Get it right and outsourcing is a great way to cut costs, expand capacity, and take advantage of outside expertise, especially when you occasionally need specialized skills.
Get it wrong and you can add time and cost, damage customer relationships, and sometimes even ruin your business.
Here are seven of the biggest and most common outsourcing mistakes, and how to avoid them:
- Outsourcing functions that directly touch the customer. Quick definition: Fulfillment "touches" a customer, but indirectly; resolving a customer complaint, for example, directly touches a customer. Some companies outsource their customer service functions with less than outstanding results. A small business can't afford anything less than an outstanding result. If it touches the customer -- sales, customer service, answering calls or emails -- keep it in-house. While this is my experience and your results may vary, I never mind calling GEICO about my insurance policies... but I'll do anything to avoid calling Dell about a computer problem.
- Overestimating cost savings. Outsourcing never saves as much time and money as you hope. If nothing else, managing the relationship itself takes time: Ensuring compliance with standards, measuring performance and providing feedback, answering questions, stepping in to handle unusual situations, etc. As a rule of thumb assume you'll achieve at best 70% of estimated savings. If you do better enjoy the pleasant surprise.
- Failing to provide guidance. Outsourcing can make sense when a process or task can be defined with guidelines, procedures, and rules. The problem is many companies don't take the time to create those comprehensive guidelines, procedures, and rules. Think of it this way: If you already have written guidelines and procedures for an in-house process, assume you'll need to provide at least double the amount of documentation to your outsourcing partner. In most businesses, many guidelines and practices are unwritten. When you outsource, everything needs to be in writing. Anything you assume goes without saying must be said.
- Jumping in too quickly. It's tempting to immediately turn a complete process over to an outsourcing partner. (Sometimes that's the only way to financially justify the project.) Even so, don't. Go slow. See the early stages as a honeymoon period since over time a great experience can turn into something quite different. Turn over a portion of the function and let your outsourcing partner earn a greater share.
- Failing to put measurements in place. Outsourcing naturally takes processes out of sight. Without measurement systems, those processes are also out of mind. Determine how you will measure performance to standards, diligently measure performance to standards, and go a step farther than metrics by periodically "sampling" the performance of your outsourcing partner. Play secret shopper and have others experience the process firsthand to report their findings. Trust -- but always verify.
- Going all in. Do you only have one vendor or supplier for a critical supply, product, or service? Of course not. Treat outsourcing the same way. What if your outsourcing partner unexpectedly goes out of business? What would you do? Or what if your activity spikes and your partner can't handle the workload? Always have redundant capacity in place -- or at the very least, a concrete plan to cover a variety of "What if?" situations. And speaking of "What if?"...
- Ignoring an exit strategy. Every agreement should include criteria for disengagement: Failure to meet standards, failure to maintain sufficient capacity... or simply how and when you can disengage if outsourcing hasn't paid off in terms of cost or time savings.
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