On paper, outsourcing is a no-brainer. All that companies need to do is to decide what to outsource, whom to outsource to and the cost of service, and then sit back and wait for the benefits. Right?
In reality, things are more complicated.
With all its inherent benefits, the field of outsourcing doesn’t come without landmines. As a matter of fact, a lot of things can go wrong with the outsourcing project if client organizations do not have the know-how to handle outsourcing projects.
From the very first phase of the outsourcing lifecycle, to the last, there’re an uncomfortable number of landmines to navigate, even for organizations that have significant experience with outsourcing, not to talk of organizations that are venturing out to outsource for the first time.
We think it is necessary to state the common errors that can be unwittingly made when outsourcing. It is our hope that early recognition of these errors will help your organization evaluate, and address them at various stages of the outsourcing life cycle, before they go too far in derailing outsourcing initiatives.
The 8 pitfalls presented here have been drawn from our 17-year practice as HR business process outsourcers and our continuous study of outsourcing as a business tool.
8 Pitfalls to Avoid When Outsourcing
Pitfall #1: Hurrying through Outsourcing Engagements
The most fundamental mistake that we have seen organizations make is approaching outsourcing tactically rather than strategically. We have observed that executives that viewed outsourcing more as a short-term “fix” to an immediate need, rushed through the initiation of their outsourcing engagements. They rushed through critical steps like organisational assessment, requirements, request for proposals (RFP), vendor selection and contract phases of the outsourcing life cycle. This wrong attitude all too frequently results in a disappointing rather than fruitful outsourcing experience.
Our recommendation: It is beneficial for organizations to take a long-term, strategic approach to outsourcing and follow a disciplined approach to executing it from the very first phase to the very last phase.
Pitfall #2: Minimal Knowledge of Outsourcing Methodologies
In our experience, there are only a handful of organisations that take the time to proactively study and understand the outsourcing process and get dedicated teams and centers to oversee outsourcing efforts. The majority of organizations underestimate the complexity of outsourcing initiatives, and go into projects ill-equipped with the people, processes, procedures and tools that are needed to guide the organisation through the outsourcing life cycle: including strategy formulation, requests for proposal, vendor identification and selection, contract negotiation, project transition and outsourcing relationship management. This always turns out to be a mistake.
Our recommendation: Do not venture into outsourcing engagements in a haphazard fashion, hoping that things will turn out as planned. To be successful, organisations must identify, establish and implement proven methodologies and industry best practices. Take the time to gain some knowledge before rolling out your outsourcing engagements. It could mean the difference between succeeding or failing.
Pitfall # 3: Lack of an Outsourcing Communications Plan
Because of the negative connotation attached to the word “outsourcing”, many employees immediately interpret it as a threat to their job security. We have been in instances when outsourcing rumors were allowed to run roughshod through an organisation, instilling fear and apprehension that created a negative impact on overall organisational productivity. The result was that long before the start of the outsourcing initiative, employee morale had dropped as a lack of trust pervaded the organization leading to decreased productivity and poor customer service.
Our recommendation: A proactive formal communication plan must be put in place to mitigate against demoralizing rumors. The communication plan must articulate the purpose of the outsourcing initiative. Organizations must be straightforward with their employees on the long-term impacts of outsourcing. These may include new job assignments; current employees being transferred to the outsourcing vendor and possible job elimination.
Pitfall # 4: Inadequately Designing the Vendor Evaluation and Selection Process
Many outsourcing failures can be traced to a poorly designed vendor evaluation and selection process. A poorly designed vendor selection process will always inevitably lead to selecting the wrong vendor or vendors. Nothing is more fundamental to the success of an outsourcing effort than the fit between an organisation and its vendor. The vendor needs to have the right systems and a working style that fits with the company it is serving. Changing vendors can lead to a major disruption in the services that an organisation receives, and thus a key issue in outsourcing is the careful assessment and selection of vendors.
Our Recommendation: The adage that says “By their fruits you shall know them” rings true when it comes to selecting outsourcing vendors. The fact is that every outsourcing vendor wants your business; however, the best outsourcing vendors want your business long-term, and so they position and equip themselves to be partners of their clients, rather than just vendors. One way they help their existing and prospective clients win is by making the effort to educate them on outsourcing best practices.
To avoid hiring ill-fitting vendors and charlatans, read our article on 7 stages of the outsourcing process and learn how to select the best vendor for your specific needs.
Pitfall # 5 Not Dedicating the Best Internal Resources
One very subtle trap that organizations repeatedly fall into because they underestimate the rigour and complexity of outsourcing is that they form their outsourcing teams using personnel at the lower range of the performance spectrum. This always proves to be a mistake. In the end, if the right mix of personnel is not represented in the outsourcing engagement, it might lead to deficiencies in the vendor selection and contract execution and this in turn will negatively impact the project, resulting in wasted resources and unfulfilled expectations.
Our Recommendation: Outsourcing initiatives must be accorded the right priority. Although experienced external outsourcing professionals can help guide organisations through the outsourcing life cycle, there is no substitute for high-performing internal candidates to form the core of the outsourcing team. It is critical that candidates come from all cross-functional disciplines including finance, IT, engineering, operations, supply management and quality. These individuals understand the organisation’s culture, marketplace, products, processes, and procedures. Consequently, they have the potential to add more value than external support systems.
Pitfall # 6: Minimizing What it will Take to Make the Vendor Productive
In a bid to get their ROI as soon as possible, many organizations tend to set strict SLAs to be achieved in the early phase of the outsourcing transition. They set unrealistic goals for vendors in the early stages of the outsourcing relationship that create conflict and tension in the relationship before it is established.
Usually, achieving these goals requires that the vendor have detailed knowledge of the client’s business processes and functions. Is it then realistic to believe these goals can be attained in a short time frame? Experience has repeatedly proven that this approach does more harm than good.
Our recommendation: Client organizations must avoid minimizing the time and effort it takes to document their know-how and to transfer it to their vendors. Client organisations must set realistic goals that allow the vendor to deliver the required services and advantages over time, based on objective metrics mutually agreed upon by both the client and vendor organisation.
Pitfall #7: Inefficient Relationship Management Programs
All too frequently, organizations expend resources on developing their outsourcing strategy, selecting vendors and negotiating contracts without realising that these activities only set the stage for the big game.
The most crucial task in the entire outsourcing engagement is the management of the ongoing outsourcing relationship. The relationship management plan is the glue that holds the outsourcing relationship together. It includes descriptions of the outsourcing efforts, identification of key shareholders, schedule of activities, roles and responsibilities, budgets, performance measurements, work products, resources, required skills and knowledge, change control process, quality assurance, communication plan and tools, and equipment. Outsourcing initiatives rarely live up to expectations without an effective management structure in place.
Our recommendation: Relationship management plans must never be an afterthought following the signing of the contract. They must be developed at the first stage of the outsourcing life cycle and revised at subsequent stages. For insight into how to successfully manage your outsourcing initiative, click here to read our guide on the subject.
Pitfall # 8: No Exit Strategy
Organizations that outsource can become overly dependent on the service provider, to the extent that they lose their internal expertise to such a degree that they have little ability to monitor the vendor, choose a new vendor, and move their activity to a new provider. This will always play out negatively for such organizations.
Our recommendation: Organisations must carefully craft their exit strategy right from the get-go. And this must be done to ensure that the organisation maintains a sufficient level of expertise to be able to execute a separation from their existing vendor if need be.
Document your exit strategy up front to include answers to questions like:
- Assuming that the contract is signed and the relationship fails, how do we pull out and ensure minimum disruption to our business?
- What if the relationship fails in three months? Six months? Nine months?Or at a much later date. How will the business relationship end?
- Who will be paid what?
- How will the assets be returned?
- How will work-in-progress be handled?
Outsourcing is truly a game-changer for businesses when done the right way. However, there is a saying that once you are prepared for the worst, you are prepared. However, there are more than enough uncertainties that await your organisation in its outsourcing journey. Avoidable pitfalls should be avoided. The mistakes worth making are new ones— mistakes that expand the frontiers of the existing body of knowledge on outsourcing. We hope that this article helps in some way to make your business easier.
If we are willing to go this far to bring you the knowledge you need to succeed, imagine how far we will go to ensure that your business wins when we partner with you.
Your HR Business Process Outsourcing Partner
With 17+ years of experience, over 120 consultants and 8,000+ outsourced staff, we have helped over 250+ clients achieve their desired business results, increase revenue and mitigate risks of doing business on the African continent.
We handle both core and non-core HR activities and functions while you focus on the essentials.
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Our in-depth industry expertise, experience and capabilities cuts across recruitment, talent development, welfare management, performance management, and payroll services.