Outsourcing

Issues to Consider

Protect yourself by ensuring the contract with the outsourcing company covering many potential scenarios.

The top 4 outsourcing issues to consider are:

1. Understanding Decision Rights and Post-Contract Processes
2. Lack of Buy-in from Senior Client Leaders
3. Poor Mutual Understanding
4. Inadequate Client-Retained Team

The Top 4 Problems with Outsourcing Implementation

1) Understanding Decision Rights and Post-Contract Processes: In many cases, service providers and clients are underprepared to begin working together after signing the contract. This could lead to issues like stalled implementation of activities, staff frustration, and a delayed schedule for achieving business benefits. The new decision rights and processes must be carefully communicated to the appropriate stakeholders within both the service provider and client organizations.

2) Lack of Buy-in from Senior Client Leaders: If client leaders are not fully on board, this could lead to resistance to the outsourcing model. If leaders do not receive communications regarding the status of outsourcing or participate actively in outsourcing evaluation, they may be unprepared.

3) Poor Mutual Understanding: Once a contract is signed, both the service provider and client have staff who will be tasked with managing initial implementation as well as ongoing operations. On the client side, staff may just be learning the details of the agreement and may feel skeptical toward outsourcing, while on the service provider side, team members may not fully understand the details of the new agreement.

4) Inadequate Client-Retained Team: If the client-retained team is too small or even nonexistent, there are likely to be issues with implementation. Clients can put off decision-making around the retained team for reasons like:

• Exclusive focus on negotiating the terms of the contract, with few resources allocated to post-contract issues.
• Clients expect they can essentially “wash their hands” of management responsibilities once the service provider takes over.
• Clients want to postpone decision-making until they are sure about how the outsourcing agreement works.

Actions to Mitigate the Top 4 Problems

Understanding Rights and Processes: You must adequately prioritize resources for designing new processes.

Engaging with Leaders: Create a dialogue between the client and service provider. This will help build mutual understanding and buy-in. For example, the service provider executive who is responsible for delivering outsourcing services should meet with the business unit lead and the client sponsor.

Creating Mutual Understanding: The negotiation team should include executives from the client as well as from the service provider who are responsible for delivery. This will help enhance continuity, mutual understanding, and future effectiveness.

Improving Client-retained Teams’ Commitment: The client must not hand off responsibility entirely to the service provider. The contract is not enough on its own to guarantee results. The client organization’s senior management should make sure to commit the appropriate resources and staff to oversee the service provider and must clearly communicate this vision.

Hidden Costs of Outsourcing

Do not forget about the potential hidden costs of outsourcing. Although they should be spelled out in the contract, anything not explicitly covered in the contract may lead to additional charges.

Protect yourself by ensuring the contract with the outsourcing company covers many cost-incurring potential scenarios. This will likely mean having a lawyer review and possibly amend the contract. In most cases, the contract is prepared by the outsourcing company, which means that you should expect any gray areas to act in favor of the outsourcing company instead of you. If you do not have an accurate and complete understanding of all of the terms of the contract, you could have a disadvantage during negotiations.

Threats to Security or Contractual Safeguards

Protecting your company’s proprietary information is critical. There are risks to confidentiality if you are transmitting medical records, payroll, or other types of confidential data to another company.

You will need to carefully evaluate the outsourcing company to ensure that your proprietary and confidential information will be protected, and make sure that your contract includes a penalty clause in case an incident does occur, and to discourage leaks of information.

You’re Partners … Sort Of

Outsourcing can enhance your company’s efficiency by allowing you to effectively operate 24 hours a day, 7 days a week.

However, outsourcing to a company located in a different part of the world can lead to cultural misalignments or problems around communication. Additionally, you will now be tied to the financial health of the outsourcing company, just as you would be with any other business partner.