The Outsourcing Adventure
by
Jim Miller
Merriam-Webster defines an adventure as “an undertaking usually involving danger and unknown risks.” An adventure is also defined as “an exciting or remarkable experience.” When it comes to outsourcing, detail planning can make the experience remarkable as well as exciting. Appropriate planning can reduce the danger and mitigate the risks.
The initial step is to define your outsourcing goals, expected benefits and 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 bounded 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 items should be considered during your outsourcing planning experience:
Internal Resource Planning – Plan sufficient time and resources 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 selected supplier must be required to develop a detailed transition plan that includes all requirements for resources, documentation, and facilities from your company. You should plan on dedicating knowledgeable internal resources to assist the new supplier during the transition period.
Governance Structure – Your leadership team structure will change as a result of outsourcing. Establish a governance team early that includes executive leadership, RFP leaders, contract managers, legal representatives, and service level managers. Determine the required interaction with the supplier’s governance team.
Terms and Conditions – With the assistance of contract and legal experts, develop detail contractual terms and conditions requirements that can be utilized for multiple outsourcing contracts. Include invoicing and payment requirements.
Statement of Work – A statement of work (SOW) must be developed for each function or process to be outsourced. The SOW should be very detailed and include the specific requirements for services to be delivered by the supplier. Prospective suppliers should indicate how each of the detailed requirements will be delivered.
Service Level Agreement – A service level agreement (SLA) should be developed that includes specific measurable items that indicate delivery conformance to the specified requirements. Measurement frequency, reporting format, performance incentives, and financial penalties should be included.
Due Diligence – Establish a period of time for the selected supplier to gather information from your team that 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.
Typical items that are overlooked during the outsourcing experience include:
- Staff transition to the new supplier
- Staff reduction due to outsourcing
- Facilities utilization
- Software license transfer and ownership
- Hardware transfer
- Warranty transfer
- Maintenance agreement transfer
- Tax and invoicing in multiple countries
- Local law in foreign countries
- Data privacy and security
- Transparency
- Transition resources and expense
- Integration with legacy environments
- Multiple supplier integration
- Scope change and associated billing impact
- Benefit realization and measurement
- Unplanned expenses and contingency budget
- Complex SLA formulas and measurements
- Agreement termination process and expenses
- Agreement extension process
The outsourcing process has grown increasingly complex but the challenge can yield significant long term results. Many resources exist to assist with the planning for outsourcing. There are no shortcuts to detailed planning and undoubtedly you will encounter a few unexpected things on your outsourcing adventure. The benefits can be remarkable!
