Overwhelmed by Outsourcing? Herešs Help!
Try these five suggestions to take control of your project.
By Kathryn Twiddy
IT'S NO wonder that in our chilled economy, outsourcing -- a potential goldmine of cost-savings -- is on the upswing. However, outsourcing also can be a career-limiting, tangled web of missed deadlines and cost overruns. Whatever the type of outsourcing, be it I.T., business process or garden-variety, a successful deal requires strength of heart and a careful strategy.
Start with these suggestions to avoid a management nightmare:
1. Do the Groundwork
Before jumping into an outsourcing project with both feet, do the research required to determine whether your company will actually save money on the project (and meet your other goals along the way). Audit your company's functional areas to determine prime candidates for outsourcing. Consider whether the function is something that can be effectively and safely done by an outsider. In selecting a service provider, check references, and do the necessary research to confirm the competence of your third-party partner. Don't just take the service provider's word for competence look behind the curtain.
2. Get Help
Once a subject for the project is selected, put together a strong team of people who can perform due diligence and create a strong business case for the deal. If creating a request for proposal, get input from representatives of all internal "clients" to ensure that all material points are covered. Consider adding outside advisors to your team to add expertise and an unbiased, unthreatened view of what functional areas might be good targets for outsourcing.
3. Give the Agreement its Due and Stick to Your Guns
Large outsourcing projects often require agreements as detailed and complex as any merger or acquisition, yet many times the parties put contract drafting and negotiation off until the eleventh hour. In doing so, they rob themselves of one of the great benefits of the outsourcing agreement its use as a planning tool. Usually, several latent business issues spring to the forefront when the contract is being written and negotiated.
If this happens when the parties are working to close the deal, the result can be a thrown-together, senseless provision that is of no practical use to anyone.
The contract drafting process should be started early in the process, with the goal being to create a document that succinctly as possible states the duties, responsibilities and expectations of each party. Include cost-control measures in every area in which you are assuming a commitment.
Treat the scope of work as an integral part of the contract, and note that a vendor-drafted scope of work often contains legal provisions that can effectively negate any gains achieved in the base agreement.
Carefully detail deliverables, an adequately broad scope of what is included in defined services, a schedule for delivery of deliverables and services, and consequences for late or inadequate delivery.
If applicable, include a tight service level agreement.
Finally, be sure to retain ownership of your intellectual property and what the service provider develops under the agreement, as well as licenses to vendor intellectual property as necessary. If properly drafted, the agreement should function as a road map of how the relationship is going to proceed.
This has the added value of memorializing the relationship for those managers that inherit the relationship, long after all the original players are gone.
Once you have created this detailed and helpful document, don't give it all away in the negotiation of the contract. Some common vendor comments include, "We must use our agreement," "Our agreement isn't negotiable," and "We just don't do it that way."
This is where strength of heart and an experienced negotiator are invaluable. Every contract, and every point in it, is negotiable no matter what the service provider says. Outsourcing relationships are often complex, lengthy relationships and like marriage, they are not to be entered into lightly or unadvisedly. Consider that the day may come when your agreement is under a microscope, and take the time and get the necessary help to craft it accordingly.
4. Plan to Manage
Build into the contract a plan for assisting both parties in the management of the relationship. Consider what will be needed in the areas of reporting and periodic meetings. In addition, include an internal dispute resolution clause for giving the parties a process to expeditiously manage and resolve those inevitable disputes.
Include a process for auditing how the relationship is going, and whether goals are being achieved. The agreement should include a process for proposing and memorializing changes to the scope of work, schedule and payment terms, as well as other contractual terms.
5. Prepare for the End
Know at the outset that this relationship will not last forever. In fact, generally it is a good idea not to lock in for an exceedingly long period of time and to retain a right to get out of the contract if things don't go as planned. However, as vendor's sudden walkout can leave you in the lurch, it is generally a good idea to limit the reasons for which the vendor can terminate.
Depending on the nature of what's being outsourced, the end of the deal can be an especially tricky time. Include a transition period in the contract as necessary to ensure the function is smoothly transferred internally or to another vendor, and to keep the service provider contractually obligated to assist you in the transition.
No two projects are alike, and this is just a sampling of the myriad of issues that can be involved, rather than an exhaustive list. However, taking these five steps will certainly put you further along the road to outsourcing success.
Kathryn Twiddy is a partner with Kilpatrick Stockton L.L.P., based in Raleigh, N.C.