The benefits of outsourcing are that it can be a fantastic long-term earner, when handled well; customers often stay with outsourcing much longer than they originally expected. Trouble can creep up slowly, though, and once the rot sets in, it is very difficult to rebuild trust.
Our customer will only realize the benefits of outsourcing if we:
- provide flexible resources, whenever they need them to improve their capabilities. This could be equipment, people or skills.
- save them money by spreading the costs of our services across many customers
- use people in countries or regions where wages are lower, to save them money
8 steps to successful outsourcing
1. Stay clear of protected employment legislation unless we know what we are doing
There are many pitfalls in taking on work that is already being undertaken by staff in our customer’s organization. This applies in many countries, particularly UK (TUPE), US, Australia (WorkChoices) and Canada (Continuity Of Employment).
2. Have ways to show our customer that they will continue to get a high quality service
We need a safe, tracked, system to check that the quality of the service our customers receive continues to meet their expectations. With long-running contracts, it is easy to let go of things. This is a dangerous oversight. There is sometimes a disconnect between contracted staff and the team who are running them. This can lead to dissatisfaction among the staff and consequent poor performance in the contract. It may be useful to switch staff between customers. This can keep their enthusiasm high and protect them from being transferred to a new employer if we lose a contract in the future.
3. Reassure them that their solution will always be there when they need it
When deadlines drift, customers start to get very worried. They don’t see the frantic efforts that are being put in, to meet the timescale, so they assume that they have been forgotten about. Suppliers handle this in different ways, the most common of which is to disconnect from their customer. Unsurprisingly, this makes their customer even more worried and can permanently damage the relationship. The best way out, is to be completely open with customers; they are real people and have probably experienced the same problem themselves. When they see the problems, they are likely to be sympathetic and may even help out. Even if it’s obviously somebody’s mistake, customers appreciate honesty and, as long as we show them we’ve put a system in place to stop it happening again, they are likely to forgive us.
4. Explain the price clearly
It is tempting to disguise price extensions/reductions during negotiations, on both sides. If we disguise a price extension, using a tight specification that excludes a key part of the solution, we may make good profits, but our customer is unlikely to provide us with further work, when the contract comes up for renewal. That is a commercial decision that we have to make.
On the other hand, some customers will either provide a tight specification that is impossible to meet within the price, sometimes with further implications that we may not recognize until they are enforced. The contract negotiations can be conducted in a friendly and flexible way, which may not continue after the documents are signed. There may be penalty clauses that penalize us if we cannot meet their requirements and prevent us from withdrawing from the contract without being fined. This is a very serious situation to be in, and can be extremely difficult to get out of.
5. Make sure that their management overhead for the project is kept to a minimum
When organizations outsource, there is sometimes an internal difficulty in managing the outsourced resources. This can create a drain on the customer, which results in dissatisfaction. It is important to plan the delivery of our solution, particularly the interface between the outsourced resource and the internal workings of their organization. This is often overlooked, and can create a blockage that we don’t have the power or control to overcome.
6. Show that their data is always kept confidential
One of the most common risks of outsourcing is the breach of confidentiality. We may have access to information that would give our customer’s competitors an advantage, or might embarrass our customer. We need to show that we take confidentiality very seriously. If we can give examples or explain our systems to convince our customers that their information will remain confidential, that is likely to give us an advantage in negotiating a contract.
7. Share any risks involved with the project
This is a tricky one. We do not want to open ourselves to any liabilities that may stem from this contract, unless it is unavoidable. Organizations that out-source are often keen to share associated risks for example, any knock-on damage that may be caused by a late delivery, poor performance or poor quality. Ideally, all shared liability should be insured against, or we should uplift our price to cover ourselves. This type of clause can cause heavy damage if it is ever enacted and we should be very careful to calculate this damage in the unlikely event that things go badly wrong. One of the protections we should include is a limit to the damages, usually based on the price we are charging, for example a maximum of one month’s charges.
8. Help our customer feel that they are always in control
We need to have multi-level channels of communication, so that the contract can be managed by different people to those providing the day-to-day service. This gives a feeling of control to each of our partners in the customer’s organization. If they need help, they know exactly who to go to, and that person will be able to discuss their problem at an appropriate level.
This means that if something goes wrong, the Contract Managers sort it out, leaving the day-to-day channel free of anxiety. It is very important that the people carrying out the work do not get involved in disputes: they have no authority to change things, and we want to keep our day-to-day customer relations in good condition. If Managers higher up the chain get into trouble, they should know how to resolve it.
While we are doing all this, we need to control our costs, manage our resources tightly and make sure we continue to make profits while keeping our customer coming back for more.
The nature of outsourcing makes it very easy for our customer to cancel the contract and either transfer their allegiance to another outsourcing organization, or bring the work back in-house. This may mean that we lose our staff, who may be automatically transferred to their new employer through Protection Of Employment legislation.