Outsourcing: Engage the Marketplace

(10705) Michael Corbett says:

By definition, organizations establish relationships with service providers because the providers know more about how to do something than the organization does itself. Therefore it makes little sense for an organization to try and select an outsourcer on the basis of tightly defined specifications. Instead, outsourcing is more akin to establishing an ongoing strategic partnership, which must evolve and mature for the full benefits to accrue.

The key to building a vibrant outsourcing relationship is to select a service provider on the basis of being a good strategic fit rather than the lowest bidder. In many ways its more like hiring a senior executive who will come aboard and use his or her own initiative beneficially than it is to simply buy something.

The key characteristics of a well-crafted outsourcing relationship are:

1. A good relationship will look to the future and spell out how the organization and the service provider will work together to meet changes in the general business environment, markets, competitors, technologies, etc.

2. The organization’s needs from the relationship will be couched in clear, complete and measurable terms so both sides know unambiguously what they are working towards.

3. Scenarios will be developed cooperatively so both parties will get a feel for how the other party will act in the event of different marketplace conditions arising. It will also allow joint solutions to be developed in advance.

4. The organization and its service providers will engage in an ongoing dialogue so as customer preferences change, new technologies emerge and competitors enter the marketplace, the best ideas of both entities will be considered and applied.

5. A scorecard will be crafted which will allow the organization and its outsourcers to measure success on common unambiguous criteria. In essence, the scorecard will define what’s important and how it will be measured. As well as measurement metrics, the scorecard should also detail how data will be collected.

Most organizations will evaluate the service provider on the basis of several key indicators:

1. The competitiveness of the solution offered by the service provider.

2. The competencies, scale and scope of the service provider’s operations as reflected in its people, processes and technologies.

3. The service provider’s total capabilities — financial strength, infrastructure, management systems and other resources.

4. The relationship dynamics — whether the organization enjoys working with the service provider and so on.

5. The relative size and importance of the organization to that service provider which will indicate how much the service provider will be prepared to invest in the relationship.

The Outsourcing Revolution