture match between buyer and provider is a critical issue.
  2. Monitoring, compliance, and establishing a culture of best practices at the outset sets the tone.
  3. Don’t let providers pigeon hole you into their “standard” solutions. You are unique, they should align with you.
  4. Working with an outsource provider requires close oversight, but don’t micro-manage them.
  5. You should be allowed full visibility into their cost structure, including staff salaries and benefits.
  6. Beware of firms tied to one technology solution - are they selling you services or hardware?
  7. When evaluating providers, look at their turnover metrics. Turnover has a direct bearing on the quality of people and performance you can expect.

Things you might want to include in your contract:

  1. Require specific education levels and/or industry certifications of staff they employ on your account.
  2. Require that a portion of the annual savings be returned to the staff who work at your site, or to your organization.
  3. SLA’s and KPI’s rule the day. Make them the centerpiece of periodic business reviews and use them to determine penalties and rewards.
  4. Include reward/penalty statements in each SLA/KPI.
  5. Importantly, require the provider to report how they are meeting the SLA’s and KPI’s, not just the volume.
  6. Include a clause that allows you to arbitrarily reduce labor and technology costs by a set percentage without penalty (especially if the requirements may sometimes change, as in the case of copiers for example).
  7. Consider a clause that allows you to buyout unamortized technology costs and retain the technology in the event you terminate the contract.

That’s a good starter list, no doubt you have your own issues to consider. My closing caution is to remember that with outsourcing you are talking about a true business partnership. They are going to be in your house and working next to you every single day. Think carefully about the value proposition, the culture issue, and who you will be working with.


  1. Thanks for posting this very useful information .
    keep up the good work....