The Rational Outsourcing Blog

Thursday, September 07, 2006

Outsourcing Mistakes -1

Don’t create the outsourcing strategy document after selecting the vendor!
In 2004-05 I helped the Yankee Group set its internal outsourcing strategy. I worked with the senior leadership to create the outsourcing strategy document including objectives and success criteria, defined the scope of the initial outsourcing project, conducted site visits, selected the outsourcing vendor, and managed the proof of concept project. I have now spoken with executives of more than 100 Financial Services firms and 30 Business Process Outsourcing vendors. In these discussions I was surprised by how rarely the above process was followed in outsourcing projects. Quite often no detailed strategy documents existed for the smaller projects. In many cases the strategy documents were created or significantly edited after the vendor had already been selected. Many managers believed that the only reason they had to write a strategy document was because it was a necessary component of the final presentation to the senior executive team that would approve the outsourcing project. Detailed strategy documents are not bureaucratic requirements. They are critical to ensuring the accountability of the whole outsourcing initiative and confirming that the project is actually delivering the promised results. If done right, clear success criteria also help the outsourcing vendor create maximum benefits for their customers.

A recent article quotes Lisa Stone (a research vice president for Gartner) who makes almost the same point:

Stone says the key to a company making the right decision when it comes to BPO is a well planned and thought out choice. Stone says companies should tackle BPO in the same manner they undertake any business venture: by developing a business case by identifying the drivers behind why BPO is being considered, constructing a business strategy, and considering and then selecting the approach that is best for entering into a BPO relationship. "Companies need to set up a BPO strategy in order to block out the hype and determine the best offering for them to achieve their goals," she says. "Then use a structured sourcing process through vendor evaluation, contracting and negotiating, and creating an internal management support team to ensure that all details are in place to support the service before signing an outsourcing contract."

To avoid this Outsourcing Mistake:

  • Executives first need to sign off on a detailed strategy document which enumerates their objectives for outsourcing, and clearly lists the success criterion against which the outsourcing relationship would be evaluated. Only then should the scope of the outsourcing project be defined and the vendor selected.
  • The original strategy document and especially the success criterion should not be changed unless the original approvers explicitly sign off on the changes.
  • Finally, the outsourcing project should be evaluated against the success criterion as soon as possible after the start of the project. At the Yankee Group we evaluated the project less than two months after the start of the project. For more complex projects, such an early evaluation may not be possible, but the first detailed evaluation should occur no more than six months after the start of the project. Note: The whole project should be evaluated, not just the outsourcing vendor. Often the customer itself is the source of problems that can sabotage the success of the whole project. Determining whether the outsourcing vendor delivered on its Service level Agreements is irrelevant if the overall objectives of the project are not realized.

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  • This makes colossal sense! Having been a consultant around outsourcing for over 10 years, the most common reason for outsourcing I hear from my clients when we begin to work is, "I sm outsourcing because my boss said I have to do it." There is usually no complementing strategy or even strategy statement. Trusting an outside supplier to perform your company's business processes must not be an impulse purchase.

    By Blogger mister_consultant, at 10:44 AM  

  • I think, you have a business & idea generator mind. yet you could have been done more.

    By Anonymous Robin, at 5:26 AM  

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