Managing from the sidelines with outsourcing
How to get the most out of your outsourcing partner
Last month, we ran the first part of our outsourcing special.
It detailed what outsourcing can and cannot do for you, what you might consider using outside expertise for and where the returns can be found. We also listed the key questions you should be asking a prospective third party and the factors that will help you decide whether either taking departments, such as HR, marketing, accounts, sales or IT, off the payroll or not creating them in the first place will pay dividends.
Here in the final part we find out how you should be preparing for the process and managing your third parties. And we look more closely at IT outsourcing, an area used by an increasing number of smaller and medium-sized businesses.
How do you prepare for outsourcing?
It’s important to remember it’s not a panacea. Almost by definition, if you are outsourcing a particular business function it’s because it’s, to some degree, a problem. However, it’s important to be absolutely clear about what the problem is before you pass it on to a third party.
This is particularly true if you are talking about an area such as sales. Robert Koenig, CEO of Inline Sales, stresses that outsourcers cannot perform miracles. They can only work with the raw materials presented to them by clients. “A lot of potential customers come to us and it’s clear they don’t know what their unique selling point is – they come to us to solve the problem for them, but if the relationship is to be a success they have to know what they are selling.”
Andy Hirst, a director at logistics outsourcing company Seymour Hunter, agrees it’s important to be absolutely sure the requirements of your business will be served by the outsourcing. “Very often, customers don’t know what they want from an outsourcing company. We are approached on occasion by businesses where they would be more comfortable doing the logistics themselves.” The message is, even if something is not a core competency, at the very least you should have put sufficient work into the business proposal to ensure a third party can work effectively on your behalf. Mike Sobers of KPMG, who is often called in to do remedial work on outsourcing projects that are not delivering, puts it simply. “Organisations outsource what they are not good at. If you are in that position, how can you possibly know what you want?”
Chris Batten of Group 300, a company that outsources its HR function, argues you should approach outsourcing in terms of strategic planning rather than simply reacting to a situation. “All companies suffer developmental problems and growing pains. But very often they decide to outsource in response to a problem and by that time it may be too late.”
What should you expect?
Levels of performance and your ability to dictate terms depends partly on the size of the contract, says Martyn Hart, chairman of the National Outsourcing Association (NOA). “If you’re dealing with the likes of IBM, for example, you won’t have as much say in what you expect. Instead, they’ll have standard contracts and service level agreements for you to sign.”
Most outsourcing organisations do offer service level agreements (SLAs) and performance reports that will enable you to monitor and assess them. And in most cases you should be able to insist on a contract that is bespoke to you and your business.
The problem remains, however, that many of you will not have written down business processes, so will find it hard to write expected service levels relating to your specific requirements. You need to benchmark where you are with where you expect the partnership to take you. It’s easier in some areas, although hiring a consultant, even a one-manband, to fill in for your lack of in-house expertise and to outline the key requirements is often wise.
This is particularly true in the field of IT, which for many of us is a term synonymous with ‘dark arts’. As Wilson Bigg, director of Skyline Managed Services points out, it may be that you pay through the nose for blanket cover that you don’t actually require. “You might sign up for 24/ 7 IT support when you’re closed at the weekend, for example.” Alternatively, if your website is being hosted by a company that offers a guarantee of 95% access to servers, it’s easy to be impressed by the percentage while forgetting the impact on customers who are unfortunate enough to attempt to log on during the downtime.
How should you measure performance?
IT outsourcing is good in that key aspects of it can be evaluated on technical requirements – how the service is provided (broadband, say), how quickly the system operates, how much uptime you expect and whether you can have a reduced service during periods of downtime.
For all other outsourced services you can agree how often you expect to meet, who should attend and what should be on the agenda, plus how often a member of the third party’s staff will be on site. And if you outsource your call centre function you may want figures relating to the total number of calls answered and the time taken to pick up just as if it was sales you’d want the number of calls made logged. HR could be measured more on the time you used to spend dealing with internal issues or employment law. But it’s only worth specifying exact figures if you have something to compare to and it has an impact on productivity or revenues.
If performance rates are critical to your business it would be sensible to have a service credit agreement in place, if possible, whereby a bonus is offered for exceeding agreed levels, but penalties and monetary credits are offered when performance levels dip below your expectations. A simple gold, silver, bronze scheme could help determine when reliability has dropped and if you’re only getting a bronze service you might insist on gold for free for a certain period to make up the difference. If a problem persists or a ‘bronze’ service is simply not good enough you’ll ultimately have to vote with your feet, providing your assessment can be backed up with evidence to justify breaking a contract.
Always bear in mind the relationship can evolve. “Business circumstances change,” says Group 300’s Batten. “Outsourcers have to be prepared to be flexible in terms of the services they offer.” As the partnership settles in, it may be necessary to negotiate changes to SLAs or performance targets.
Remember that problems with outsourcing could have a major impact on your business. In the case of customer-facing services, the reputation of your brand will depend on a third party. In other words, an outsourcing arrangement is not some- thing you can afford to get wrong, as ultimately the client will blame you – not the third party.
How should relationships be managed and who should do it?
Typically, small and medium-sized businesses tend to use companies of a similar size as service providers, meaning that there’s already some understanding of your needs and greater access to senior managers.
And getting to meet your provider’s fellow MD, developing a personal relationship, and even inviting them out for a social meeting, such as lunch or golf, should also ensure that he or she who shouts loudest gets the most attention, advises the NOA’s Hart. “It’ll also means you won’t be thought of as an anonymous serial whinger should things go wrong.”
Who you select to manage the relationship is important. You need to know that whoever you choose is happy to take a management role. And if you do use a consultant to select a reliable company, thrash out your contract and manage the relationship early on, make sure you assign an employee to shadow them so once a relationship is cemented you can dispense with the consultant’s services.
Hart says that in a previous role he offered his outsourcing consultant a desk, telephone and computer use, and secretarial support. “He started to use our central London offices as his base and was thus always on hand to utilise when necessary. It’s s vital to pool skills and knowl- edge so that you’re not left handling something you know little about down the line.”
Another common arrangement with service providers is they agree to take a relevant staff member on to manage the relationship. The benefit is you are paying less as a unit cost for the service than you were to employ the member of staff, plus you have an existing relationship with the individual.
What happens if the relationship breaks down?
It’s important to have an exit strategy should the relationship break down or the outsourcer go bust. Because ultimately, if outsourcing does not fulfil its promise, you need to be able to drop it as quickly as you picked it up.
To avoid getting into disputes when you end a relationship make sure your intellectual property is captured and copied over, advises the NOA’s Hart. This could be names, addresses, customer information or stock lists, which if your service provider goes bust or has a dispute with you may end up being a point of issue and difficult to recapture, no matter how unreasonable that may sound.
Your rights relate to the contract in place. But if your business is suffering financially because of your service provider’s incompetence, a legal dispute could take months to resolve and prove, says Hart, costing heavily in legal fees, and leave you struggling to get back on track. That’s why relationships and selecting the right partner in the first place are essential.
ANTHONY HUNT ASSOCIATES: OUTSOURCING ITS IT NETWORK
Anthony Hunt Associates (AHA), the 70-person civil engineering company responsible for The Eden Project in Cornwall and Waterloo International Terminal in London (pictured below), opted to use Via Net.Works to provide it with broadband and a Virtual Private Network (VPN). This enables staff to log into the company?s network from wherever they are. ?When we costed it out, it was well below 50% of the other route ? fixed leased lines. And as well as direct cost savings we know certain tasks are now far more efficient,? says Julian D?Alberti, AHA?s IT systems manager.
The reasons for the move were twofold. The company had a number of regional offices in addition to its headquarters, and the nature of its business means projects involve a good deal of joint work and close liaison with third parties. It uses project teams drawn from across its network who need to access different aspects of a project simultaneously and broadband was necessary to speed up the process of sharing information. ?For major projects, effective cooperation is often facilitated through a central extranet provided by the company leading the project. Loading large files, such as engineering drawings, on to it requires high bandwidth internet connections,? says D?Alberti.
The VPN means staff have secure access to centralised services and applications, and enables AHA to transfer parts of project work to other offices when one is busy. Also admin, such as timesheets, which used to be collated at office level, are now handled centrally.
And savings in time and money are made through no longer having to arrange couriers or post documents. ?It was the first time we?d outsourced to any degree and didn?t draw up contracts,? says D?Alberti. ?We used their standard terms, covering when the service would be available, a guarantee of ?uptime?, plus compensation or penalties for each hour it goes down, and if that becomes days it would escalate substantially.?
AHA has signed up for a year and now has to give notice to come out of the contract. It also kept its ISDN line as back-up, should its broadband connection go down. D?Alberti manages the relationship, but says there?s not much to oversee now.