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
Equally important is a careful evaluation of the capabilities
and offerings of the potential outsourcing partner.
of the key questions to be answered in evaluating an outsourcing
the costs economical, and are they justified by the returns they
the organisation have ongoing control in governance and management?
the potential outsourcing partner have a credible track record?
the outsourcing partner have the right personnel, skills, knowledge
and infrastructure to support your organisation's needs?
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.
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
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.
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.
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.
right partner and sophisticated outsourcing practices can help
you derive maximum value and satisfaction from the outsourcing