There are several reasons to outsource. Most businesses do it to reduce operating costs. Being able to focus on core operations is another major factor. Improving service quality and gaining access to resources are also possibilities. 

But in order to reap these benefits, you need to know what is required for effective outsourcing. Failing to do so can be a costly mistake that leaves you with a subpar deliverable. Businesses that take the time to develop a plan before settling on a provider fare better when it comes to the success of their partnerships. 

To start off on the right foot, consider the following seven steps for outsourcing effectively. 

Evaluate and Clarify

Take a look at your current business processes. What will benefit from outsourcing the most? Assess factors such as operating expenses, internal capabilities, and service performance. This should help you determine whether a given process meets your standards or requires an upgrade to the infrastructure. 

If the latter is true, then the question is whether the improvements can be made internally. If not, then it’s likely grounds for outsourcing. The next step is to clearly define the objective. This can include goals such as:

  • Cutting costs.
  • Accessing technologies or skills that aren’t available internally.
  • Reducing upfront investment requirements.  
  • Making better use of company resources. 

It’s a good idea to set some boundaries. Not everything is worth outsourcing. As for what falls in that category, it depends on your business. Some things require the kind of personal touch that only internal staff can achieve. 

Develop a Strategy

Are you capable of effectively managing outsourced processes? This is particularly important if your sights are set abroad. Ensuring that an external team is working with your best interests in mind is not always the same as with an internal team. Here are some key considerations: 

  • Educating the outsourcing provider on your company culture and values. 
  • Setting clear goals and responsibilities. 
  • Maintaining productive communication between internal and external teams. 
  • Being able to identify the right provider or individuals for outsourcing. 

Again, it’s a matter of careful planning and research prior to getting started. 

Identify Potential Challenges

The last thing you want is to spend time and money only to run into a roadblock later down the line. As we mentioned earlier, certain processes and services are best kept in-house, but not only if your team does them better. 

Think about what else could potentially stand in the way of your outsourcing move. Labor laws and organizational guidelines may present challenges that require solutions. Looking into this has the added benefit of giving you a better idea of the most relevant advantages that outsourcing will provide. 

 Know the Market

Before moving forward, familiarize yourself with the outsourcing market and decide which model best suits your needs. There are four different outsourcing models: 

 

  • Fixed Price Models: This is a low-risk option as payment is only made once the project is complete. However, it requires a clearly defined scope and stable objectives. One advantage is that the provider is incentivized to work more efficiently and obtain additional value from the partnership. 
  • Time and Materials: T&M starts with providers bidding on your project. It’s another model that works best when the business is good at outlining its needs. 
  • Incentive-Based Pricing: Often used simultaneously with one of the two above-mentioned models, this involves agreeing on bonus payments when the provider reaches certain goals that lie beyond the contract. You need to ensure that the gains are measurable to counteract the complexity this model adds to your agreement. 
  • Shared Risk-Reward Pricing: Here, you start with a flat-rate while withholding additional payments until certain goals are accomplished. What makes this model unique is that the client and provider typically share the funding of the project and its development. This encourages the provider to innovate as it benefits them. 

 

Outsourcing should never involve one company taking advantage of the other. It should be a partnership where expectations are clearly communicated, and both parties work with the same goal in mind. 

Since you’ll likely start looking for a provider at this stage, it’s worth noting the importance of doing your homework. Take a good look at their client track record and number of successful bids if applicable. No partnership can thrive without trust. 

Perform a Risk Assessment

It would be wise to consider the potential damages that the partnership could cause your businesses in the event that things don’t go as planned. This can involve legal risk, data loss, and more external factors like the provider’s location and environmental responsibility. Some risks can be converted into opportunities, so it’s worth giving thought to this. 

Formulate a Plan

With all of the above information collated, you can put together and present a comprehensive plan detailing the outsourcing endeavor. Make sure to include the following details:

  • Total cost and financial impact. 
  • Potential scenarios.
  • Workloads. 
  • Objectives and evolution.
  • Project timeline. 

Don’t forget to include hard deadlines and budgets. It’s also a good idea to identify what deals and relationships will be needed for the partnership. Depending on the scope, you might be left with an overwhelming amount of information, so it’s up to you to compile an effective summary that makes a clear case for outsourcing. 

Define Success Factors

Let’s end things by looking at the importance of defining success factors. Your partner needs to know exactly what you plan to achieve from the relationship so that their work is aligned with your objectives. Lay out any relevant categories with clear definitions and details related to how they will be tracked and reported. 

Some common categories include quality, timeliness, customer satisfaction, innovation, and financial efficacy. Regular feedback is key here. Both parties should be exchanging data to determine how they can each improve. This is imperative in the beginning when there’s a stronger sense of unfamiliarity. 

Once you have the above steps in order, you can move forward with peace of mind knowing that you’re set for an effective outsourcing relationship. All that’s left to do is get started.