Outsourcing is a tempting proposition for any company that feels the strain of a bloated workforce and high service delivery costs.
After all, the theoretical arguments in favour of outsourcing are compelling – you leverage the expertise of an external party, who are better qualified to deliver a more efficient (and less costly) service.
Unfortunately, a theoretical benefit does not always translate well into reality. At Best Practice Group, we have seen more failing service provider partnerships due to outsourcing mistakes than we could possibly keep count of. Although we have become extremely adept at recovering such relationships (and often when the purchaser feels that there is no possible way to do so), we would much prefer to help establish mutually beneficial partnerships from the outset.
With that in mind, I would like to share with you five of the most common mistakes I see made before contracts are signed. In avoiding the following outsourcing mistakes, you will ensure that your outsourcing partnership has a far greater chance of success in the long run.
1. Not Recognising the Prerequisites
Outsourcing is not a cure-all for any and all service delivery issues. On the contrary – if you are dealing with an “issue”, it is probably not ready to be outsourced.
We discussed this in an article regarding strategic commissioning, when we stated that you should never outsource a problem. The same advice applies to the private sector. Whilst it can be tempting to pick up a troublesome aspect of your business and lay it on an external party’s lap, you are fooling yourself if you think that will cure the problem. All you’ve done is move it.
In order for a service to be effectively outsourced, it must already be running healthily.
2. Not Recognising the Risks
There are two main factors that drive companies to outsourcing:
- Cost
- Quality of service
The assumption is that by outsourcing, the above two aspects can be positively affected. Such an assumption can be dangerous. Even the best laid plans can go awry. The decision to outsource must be taken with the understanding that it could go wrong – that costs could rise, and/or service delivery could fall below expectation.
There is always an element of risk in outsourcing, and that risk must be assessed carefully as part of your decision-making process.
3. Failing to Achieve Internal Consensus
Many of the service provider relationships we see are characterised by a lack of internal consensus.
If you don’t get the whole team (and especially senior executives) to buy into agreed goals and outcomes, you can essentially kiss goodbye to an effective outsourcing programme before it has even started. Doing so can be one of the most challenging parts of the outsourcing process, which is why it is often neglected. Do so at your peril.
4. Failing to Set Clear Expectations
We are always keen to remind companies that there are a number of “implied” contract terms that work in their favour when it comes to outsourcing. Our article on a service provider’s duty to warn covered this in detail.
However, implied terms should only be relied upon when absolutely necessary, and doing so often serves to highlight a fractured service provider partnership.
Furthermore, such implied terms work on both sides of the fence. For instance, Anglo Group PLC versus Winther Browne & Co Ltd [2000] set legal precedence that the purchaser must take reasonable steps to ensure that the outsourcing partner understands their needs, and by extension, the clear measurable outcomes that are expected.
This is something that you must do before you engage with a service provider, so that they can tender accordingly, and effectively plan towards meeting your desired business outcomes.
5. Not Prioritising Contract Negotiations
Some outsourcing companies will attempt to brush contract negotiations under the carpet until you have selected them as a preferred provider, at which stage, they will attempt to “bully” you into accepting sub-par terms.
This is something that you must avoid at all costs. Making contract negotiations part of the tendering process allows for greater competitiveness, and full transparency on the pros and cons of engaging with any particular provider.
Focus on Clear Objectives and Act Accordingly to Avoid Outsourcing Mistakes
Whilst it can be easier to press on in the face of internal debate, or concede contractual negotiations in order to expedite the tendering process, making the more difficult (but worthwhile) choices will pay off enormously in the long run.
Whenever you find yourself in a position where you feel that you may be compromising your position, ask yourself whether or not the potential compromise may affect your desired business outcomes. If the answer is yes, you should stand your ground. If the answer is no, you may be in a position to take a practical viewpoint and move forward accordingly.
Creative Commons photo courtesy of Alex E. Proimos
