There’s a lot of academic theory about what it takes to ensure that an outsourcing initiative delivers on its promise. But after 17 years of providing HR outsourcing services to over two hundred and fifty businesses in West Africa, we know from first-hand experience that to create a successful, long-term outsourcing program, every organization must get it right from the beginning, the very beginning.
The reality is that outsourcing is not a small undertaking; it takes careful planning, accurate communication, and diligent follow-up to achieve the desired success. In our capacity as researchers and service providers of the outsourcing strategy, we have invariably found that companies that achieved outstanding success and got the most out of their outsourcing initiatives succeeded because they got the following core elements right in their initiation and implementation process:
Outsourcing Initiation and Implementation Process
- Accurate assessment of business needs – They carried out a high-level assessment of the root causes of their performance problems and accurately diagnosed the needs of their business.
- Effective Planning and Preparation – They customed-fitted the outsourcing initiative to meet their business needs and set realistic objectives and expectations for the outsourcing process.
- Effective Change Management – They obtained stakeholders buy-in, communicated early and often and were very clear about the work that remained in-house and work that was outsourced.
- Vendor Selection – They selected the right outsourcing provider. (To eliminate the possibility of hiring the wrong outsourcing vendor, read our article on the 7 stages of the outsourcing process.)
- Contract Negotiations – They were thorough in understanding and documenting requirements.
- Relationship Management & Performance Measurement — They designed and executed a robust governance structure, promoted teamwork and they evaluated progress by measuring the right things.
In a nutshell, they improved their outsourcing initiatives and ensured success by managing and measuring the performance of their outsourcing vendors.
Yet, as crucial as managing and measuring the outsourcing process is, we have often found that these tasks are not always as simple as they sound. Effectively managing the outsourcing process means continuously monitoring every aspect of the engagement and conducting routine audits on the processes to ensure that expected levels of operations are being met.
When a meticulous governance structure is in place, it becomes much easier to pick up the earliest signs of problems before they escalate.
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Warning Signs that an Outsourcing Engagement is Not Progressing Well
17 years of continuous research and hands-on experience in providing outsourcing services has afforded us a thorough understanding of what causes crisis in outsourcing engagements. Moreover, we have also learnt to recognise the smallest signs of impending trouble in an outsourcing engagement and take actions to stifle them.
Below are 7 danger signs that an outsourcing engagement is not going as planned:
- When formal measures of success are consistently not being met.
- When targets are being missed.
- When the vendor is avoiding designated authorities and instead seeks other channels and avenues into the organisation.
- When the client’s internal staff are being lured away to work with the vendor.
- When internal hostility towards the vendor is increasing.
- When customer satisfaction is decreasing.
- When the vendor is being revenue-centric instead of quality-focused.
To guard against these and other unforeseeable occurrences, the rest of the article will be devoted to highlighting the five major areas that organizations must pay attention to, to ensure that the outsourcing engagement goes as planned and delivers the desired results.
Managing the Outsourcing Process: 5 Critical Focus Areas
In our experience, most problems with outsourcing engagements arise because the ball was continuously dropped in one or more of these critical areas: work supervision, communication management, knowledge management, personnel management, and financial management.
There are two crucial things to look out for in this area.
- The first is quality of deliverables. Throughout the engagement, there must be continuous evaluation of deliverables for adherence to the agreed standards. Executives overseeing the process must also ensure that the work is being done in line with the operating principles outlined in the contract. It is critical that there’s an allotted team in place to evaluate the deliverables from the vendor. This team needs to pay extra attention during the initial phases of the relationship, so that errors and variances from the accepted quality standards can be addressed directly and corrections can be made quickly before they go out of hand.
- The second is resource consumption, and roles and responsibilities management. If the statement of work (SOW) in your contract is well designed to document who is going to do what, when it is going to be done and how it is going to be done, then the job of your supervising team is to make sure that this scheduling is strictly adhered to. We’ve observed that one of the first signs that things are about to go wonky in outsourcing projects is that vendors may try to increase the commitment of the client’s staff to the outsourcing project beyond what is stated in the SOW. This normally begins with the vendor asking your staff to do minor extra tasks other than those specified in the SOW. If your employees oblige, the vendor may ask for more and more. This kind of behavior needs to be strangled at birth.
The fact is timely, accurate and continuous information transfer between clients and their vendors is a commandment if the outsourcing engagement will be successful. Interestingly, we have often found that managers tend to believe that once the contract is signed, their work is done. Nothing could be farther from the truth. Effective communication is not only crucial at the early stages of the outsourcing relationship (when partners do not know each other), continuous communication remains vital throughout the outsourcing process, and emails or telephone calls must never eliminate the need for face-to-face discussions.
In occasions when emails are the most sustainable medium for communication in the engagement, our advice is that organizations train their liaison staff on how e-mails should be appropriately used: that is with the right subject lines, to the right people and written in an appropriate manner.
It is very important to train employees on what can and cannot be written in an e-mail. E-mails have been used as evidence in legal proceedings and the company is, after all, liable for any statement or commitment made in an e-mail by any employee.
For an outsourcing engagement to succeed, it is mandatory that the client and the service provider be always on the same page. This in turn can only be facilitated by the mutual sharing of necessary business information, knowledge, ideas, innovations and improving processes between the two parties.
Anything short of this, and progress will be hindered. This is why an effective communication plan and infrastructure and regular meetings of all staff involved in the outsourcing effort is crucial to success.
We have also found that the most optimal mindset to take into the outsourcing relationship is the realisation that since no organisation knows it all, participants involved must not only learn from each other, but they must also be willing to unlearn obsolete knowledge and skills contained in procedures, routines, and ways of doing business that simply do not work. This, from our experience, is the only way to make true progress.
Without a doubt, our most successful outsourcing engagements have been with client organizations that deliberately created a unit/team to manage the outsourcing process. In heeding our advice to segment the staff that oversaw the project into different teams: the executive team and the standing operational team, these organisations not only created an enabling environment for the outsourcing project to thrive, they also gained the significant advantage of growing their in-house competencies in the process.
Mature organizations have a relationship management office (RMO) in place to oversee outsourcing efforts and manage the portfolio of existing outsourcing arrangements. Each team within this department has a different role in overseeing the success of the outsourcing project.
While the strategic issues such as managing financial matters, overseeing organizational changes and evaluating the overall engagement goes to the executive team or special squad, tactical issues that have to do with managing the delivery of short-term and immediate deliverables and managing small scale risks goes to the operational team. We recommend the same arrangement for your organization. Always ensure that different personnel are placed in charge of different issues.
Because money is transacted between the vendor and client, financial management will always be a critical issue that must be well managed. Proper financial management always starts with the contract. Ideally, monies should only be paid upon the completion of agreed milestones, and this must be well communicated in the contract. Hence, in managing finances in the outsourcing relationship, the first step for the client is to ensure that the milestones have been met and monies paid.
In cases where deliverables have not been met, the client may have legal recourses to hold back some or all of the payments. These need to be enforced, so that the vendor improves its performance and gets back on track. However, withholding payments for the obvious reason of a lack of performance must be maturely handled.
It will not be wise to hold back payments for small or insignificant issues; doing so could cause resentment and erode the trust between the vendor and the client. When money must be withheld, there must be a discussion between the client’s and the vendor’s senior-level executives, and this meeting should be informative and constructive.
Finally, budget control must be handled with severity to ensure that in the end, the outsourcing engagement lives up to the desired expectations in all respects.
Having provided HR outsourcing services to over two hundred and fifty organizations in West Africa, we know for certain that outsourcing lives up to its reputation for being a business tool that organizations can use to reduce costs, focus on core business processes, improve services, enhance skills, reduce time to market and increase overall competitive advantage.
However, these benefits can only be fully realised when the project is well-planned, soundly implemented and capably managed. This in turn requires a high degree of commitment and discipline on the part of both organisations and their vendors.
A failure to recognize the degree of commitment required to make outsourcing work and commit to it has been the number one cause of many failed engagements. Unfortunately, too often, when outsourcing does not go as planned, rather than conduct a post-engagement evaluation to ascertain what went wrong and what could have been done better, many organisations tend to move their failed outsourcing initiative to another vendor and repeat the same mistakes or engage in ‘back sourcing’, i.e. bringing the outsourced work back in-house and expending internal resources to complete the work.
Here’s what we have to say to organisations that have had unpleasant outsourcing experiences, outsourcing is an extraordinarily powerful tool – arguably the most powerful available to a CEO. It only requires accurate deployment. Our commitment to seeing organisations like yours succeed compelled the writing of this article and others under the outsourcing category.
We are certain that all that stands between you and the competitive rewards that outsourcing can deliver for your business is the right knowledge and the right vendor/partner.
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.