How to avoid common outsourcing pitfal s
1- Poor Governance: This is one of the most commonly encountered problems and a key cause of failure of an outsourcing relationship. Organizations often take a tactical approach to outsourcing and do not pay attention to executive sponsorship, which is an important ingredient for success. Lack of a structured governance mechanism has led to the “untimely demise” of several outsourcing relationships.
A good governance model ensures a strategy which clearly defines the objective of outsourcing, prescribes a working model that is flexible and collaborative, sets up SLAs and decides on a mechanism for arbitrating issues.
Most outsourcers, however, woefully under invest in the ongoing governance and management of the service provider relationship and this invariably spells trouble for the engagement.
2- Shortsighted Focus on Cost Savings: Most enterprises that have outsourced their IT requirements cite cost savings as the key reason for doing so. This often results in raising unrealistic expectations with reference to continual cost savings. Owing to this myopic view, enterprises fail to consider other benefits such as process efficiency, improved focus on core business areas, better ability to plan, higher levels of operational reliability, and more rapid implementation of new strategies and initiatives.
A broader and long term approach is essential to set pragmatic goals, spread over time for evaluating the success of a relationship. Some of the other benefits enterprises should seek from outsourcing engagements include access to flexible, scalable and easy to maintain systems — leeway to focus on core strategic functions, access to high caliber labour and more importantly risk mitigation. When enterprises broaden their vision and visualize outsourcing as a strategic function, they will be able to adopt a more balanced approach as opposed to viewing it as a pure cost reduction mechanism.
3- Lack of Preparation - Seeing Outsourcing as an Instant Solution: Using outsourcing as a quick fix to alleviate certain immediate problems is yet another commonly encountered issue that leads to poor results. While outsourcing does result in some operational sweet spots, it should not be the primary reason to employ this strategy. This mindset leaves an enterprise under prepared for outsourcing.
Many a times, companies start the request for proposal (RFP) and contract negotiation processes before they have thoroughly evaluated the outsourcing decision internally. Outsourcing being a complex decision, such an unplanned approach will jeopardize the future of the relationship.
To ensure a successful and lasting outsourcing engagement, the organization must prepare itself for the change it will have to undergo during this transformation. Issues such as job loss and resistance to change will crop up during the transition and needs to be guarded against.
4- Failure to Develop an Effective Communication Program:
Communication is a key factor in delivering results in an outsourcing engagement. Sharing of information is essential for :-
A number of factors such as the distance, time, language, and cultural differences create barriers for communication. Also, in cases where cost cutting is the only reason for outsourcing, it has been seen that communication takes a backseat. For a successful outsourcing relationship, the out sourcer and the service provider need to work in a collaborative manner. Key elements for overcoming barriers for communication include:
5- Improper Evaluation of Outsourcing Service Providers: Often companies invest less time and money on selecting service providers and put the complete project in jeopardy. Proper evaluation and selection of providers is crucial. There are six common mistakes that companies should avoid while evaluating providers :-
The pitfalls of choosing the wrong service provider are many. At the minimum it would give sub optimal returns and in the worst case, it may lead to the outsourcer abandoning the engagement. Therefore, it is essential to thoroughly evaluate service providers on their contextual understanding. Before selecting a provider, or even drafting an RFP, it would be a good idea to know the big and up-and-coming providers in that space. This due diligence can come in handy while shortlisting providers.
It is better for a company to stay in control and remain focused on the key criteria, essential for the success of the engagement. Ranking the providers based on certain pre-defined criteria is the best selection method; this also minimizes the subjective influence on the selection.
6- Poor Cultural Fit – Compatibility of Parties: At the end of the day, an outsourcing relationship works best when the chemistry between outsourcer and service provider is right. Given that people are at the center of an IT outsourcing arrangement compatibility is essential.
“Cultural Fit is as important as cost saving”, the finding is not surprising given that outsourcing is becoming strategic and long term in nature. Consequently, it has become all the more important to find an outsourcer who has similar work ethics, values and ways of doing things.
Businesses are also beginning to see the value in bringing in external consultants to help bridge cultural gaps and iron out differences during negotiations. As a rule, compatibility issues needs to be addressed during the selection process. In addition, effective communication is essential to ensure good cultural fit.
7- Improper Definition of Metrics and Key Performance Indicators: Often businesses believe that a set of predefined metrics will help them monitor the performance of the service provider and retain control over the relationship. However, the wrong set of metrics or an overdose of KPIs can do more harm than good to an outsourcing relationship. In the first case, the outsourcer may not get the true picture of whether the relationship is moving in the right direction, and this is dangerous. In the second case, fatigue may defeat the value of the tracking.
Thus, the recommended approach is to choose a few apt metrics that gives the outsourcer a sense of where the engagement is at any point in time. On line dashboards are becoming increasingly common as a means of providing visibility on metrics and KPIs to the buyer.
Finally below List of Do’s to help you avoiding above pitfalls÷
1- Make sure that when you start the outsourcing relationship you dedicated the right people and resources on both sides.
2- Make sure your contact persons has very good communication skills.
3- Define as much as possible the expectations, document them, set clear performance metrics and set clear targets.
4- Be prepared for changes; allow flexibility to your contract.
5- Be Prepared for renegotiation the outsourcing the contract one better understands your business.
6- Initiate an agreement with a service provider that allows flexibility for the future.
7- Have a realistic timeline for any steps of the outsource process including the start-up.
8- Fully define an employee transition plan.
9- Do proper planning concerning information systems and interfacing with the service provider.
10- Do enough technology development before implementation.
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