What You Should Know Before Outsourcing Your Business Processes
Outsourcing your business processes is tricky for several reasons. The first challenge is finding a service provider who can execute your projects at a reasonable budget without compromising on quality. Quality-price dilemma aside, a business that is seeking to outsource also has to deal with managing deadlines, enforcing contractual obligations and making sure that your business makes up for all these added costs through higher profits.
Word of mouth references
Finding an outsourcing partner is similar to hiring an employee for your business. You will need to spend a lot of time training your partner and also monitoring their performance to make sure that your projects are being executed as planned. There is a lot of work involved in this process and it is important that you do not waste time hiring unsuitable providers. It is a good idea to seek word of mouth references from other businesses that you work with. Hiring a provider who comes with no references can be risky and unprofitable.
Time = Money
Many businesses outsource the various components of their businesses in order to save money. But one thing a lot of these businesses fail to consider is that time spent training and monitoring your provider costs money as well. An ideal partner requires very little time from your business side to train and track them. While it is not always possible to hire such an outsourcing firm, do take the time spent from your side into account while evaluating the bids from various providers.
The adage ‘hire slow, fire fast’ is especially true when it comes to outsourcing your business processes. It is highly recommended that you set a probationary period to evaluate the performance of the provider. This helps you avoid a protracted exit notice period in the event that you want to prematurely end the partnership. However, make it a point to sign a contract for the entire period in the initial stages itself since it is quite likely for the service provider to seek a higher fee at the end of the probationary test-period.
One of the biggest challenges while executing a project with an external service provider is the potential for miscommunication. Different businesses follow different procedures while executing the same project. In some cases, the same term may refer to different tasks. A software testing project, for instance, may include both internal and external testing depending on context. Some providers may charge an additional fee for running external testing tools while other providers may include this as part of their main bid. Documentation is the key to executing a successful project and it is important to be exhaustive in your requirement specifications so that there is no room for miscommunication or error at a later stage. Not only does such miscommunication cost money, it will also bring down the productivity of your team.
One of the biggest mistakes businesses make while drafting a contract with an outsourcing partner is to save lawyer fee and instead tweak a cookie-cutter contract template. Truth be told, this works nine out of ten times when you do not have to take a partner to the court. However, when such contracts fail, they fail badly. Every partnership is unique and it is important for a business to take the unique aspects of an outsourcing relationship into account while drafting a contract.
Make sure that the contract addresses all aspects of your relationship right from the exact deliverables that the partner must provide to the deadlines, payment schedules and penalties for late delivery. In addition to this, an agreement for a predetermined communication schedule in your outsourcing contract helps your business establish a clear and consistent communication with the service provider.
Service providers tend to include a clause at the end of a contract that promises automated renewal at the end of the contracting period. It is common for such auto-renewal clauses to include a predetermined percentage increase in the quoted fee. This works to the advantage of the provider since it helps them secure your relationship after the contract period along with a rise in fee as well. From a service seeker’s perspective, this is not a good idea since this agreement to raise prices does not take into account the prevailing market conditions and your own business requirements. While it is okay to include an option to auto-renew the contract, make sure that the quote is reworked at the end of the contracting period to reflect the prevailing business needs.
Evaluate the ‘Follow the sun’ model
When it comes to outsourcing, there are two alternate philosophies that dictate how you should pick an outsourcing partner. The ‘follow the sun’ approach recommends hiring a workforce that is located halfway across the globe. This way, your workforce never shuts down completely and is available to work on tasks at all times. This is a good model to pick if you are looking to supplement your workforce. However, if you are looking at complementing your team with an outsourcing partner who works on other areas of the project, it is important to hire a team that is located in the same timezone as you are. This removes any sort of bottlenecks and makes seamless collaboration between the two teams possible.
POC (Point of contact)
In the early stages of discussions between a client and their outsourcing partner, the latter is often represented by the head of business or technology who is adept at understanding the project requirements. However, once the contract is signed, the project is handed off to a project manager or developer who may have not been part of the initial discussions with the client. This creates a dual stumbling block for you as the client.
Firstly, your evaluation of the service provider is contingent on your relationship with the representative you talked to. Also, delegation of tasks to another person would sometimes require you to spell out the project requirements all over again. In order to avoid these issues, always insist on having the project manager who will be handling your requirements involved in your initial discussions with the agency.
Have you faced issues while working with an outsourcing partner? Share your lessons in the comments below.
Vic Anandan is a management consultant specializing in technology benchmarking and certifications. He has over 15 years of experience in the industry and has travelled to over 18 countries so far."Read Full Bio