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Maximise your advantages of outsourcing

TECHNOLOGY outsourcing has been around for more than a decade now, but as more and more companies look to reduce cost, add value to the bottom line and create efficiency in business processes, outsourcing has fast turned into the way forward for businesses across all major sectors. A few years ago, when the market was still in its infancy, the players were few and far between.

One or two big names and a couple of startups were all there were to choose from. But the situation now is a complete volte face. The market is flooded with players- big and small- catering to every niche need and budget, and for businesses, the focus has shifted from finding a suitable vendor to getting maximum value for their outsourcing investments.

Here are a few considerations to keep in mind when comparing vendor capabilities and deciding whether or not an outsourcing arrangement is translating into maximum value for money.

Although cost is a key driver for outsourcing decisions, it is important to remember that getting maximum value for money need not necessarily translate into huge cost savings all the time. An outsourcing deal that focuses exclusively on cost savings runs the risk of leaving behind other significant benefits. In fact, lower costs alone are no guarantee of success.

Apart from economic benefits, most businesses seeking to outsource look for a number of advantages from prospective outsourcing partners including expertise, operational effectiveness, flexibility, industry knowledge, and trustworthiness.

It is important to have a clear understanding of your objectives and getting your priorities right in undertaking an outsourcing arrangement.

Equally important is a careful evaluation of the capabilities and offerings of the potential outsourcing partner.

Some of the key questions to be answered in evaluating an outsourcing partner include:
Are the costs economical, and are they justified by the returns they bring in?
Will the organisation have ongoing control in governance and management?
Does the potential outsourcing partner have a credible track record?
Does the outsourcing partner have the right personnel, skills, knowledge and infrastructure to support your organisation's needs?

Quality vendors will be willing to partner with you jointly in defining performance metrics and governance, and will demonstrate flexibility to meet your needs. Active involvement and clear well defined policies for governance are needed to manage the outsourcing relationship effectively and to derive maximum value from the association.

To avoid misunderstandings later on, it is important to clearly define roles, accountabilities, expectations, and the governance process for managing the relationship at the contractual stage itself. Avoid partnering with vendors that seem inflexible or those that don't quite match with your organisation's cultural ethos and values.

For businesses already outsourcing, it is important to incorporate a wide range of business outcomes including improved profitability and management focus, enhanced speed to market and increased revenue as metrics to track vendor performance, rather than completely lumping it on financial costs.

Apart from agreed compensation, it is also common for businesses to use shared risk/reward arrangements as incentives for higher performance. Risk/ reward arrangements are often dangled as carrots to encourage vendors to deliver more value, align outsourcing results to corporate objectives and elicit performance beyond contractual mandates. In other situations, incentives are also used as inducements to take on especially challenging tasks that carry a high element of risk or uncertainty.

In the end, successful outsourcing associations go beyond vendor-client relationships and turn into longstanding partnerships. Finding the right partner is critical of course, but continual assessment, adjustment and rethinking of priorities is needed to manage the relationship successfully in the long run.

The right partner and sophisticated outsourcing practices can help you derive maximum value and satisfaction from the outsourcing process.

The Hindu - Education Plus - Wednesday, Februry14, 2007