Project Management

5 Ways To Make Outsourcing Work

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Categories: supplier management

I hear a lot of negative stuff about outsourcing. How it’s hard work, and not cost-effective, especially if you are in the charity sector or another sector with tax breaks. That’s because of tax rules (at least, over here) that say while you can’t charge VAT on services such as healthcare, you have to pay suppliers VAT. Moving services inhouse and not relying on outsourcing partners can chop a 20% bill (or whatever your tax bracket is) off services.

But you can make it work. If commercially it’s right for you and you’ve made that leap, you still need to put some effort into making sure that the partnership is a positive experience on both sides.

Here are 5 tips for making outsourcing work for you.

1. Negotiate The Right Payment Terms

Link your desired outcomes to how you are going to pay your outsourcing partner. In other words, think about how your payments can be structured along business benefit lines. For example, if you hit x% of target the payout above the basic rate is $y.

Think about ways that you can incentivise your outsourcing partner to have goals that are totally aligned to yours through their payment structure.

2. Manage Them Closely

You can’t put an outsourcing agreement in place then walk away.

Or, you could, but you shouldn’t expect great results if you do that.

Make sure that you manage specialist contractors in the same way that you would your own team. Use governance and oversight to keep an eye on what they are doing on  your behalf. Track their progress regularly.

If you do go ahead with outsourcing remember that you can’t (or shouldn’t) outsource responsibility for tasks or processes. Especially on a project: you’ll still remain the person ultimately responsible for the outputs and outcomes. If something goes wrong, it’s your project that will suffer, so keep a close eye on the work that is going on.

This isn’t about micromanaging; more about making sure that you’re goals are met. You wouldn’t expect to give someone else a task and hefty salary and then never check up on them, would you? So don’t do it with third parties either.

3. Choose Your Partners Carefully

If you can find partners who have a similar work ethos and company culture to yours it will make the process of partnership far easier.

Ideally, look for people who will help you achieve your business goals in ways that support your own efforts. Your tendering process should help you identify companies that are a good fit, so make sure your questions and tender documentation address the important questions in this area.

4. Don’t Outsource For The Sake of It

So all your industry peers are busy outsourcing? Outsourcing is cheap? That doesn’t make it the right solution for you. You could still find more value or a better outcome by upskilling your existing team, hiring someone to work in-house, changing your delivery model or doing something else.

Outsourcing isn’t always the answer!

5. Know When To Break It Off

Don’t be afraid to switch out your partners if they aren’t giving you the service or return you expect. What might have worked for you both 12 months ago may no longer be the model that you want to use.

It is always better to leave agreements like this on good terms. Talk to your partner about your intentions and how you intend to manage the work going forward. Ask how they can help you do the transition and put together join plans to move smoothly into your new operating model. Don’t burn bridges if you can help it: the professional world is a small place and you are very likely to cross paths with either the company or the individuals you worked with in it at some point in the future.

Having and maintaining a good working relationship for the life of the outsourcing agreement is something that will make exit that much easier. Even if you have no intention of parting ways right now, think about how you would in the future. The strong ties you build now will help you when (if) the time comes to move on.

Posted on: August 04, 2016 12:00 AM | Permalink

Comments (6)

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I think most companies outsource because they have no choice. Outsourcing should be a win-win situation and no party should feel like they are getting the short side of the stick.

Outsourcing can become one of the better options if you want to transfer the risk.

Is a good discussion....In the last 30 years I have seen many engagements with general they and their products are fine. I say to people now at my current client (a large insurance form)...create a team of10 of the best employees and we can build anything as good or better than any vendor. I guess the challenge is getting the 10 best.....:)

thanks for sharing it, I agree with the tips and I'd like to emphasize the importance to build a constructive relationship based on long term horizons

Outsourcing become trend in any line of business and giving good outcomes and production. But on another side.

Outsourcing also shows some negative signs.

The organization doing outsource, don't have capability to build a good team or to do himself.

Job Security.
High risk on information security.
Organization is totally dependent of outsource resources.
Definitely cost matters.

In any organization or in any project, most of the cases outsource will finish his job and close the chapter, or will keep continue for the long term business purpose, the fact is outsource is also doing business.

Organization purpose not only to generate the business, also building the environment. Building the strong foundation with the capable and reliable team.

Step 2 is important - manage them closely but not micro-manage. We must realize that the vendor has a manager who is leading the team and he/she should be effectively guided and supported in leading his/her team to deliver on the project, instead of our directly managing his/her team.

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