How to Identify the “Hidden Steps” in Your Outsourcing Deals

Spanish philosopher George Santayana once said, “Those who cannot remember the past are condemned to repeat it.” That is certainly true of outsourcing initiatives, which are often derailed by “predictable” mistakes, said Dave Borowski, a principal with the Pace Harmon management consulting firm.

While these often-repeated mistakes may be predictable to Borowski and others who have been involved in multiple outsourcing projects, they tend to take outsourcing rookies by surprise.

“Service providers do a good job with their methodologies,” Borowski said. “But they focus on overall project milestones and the activities on the provider side that are required to get there. Clients often fail to understand – at least initially – that there are a lot of hidden steps required on their side to achieve those milestones.”

Borowski recently shared five lessons learned during his decade of involvement with outsourcing initiatives to help organizations avoid some of the most common mistakes.

Involve IT early in the process: This is increasingly important with BPO deals because of a shift from pure labor arbitrage to a more transformative approach based on technologies like cloud and analytics. “Some projects are going to have a tremendous amount of enabling technology, so IT should have a seat at the table during evaluation and implementation,” he said. It’s a good idea to create an IT project management function responsible for coordinating efforts between various IT teams such as application development, networking and infrastructure, he advised.

“The last thing IT wants is to be surprised. They can be your best friend or your worst enemy in an outsourcing initiative,” he said. “For example, if a provider wants to use a bolt-on technology that is not already on the IT roadmap, they can throw up barriers that create bottlenecks during a transition.”

Over-estimate required stabilization support: When developing a business case for an outsourcing initiative, clients are often a bit too optimistic. Clients need to realize “a retained organization will be required, and there will be a gradual ramp-down period to go from where an internal organization used to be to where a retained organization will be,” Borowski said.

The time required for ramp-down will vary widely, depending on the service provider, the function being outsourced, the strength of the retained organization and the strength of the legacy organization. However, Borowski offered a rule of thumb: “When we calculate the ramp-down, we encourage the client to multiply their original estimate by two.”

Another good rule of thumb, he said, is to be moderate with support estimates when creating an outsourcing plan. That makes you look like a champ if you need fewer resources than estimated. “It’s better to over deliver.”

Create your go-live checklist well before go-live: It’s a challenge to establish go-live criteria in an initial contract, Borowski noted. Because of this, he suggests developing a checklist of discrete items that should be in place at go-live. Sixty to 90 days before the projected go-live date is a good time to do this. He also advises making a distinction between quantifiable elements and more qualified ones.

Doing this will help measure the effectiveness of the provider and also “reinforces the expectation that the provider should be able to do those things,” Borowski said.  Outsourcing clients need to make items on the checklist as objective as possible — even the items that are more difficult to quantify.

Monitor service provider hiring and staffing: Service providers often resist client involvement in hiring and staffing as such involvement often results in a longer timeline for recruiting and makes the process more challenging.  However, Borowski said, staffing becomes an issue in virtually every outsourcing project.

He offered the example of a service provider involved in a recent accounts payable outsourcing initiative who incorrectly assumed that customer service was the primary function of a business supplier relations role and hired workers with a customer service background. In reality, he said, “It was more important for those resources to have a research mindset to go in and find the root causes of issues and come back with a comprehensive answer to a problem.” To avoid these kinds of situations, Borowski said, clients must “find the right balance” so they can unobtrusively monitor major hiring decisions without interfering in providers’ hiring practices.

Condition the organization for hiccups: There will inevitably be bumps along the road in any outsourcing initiative. “There is no such thing as an implementation that happens without some type of interruption to the business,” Borowski said. That is why planning is so important. “You have to make sure you have the right resources, focus and organization in place up front. The more planning and conditioning you do, the better off you will be.”

And yet, he added, “At some point it makes no sense to keep planning. It’s impossible to try and plan for every contingency and create a mitigating action for each one. If you put the right team in place and prepare them appropriately, they will be able to tackle problems and muscle their way through when the unexpected happens.”

Communication is the key, Borowski said. It’s important that internal stakeholders understand the drivers and desired outcomes for an outsourcing initiative, along with some of the service changes that might be experienced along the way. “You want to try to make sure there aren’t a lot of surprises and that there is open communication. That way, there won’t be a lot of overreaction and escalation when something does happen.”