OUTSOURCING: A STRATEGIC FRAMEWORK

Discover how best-practice organizations use outsourcing to aggressively reshape and fundamentally change the way they do business in order to reach unprecedented levels of excellence and profitability. In Outsourcing: A Strategic Framework, learn how to direct your own outsourcing processes more effectively, identify performance gaps to gain a better understanding of the issues and challenges involved in improving the outsourcing process.

Summary

Partner companies realize the value of maintaining process owners and functional

experts in house during the transition and into at least the first year of implementation.

This accelerates the knowledge transfer and provides experienced oversight. In addition,

training is considered a critical success factor to operational transition and full integration.

Internal outsourcing champions are credited with acting as key liaisons at most

points throughout the relationship. Although most study participants (including

half of the partner companies) do not employ full-time outsourcing personnel inhouse

to manage the integration, the participants do report using cross-fertilized management

teams and boards to effectively oversee the outsourcing partnership. Regardless

of whether the companies employ in-house outsourcing personnel, joint management

provides direction, monitors performance, and resolves performance issues.

This commitment of resources ensures the success of the partnership by assigning

specific duties and accountabilities that most often roll up into joint management

measures.

Measures of Success

Measures drive operations management, performance improvements, and incentive

programs. Companies ensure collective success by communicating strategies,

plans, and measures upfront to vendors and collaborating with vendors to establish mutually

beneficial incentives. Using key metrics frequently enables partner organizations

to improve their vendor relationships and increase user satisfaction. Although measures

vary by function outsourced, several common measures are used by companies

to track performance and take corrective action. All partner companies use both the

balanced business scorecard and customer satisfaction surveys. Since user satisfaction

is often the true indicator of performance, companies include this component in

the balanced business scorecard. In addition, innovative ideas and creative solutions

are often captured in the scorecard and rewarded. Measures are regularly tracked,

reviewed, and updated to meet the partnership goals and needs.

Within the above three macro topics, nine key findings emerged:

1. Corporate strategy, corporatewide re-engineering, and the annual budget process drive

outsourcing decisions.

2. Cross-functional teams, “due diligence,” senior management sponsorship, and input from

key functional areas are integral to the success of the outsourcing decision-making

process.

3. In making successful outsourcing decisions, partner companies examine noncore functions

for service quality, cost savings, and access to essential skill sets (weighing outsource

options against internal capabilities). Due diligence with supplier screening, usually

employing requests for information (RFIs) and requests for proposal (RFPs), is critical

to identifying companies that meet or match these key criteria.

4. Developing clear, measurable expectations with emphasis on incentives rather than

penalties establishes a win-win situation for all parties.

5. Using impartial experts in negotiating contracts (oftentimes with multiple providers simultaneously)

creates flexibility, options, and leverage.

6. Jointly developing plans, involving key company personnel, and thoroughly communicating

with users and the provider facilitate a smooth and successful outsourcing transition.

7. Assigning specific responsibilities for outsourcing providers and key company personnel

and training those who will manage the relationship are critical to integrating all parties

into a successful relationship.

8. Performance measures are key to providing incentives for, managing, and improving

supplier relationships.

9. Successful outsourcing organizations recognize that balanced business scorecards and customer-

driven measures are essential for managing, identifying opportunities for enhancing,

and improving their outsourcing partnerships.

Each of these key findings is explored in detail later in this report.

KEY FINDINGS

• Corporate strategy, corporate wide re-engineering, and the annual budget process drive outsourcing decisions.
• Cross-functional teams, "due diligence," senior management sponsorship, and input from key functional areas are integral to the success of the outsourcing decision-making process.
• In making successful outsourcing decisions, partner companies examine noncore functions for service quality, cost savings, and access to essential skill sets (weighing outsource options against internal capabilities). Due diligence with supplier screening, usually employing requests for information (RFIs) and requests for proposal (RFPs), is critical to identifying companies that meet or match these key criteria.
• Developing clear, measurable expectations with emphasis on incentives rather than penalties establishes a win-win situation for all parties.
• Using impartial experts in negotiating contracts (oftentimes with multiple providers simultaneously) creates flexibility, options, and leverage.
• Jointly developing plans, involving key company personnel, and thoroughly communicating with users and the provider facilitate a smooth and successful outsourcing transition.
• Assigning specific responsibilities for outsourcing providers and key company personnel and training those who will manage the relationship are critical to integrating all parties into a successful relationship.
• Performance measures are key to providing incentives for, managing, and improving supplier relationships.
• Successful outsourcing organizations recognize that balanced business scorecards and customer-driven measures are essential for managing, identifying opportunities for enhancing, and improving their outsourcing partnerships.