Ensuring outsourcing will have the desired outcome involves appropriate due diligence before signing a contract. Raconteur has some top tips for making the process as smooth as possible
1. ENSURE OPEN AND HONEST COMMUNICATION
Zurich Financial Services has worked with Capita, one of Britain’s biggest support services groups, for almost a decade after agreeing a contract for administration services for its 1.9 million life insurance policies and pensions. Capita deals with some 155,000 transactions a month for Zurich and answers 86,000 phone calls. The partnership has been a success because both sides have effective relationships at all levels, not just among senior managers. Zurich’s Paul Kenmir says: “We’ve very open and honest with each other, which means that when issues do arise they are resolved quickly and in an adult way.”
2. WRITE A GOOD CONTRACT
Punit Bhatia, a consulting partner at Deloitte, says that when a company is embarking on outsourcing a process or activity, much thought needs to be given to what the contract stipulates and the various clauses it contains. However, a partnership that will benefit both parties depends on much more than what is written down. “If you are pulling out a 500-page document every time something is wrong, the deal is not going to work,” he says. Boil it down to as few as ten pages so that everyone involved in the arrangement knows what is expected of them so they can focus on the outcomes, rather than the process.
3. PRICE IS NOT PARAMOUNT
There are a number of reasons why a business might decide to outsource, but saving money should not be the primary goal. Elance Online, a marketplace that helps small businesses outsource a wide range of projects, advises not to choose a contractor based on the bottom line alone: “Experienced buyers, who have outsourced many projects and evaluated hundreds of proposals, almost always recommend discarding the highest-priced and lowest-priced bid. Buyers report that their most successful projects are the ones where they felt the vendor offered a balance of good value and quality results.”
4. THINK ABOUT THE END AT THE BEGINNING
Like an army preparing to wage war, every company needs an exit strategy, because all outsourcing relationships, even the good ones, need to end sooner or later. Law firm Pitmans LLP advises that agreeing a handover process at the start can prevent many headaches down the road, particularly when it comes to IT outsourcing: “It is important to allow a reasonable period for a transition and upskilling of a new provider.” The firm also notes that payments for developing a website or a new computer system, should be staggered in the same way as a construction contract, for example, to give the contractor an added incentive to deliver on time.
5. OUTSOURCE FOR THE RIGHT REASONS
Transport for London recognised at the start of the last decade that its existing IT systems were not able to cope with the challenges that it would face in the coming years. It also wanted to cut costs to invest more in service delivery. Rather than trying to address the complex problem in-house, it chose IBM to design and implement systems to run the London congestion charge scheme and low-emission zone. The partnership proved to be a win-win, with TfL reporting record customer satisfaction levels, as well as generating cost-savings of some £200 million over five years.
6. DON’T ASSUME YOU KNOW IT ALL
It is easy to think that you, the customer, has all the answers. But consider that you may not be asking all the right questions. Deloitte’s Punit Bhatia says that contractors usually have a wealth of experience and can assist their clients to make improvements in ways they might not have considered. “Seek their help and don’t just treat them like a supplier – working together can result in a mutually beneficial arrangement for both parties,” he advises. When a well-known electronics company, was striking a deal to outsource finance processes, its primary concern was ensuring the supplier felt empowered to challenge ideas it disagreed with, Mr Bhatia explains.
7.GET THE RIGHT PEOPLE ON BOARD
It’s been said many times that an organisation is only as good as its people and this is even more the case with outsourcing. Consultancy arvato counts Microsoft, Universal Music and Toshiba as clients, and points out that an effective relationship depends on the right people, with the right skills and mindset, being involved on both sides of the deal. Debra Maxwell, arvato UK managing director, says the human dimension is far more important than things like key performance indicators. “Ultimately, it’s the people who deliver the results and make the relationship work,” she says.
8. THINK LOCAL
A few years ago, many manufacturers were turning to Asia or Eastern Europe to cut production costs. However, many businesses now find that offshoring is not the ideal option. Kiravans, a Yorkshire-based camper-van conversion company, developed a swivel base that allows bench seats to face the opposite direction, but its foreign prototype manufacturer was unable to handle commercial production. The company turned to Sheffield’s PCT Metalmex, which was able to meet the quality standards Kiravans required. James Terry, PCT managing director, says: “The overseas rival couldn’t match our hands-on approach and certainly couldn’t offer the ability to respond quickly to changes or volume increases.”
9. BENCHMARKING TO STAY ON TRACK
Any outsourcing arrangement needs a way to determine whether the supplier’s performance is on target. However, benchmarking is rarely regarded fondly by a contractor, so it needs to be used along with other indicators. Nigel Hughes, a partner at Information Services Group, says benchmarking is most effective as a carrot to improve relationships between client and contractor, rather than a stick. “Then it can have significant value for both parties… and used over the life of the contract, rather than something that you pull because you are not happy at a certain point,” he says.
10. DON’T BE SURPRISED BY NEGATIVE PUBLICITY
Any company planning to implement major change should be aware that it will not come without some degree of pain and critical headlines. For example, getting rid of large numbers of employees and replacing them with contractors is going to upset those workers who face losing their jobs, along with the unions that represent them. A case in point is Frontier Airlines, a Colorado budget operator, that announced last month it would replace a third of its workforce – some 1,300 people – with staff supplied by Swissport at Denver airport. The move attracted considerable negative media attention and trade union condemnation.