How to Develop a Plan for Outsourcing

4 Basic Steps for Developing an Outsourcing Plan

Businessman looking at world map
Paul Bradbury/OJO Images/Getty Images

A lot of discussions about outsourcing in the media make it appear complex, but it's really quite simple. Even in our homes, we "outsource" many tasks: Cooking, maintaining our lawns, and child care, just to name a few. When we don't have the time, the focus, or the skills to do the work ourselves, we look for someone who can, and someone who will do the work for a price we can afford to pay. Corporations work the same way, even though their decisions may involve more factors and decision-makers.

The Outsourcing Plan Development Process

But just as families make different decisions, corporations can come to startlingly different decisions about outsourcing. There is no template that works for all firms, but there is a process that all firms need to consider:

1. Realization

In the past, many corporations may not have even known what outsourcing was. Today, they know about outsourcing, but may not realize how many outsourcing (and outsourcing-like) programs they already operate: Copy centers, mail rooms, facility management, IT, and even parts of a corporate legal department. Outsourcing may not solve every problem, but learning about the previous generation of contracts will identify new projects and provide valuable insight.

2. Goal Setting

To be successful in creating an outsourcing program, you need to define specific goals, such as reduce overall corporate costs by five percent, focus on efficiency for a single location, or only look at functions performed in one business unit.

Goals don't need tremendous detail. As your outsourcing experience increases, definitions will change.

3. Participation

You need participants from many areas of expertise to provide input to the plan, to verify assumptions and to provide expert judgment. When you move from a general plan to specific projects, you will repeat this process and create sub-groups with even more specific knowledge.

4. Identification

Now that you have goals and experts to identify and interpret information, it's time to identify specific projects for your outsourcing program. Every firm develops different criteria, and is driven by culture as much as by financial or operational analysis, but there are common criteria that you should look at:

  • Previous decisions: Your firm probably made earlier decisions about using non-employees, such as temporary workers or service contracts. Work with Procurement and your PMO (Project Management Office) for details. See how they addressed the issues on this list, and compile lessons learned.
  • Expertise: Are you performing functions or producing products without sufficient expertise, or are you having problems retaining managers? Does the current management have a plan to address these problems? If not, this could be a good outsourcing project.
  • Quality: Even if a function has people with the right skills and experienced managers, you may not get the level of service you need. Does the manager conduct customer surveys? What are customers saying about products or services? A gap in quality or a lack of interest in customer service is another flag for outsourcing.
  • Cost: An exceptionally high-quality service is not necessarily a good value. How do your costs compare to competitors? Does the function produce monthly reports: Unit costs, operating cost, multi-year cost trends? If this function cannot produce these reports, an outsourced service might provide greater transparency into your operations.
  • Scale: When you examine your entire firm, you will make many unexpected discoveries. Stay focused! One big project is a better candidate for outsourcing than a number of smaller projects. That single big project will require far fewer administrative and management resources. Keep a comprehensive list, but only select candidates than provide a big impact in your first wave of projects.
  • Security: You now have a good idea of potential projects. It's time to filter them according to security standards. Security is a complex and controversial subject. Different standards apply to different industries, and some firms are more security conscious than their competitors. Understand internal and industry standards, and limit outsourcing projects accordingly. Include legal, IT, corporate security, compliance (if it applies), and any "risk" departments in your discussions.
  • Prioritization: Each item above (and perhaps other characteristics) must be scored and then each project should be assigned a total "outsourcing value." Undoubtedly, there will be much debate over which characteristics are the most important, if their scores are accurate, and if other characteristics should be considered. Don't be surprised if this process lasts for months or even years.
  • Communication: By the time you've prioritized potential projects, you've held a lot of meetings and talked to a lot of people. Expect these discussions to be public information in the departments you've targeted for outsourcing. Always assume that these discussions will get to your employee population, often in real time. Carefully thought-out corporate communications need to be prepared and ready. Never let rumors become a better source of information than facts.

Executing Your Outsourcing Plan

At the end of this process, you will have your initial outsourcing plan. There are many more steps as you execute this plan: Confirming data, creating sub-committees for specific projects, identifying vendors, running pilots, awarding contracts, and so forth. However, developing your plan provides you with the first and most important steps.

Continue Reading...