Mastering the Outsourcing Process

by Richard Gamble

So, you’ve been tapped to lead the big outsourcing project. Great.

Now, what do you do?

Who do you hire? How do you solicit bids? What do they charge? How is the contract crafted? How do you get your worried employees on board?

The questions are endless. How you proceed from day one, however, can make a critical difference between success and failure. Yet, stuff happens. Technology shifts rapidly as does the economy. Your needs change. Your partner’s financial situation could change rapidly.

Now what do you do?

These are just a small number of issues that arise when a company embarks on the sometimes scary ride into the world of outsourcing. You’re not alone, though. Afterall, worldwide outsourcing has hit more than $350 billion annually, according to Cutting Edge Information.

Those attempting outsourcing today can follow an orderly, tested process that will increase their chances for success even if they find themselves wrestling with a different outsourcing project than the one they had carefully outlined.

The following is a battle-tested blueprint for achieving a successful outsourcing experience. We show you that the path does not need to be so treacherous, as long as you follow these six sign posts.

1. Gain Control and Evaluate Opportunities
Nothing happens until you get organized, points out Howard Lackow, director of outsourcing advisory services for the Outsourcing Institute. Outsourcing eventually will save time and allow you to redeploy resources, moving away from performing routine tasks toward finding and achieving strategic goals that lead to better products, improved customer relations and higher profits.

But, it won’t be easy. Outsourcing will take time. Quite a bit of it. But a lot less time if you plan carefully and anticipate problems on the front end instead of having to put out fires or even repeat the selection and implementation process until you get it right, he insists.

In principle, outsourcing is the scientific process of evaluating alternatives and making the best choice. In fact, outsourcing triggers irrational reactions that must be dealt with.

The first mention of outsourcing can trigger rumors within an organization, notes Naz Haider, a veteran outsource consultant and project manager who is now manager of strategic sourcing for The Walt Disney Co. Fears of imminent mass layoffs frequently run rampant. “Before conversations pass the exploratory phase, it may be necessary to talk with people at all levels who might be affected and assure them that nothing has been decided and that they will be kept up to date if a project is initiated,” he warns.

At the same time, companies considering outsourcing must be honest with themselves, notes Bob Rosetta, managing director for strategic technology sourcing at JPMorgan Chase & Co. “You have to know your all-in cost of doing the process in-house,” he explains. “When you get a bid from a third party, it might be lower, which could look like a good deal, but you probably won’t eliminate all of your internal costs. You’ll still need someone to manage the project. You have to factor that in to see whether you’re really lowering the total cost of ownership.”

2. Design the RFP
Now it’s time to prepare the RFP. This is a very critical document that must be taken very seriously.

Before you send it out, go through this five-step process, says Lackow.

Obviously these five steps presume that the RFP should be an instrument for rigorous, objective, empirical evaluation. But to produce reliable results, both the metrics and the data have to be exactly right, and the metrics and data are often controlled by people who have reasons to fudge, Haider points out.

“It’s very difficult to separate outsourcing decisions from self-interest,” he says. “You have to make a real effort to see that the decisions that are made are in the best interests of the company as a whole and not of one constituency within it.”

Attach the contract you want to use to the RFP, Rosetta advises. It’s a good negotiating tactic to get the supplier to accept as much of your terms and conditions as possible while the process is still competitive, he explains, and if a provider won’t accept essential parts of your contract, it’s better to find that out before they become a finalist.

3. Evaluate the Proposals
Once RFPs go out to selected candidates, it’s up to them to develop and present proposals that conform to your RFP, Lackow explains. Then you sit down and evaluate their proposals.

Typically you should have at least three and no more than eight proposals to review, he suggests. As the likely winner or two finalists emerge from the screening process, it’s time to determine how you will build a relationship. Once a good selection is made, relationship management determines whether the project will fly or crash, he asserts.

Even companies with strong internal staffs often bring in outside consultants in the early stages of an outsourcing project, partly for their expertise but also for credibility and objectivity. An unbiased consultant can be worth many times his or her fee, Haider suggests. Even a rigorous RFP that is structured to measure potential providers on an equal footing is no guarantee that the right one will be chosen. The people reviewing the RFPs and making the decision will still have their favorites, he cautions.

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