Clearview Global - Focused Performance. Clear Results.

Don't Outsource What You Don't Understand

By Jay Looney, Managing Principal, Clearview International LLC

From my earliest days in this industry, I have heard countless programmers, analysts, IEs and mentors say those sage words, "Never automate a bad process."  No matter how much automation you throw at it, a flawed manual process always produces a flawed automated process.  Of course, then, we were talking about fairly simple manual processes.

Fast forward 25 years.  Things have gotten a lot more complicated than automating small physical processes in systems and subsystems.  In today's world, it's big game hunting.  We're outsourcing entire business processes-HR, Accounting, Customer Service and IT.  And we've got great names for omniscient services:  Towers and MegaDeals.  Billions of dollars and decades of service.

But in the search of the holy grail of cost cutting and labor arbitrage, do outsourcers and clients, for that matter, fundamentally understand exactly what it is they are outsourcing and why?  Do they understand the large and small processes? The domino effects and blowbacks?  The cultural shifts and learning curves? The give and take required to build solid relationships?  And the money and resources required to get the job done.  Probably not as much as they should.

With that in mind, it's no wonder that more than half of outsourcing deals are eventually deemed a failure.  But are they really a performance failure after the birth of the contract?  Or is it more a lack of prenatal care?  By and large, it's the prenatal or pre-contract care, beginning with why you want to outsource in the first place.

Why are you outsourcing?    Having a shared understanding of the strategic objectives to outsource beyond cost savings and labor arbitrage is extremely important as a foundation to building the right relationship with the right outsourcer.  Are you looking for speed?  Expertise? Scalability? Global reach?  Bake those things into your process from the start.

How much should you outsource?  While every outsourcing company would like you to outsource everything to them in a monolithic megadeal, does that really make sense from a perspective of control, checks and balances, and culture?  Understanding what, when, how and who to outsource can make the difference between feeling like a pampered client vs. an occupied nation.

Do you understand how to manage it?  A foundation of good governance is paramount to a successful outsourcing arrangement.  From internal controls and policies to regulations and compliance, to risks and dependencies, all the way down to strategic and functional processes and procedures, if you haven't mapped these, can you or the outsourcer prepare effective change control procedures, SLAs and reporting that makes sense for your business?

Is it a win/win?   Can you honestly say you want your outsourcer to hit a home run?  It's a good thing to be a tough negotiator, but it's another to grind your outsourcer down so far that they don't have the resources, margins or enthusiasm to deliver beyond the letter of the contract.  With the understanding that everyone needs to make and/or save money, work together with integrity and generally feel part of a connected team, a little empathy will go a long way to making the relationship high-value and long-lasting.

This last point just might be the number-one unreported reason for outsourcing failures.  Here's what happens.  Outsourcing companies are extremely competitive, with the obvious few battling it out for marketshare, brand names and egos.  The harder you squeeze, the more their sales teams will give to get the deal.  Then they turn the final contract over to the beleaguered account manager to deliver on it.  OK, that might have saved you some money.  But what is it doing to your business?  Remember, you are not negotiating against them, you are negotiating for the future of your business.

For these reasons, third-party advisors (TPA) can make a tremendously positive impact not only on the selection of the right outsourcer, but more importantly, to set up a strong outsourced relationship going forward.  In fact, when TPAs first came on the scene, outsourcers dreaded them.  But today, most of the outsourcing companies would rather work with a TPA because they:

• Show the client is serious about outsourcing
• Have a history of pricing, performance and delivery capabilities
• Have methodologies, processes and tools to help through the process
• Create a more level playing field
• Keep both parties honest about expectations and delivery
• Have your company's best interest at heart for the long run

In short, the outsourcing advisors make sure you really do understand what you're outsourcing.  And that, more than anything else, is what will make your outsourcing a winner.

Jay Looney is the founding member of Clearview International LLC.   A veteran of  EDS and Andersen Consulting (now Accenture), he has directed multi-million dollar outsourcing agreements and systems integration projects.  This practical experience provided him with an in-depth understanding of customer service and the operational practices required to deliver a consistent, quality service, as well as building and maintaining effective business relationships.  He has designed and negotiated several billion dollars of outsourcing agreements, including both information technology (infrastructure and applications) and business process.  He is a frequent speaker on outsourcing practices and IT services management and has authored several papers regarding the same. Contact Jay at jlooney@cvglobal.com or visit Clearview at http://www.clearviewfocus.com.