Ten deadly mistakes of outsourcing and how to avoid them

Deadly Mistake Seven: Forgetting About End Users

It is both strategically and operationally critical to design a workable point of contact for end users regardless of what process you outsource. A dedicated internal group should be formed to assume responsibility and accountability for the

end user relationship and experience. This will allow the company to maintain its understanding of the drivers of demand throughout the organization for the outsourced services as well as provide the opportunity for its functional managers to be hands on in managing the day-to-day relationship with the outsourcing provider. In addition, service levels can be more clearly spelled out and delivered when there is direct contact with users and service problems can usually be resolved more effectively.

One effective technique is to assign account or relationship managers or teams to key internal users of the outsourced services. Ideally, a key member of the team, probably the leader should be responsible for working with users to manage their demand for services and to integrate the capabilities of the outsourcing provider into their planning and strategy making process. It is important that account/relationship managers have deep knowledge of the ‘customer’s’ business domain as well as the service provider’s offerings and capabilities. Another member of the account/relationship team should assume responsibility for working with the users and the provider to make sure that day-to-day services are being provisioned satisfactorily by the outsourcing provider.

Overall, a single point of accountability can facilitate demand management activities and make service provisioning and allocations more effective. Trouble shooting and problem solving nightmares will be avoided if users are clear about whom to contact with problems and when support teams understand what they are accountable for and how they need to work with each other. Having a dedicated team will not only help to ensure a smooth transition and ongoing operation of the outsourced service but it will help to keep the provider focused on delivering to the contract and service level agreements as well as prevent them from trying to encroach into the user groups to sell other kinds of services that may not be needed.

On the supply side, a number of companies have pursued so-called best-of-breed relationships with multiple outsourcing vendors, each with respective competencies and service responsibilities. In these instances, establishing a single point of contact to address and resolve issues on the supplier side is critical. An effective technique is to require the multiple vendors contractually to operate as a single entity through a dedicated combined organization or with one of the providers acting as the ‘general contractor’ and assuming overall responsibility for trouble shooting and ensuring satisfactory levels of service and performance.

Deadly Mistake Eight: Designing “Snapshot” Contracts

A common trap that many companies fall into when pursuing outsourcing, particularly those looking to reduce their costs is to create contracts that are based too heavily on present needs and supply and demand factors. The pressure is great for buyers to specify their needs as specifically and as far out into the future as possible; without stable commitments to demand levels and supply preferences, it will not be possible for the provider to commit to cost savings over the long term. A provider won’t be able to reliably quote prices and make service level commitments very far out into the future without turning the contract into one giant revenue and profit gamble for its stakeholders. But a customer who locks in its requirements over the long term is taking a similar gamble. In order for buyers to avoid being locked into unfavorable contracts, they need to build enough flexibility into the contract to allow for changes in demand and supply levels and new bundles of services. On the demand side, inserting a clause into the contract requiring regular reformulation of demand levels can do this. This can also be done on the supply side, though it is advisable to specify systems and technology upgrade and replacement schedules upfront.

Another mistake that many companies make is not factoring in the possibility of changes in their business such as mergers and acquisitions or startups of new businesses into the agreement. While these types of contingencies are difficult to predict or specify in advance, specific clauses can be negotiated upfront in the contract to allow for them to be addressed and negotiated whenever they arise. It is also important for the outsourcing customer not to assume anything regarding what the vendor is or is not able to do with transferred assets or people. If you want key people to remain on your account throughout the term of the contract for example, then you will need to specify this in the contract. The same is true for training and development or systems and technology refresh requirements and expectations. And procedures for early termination of the contract and for bringing people and assets back in house if necessary should be thought through and incorporated into any agreement with the outsourcing provider.

Tony DiRomualdo is with Next Generation Consulting.</

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