The Road to Better Outsourcing

The Road to Better Outsourcing

Have you ever heard the expression 'Any road will take you there if you don't know where you're going'? When it comes to outsourcing, it can sure cause long term problems if you don't invest in strategy development, goal setting and planning.

Thankfully, 'worst' practices in outsourcing strategy are becoming less common. One that is still surfacing takes place even in really well-run companies. When they step back to take a closer look at what they've got, they find a dizzying array of outsourcing relationships on their plate, rather like a messy mound of spaghetti. An elegant name for this is multi-sourcing, but don't be lulled into complacency by a nice name for a challenging situation.

Let's face the facts, all business processes eventually overlap at some point, both within and across business lines. In practical terms, in the absence of a company-level plan, the business units and departments will outsource their processes to the 'best' provider. Understandably, there is often little or no consideration for the consequences at the all-company level of this 'best-of-breed' strategy -- or of the impact on established outsourcing relationships.

Business leaders are there to maximize their business or unit's profitability and efficiency. They are likely unaware that a substantial part of the cost benefit and efficiencies are wiped out at the company level. The total cost of managing quality, service delivery, technology, and processes across a large pool of providers is something that can only be seen when measured at the macro-level.

I searched for stories of companies facing the challenge of rationalizing a long list of outsourcing service providers, but apparently this isn't the type of story that gets aired in public. Let me instead share a personal experience: an HR executive showed me a long list of service providers and asked where to head next. The list included just about every provider you could think of, so a lot of analysis was needed before we could talk about rationalization strategies.

The first thing I did was to assess switch costs, which can end the conversation right there. Eventually, the discussion turned to implementing the switch process. Entering an outsourcing arrangement is a long, costly and sometimes risky process. But changing providers raised another legitimate concern: they no longer had an intimate operational knowledge, which didn't feel too comfortable.

A 'best' practice is to invest time in creating an integrated destination strategy, with a phased implementation plan. This allows you to create a long term road map while managing pace.

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