Outsourcing need emerges when you want to enhance your capabilities to compete globally & control rising financial pressures. Organizations should brainstorm the merits of outsourcing on regular intervals with changing market conditions and technological changes. Outsourcing should be for appropriate reasons without losing control of resources and personnel, knowledge of whom is integrated with the organization's business practices & who has become a part of the organizational family.
Outsourcing evaluation questionnaire should contain questions about the company’s core competencies, services related to core competencies, corporate culture barriers, cross-functional impact, is outsourcing an absolute necessity, additional accomplishments by a vendor, outsourcing goals, people issues, etc.
The process of deciding whether outsourcing is warranted involves numerous steps or phases. The questionnaire should consider or answer the following- identifying challenges, preparing and distributing a Request for Proposal (RFP), examining proposals received, evaluating vendor capabilities, negotiating contract terms, and implementing outsourcing. It is important to adopt an explicit methodology involving steps to be taken and outlining the project plan evaluation.
The Phases of Outsourcing Evaluation plans are as follows:
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Planning Phase -The objectives and nature of outsourcing are defined. The feasibility plan for outsourcing is tested before making a decision to proceed. The efforts are planned in terms of time required, budget estimation and resource allocation.
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Analysis Phase - Key Performance Indicators (KPI’s) are determined; service levels expectations from vendors are specified. Relationships between the function/’s to be outsourced and functions that will remain in-house is clarified. This helps the company and the contract with the vendor to include proper integration with in-house services. The request for proposal is developed, responses are collected from vendors and analyzed, and a vendor is chosen.
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Design Phase - Negotiations proceed with the vendor and a contract is developed and signed.
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Implementation Phase - The transition from in-house provision of services to outsourcing is made.
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Operations Phase - The outsourcing relationship with the vendor is managed and any maintenance or changes in the outsourcing relationship are negotiated and implemented.
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Termination Phase - At the end of the contracting period the decision is made to negotiate another contract with the vendor or a new vendor all together, and the cycle begins again. Alternatively, a decision may also be made to bring the function back to the organization.
Managers who have made the decision to outsource should be able to predict the likely impact that outsourcing will have on the organization's stakeholders, who include stockholders, customers, suppliers, and employees.
For Larger outsourcing plans the top management should play a key role. For smaller initiatives the middle-level managers might do the project planning with the guidance & supervision of the higher managers/Management. The Outsourcing team should combine a mix blend of managerial and technical strengths. The team may also require indulgence from representatives from specific areas that will be directly and heavily impacted by the outsourcing. The user views always guide the balance between projected benefits and helps assessing risks involved.
The size of the team depends on the nature and size of the project. Smaller teams are generally more effective than larger ones. The team could be small in the planning phase and may expand when the analysis begins. Teams should comprise of full-time members instead of part-timers, as they are more focused and effective, although full-time allocations makes sense for Large-size Outsourcing Projects. Personal experienced in outsourcing are highly recommended on the team for the insight they bring to the issues and realism to cost and benefit estimates. External consultants are highly recommended.
Once the decision to outsource is finalized, identify the individuals who will be shouldered the responsibility for supervision, management and vendor relations after the contract is signed. These people should be part of the team that formulates the contract. Their inclusion is critical for several reasons. First, there is no better way to understand the issues involved in outsourcing than in all aspects of the deal. Second, relationships with vendors start at the moment the discussions begin.
When outsourcing threatens to upset the status quo in an organization, instances of outsourcing as of arising high costs or poor performance, internal sources may not be the best option for accurate estimates of costs or effectiveness. Under these circumstances an objective outsider for the assessment work is recommended.
Contracting relationships is a continuum of proposals, negotiations, SLA’s & KPI’s changing, redesigning along with redeployment. Organization always have a choice of choosing from vendors capable of performing the work, in relatively short contract durations, all if no then the choice to switch to another vendor at the end of a contract with little or no cost or inconvenience. At the other extreme are long term partnerships in which your organization contracts repeatedly with the same vendor and develops a mutually beneficial relationship that lasts a long time. The middle of the continuum is occupied by endurance of relationships that remain harmonious till the assignments are completed; these are termed "intermediate" relationships. Since it is a continuum, there are relationships that are closer to market relationships and relationships are closer to partnerships, as well as those that are midway between the two extremes.
There are several critical components of a versatile outsourcing agreement. The emphasis from the outset should be negotiating a fair and reasonable contract for both parties. Each aspect of the outsourcing relationship is governed by the contract, the organization and the vendor need to have a common understanding. This also means that managers must think of every possible business contingency and continuity to be covered in the contract. Steps governing dispute resolutions should be negotiated on a fair and equal opportunity basis. Outsourcing contractual agreement should not take the form of an open-ended assurance of goodwill, it should rather delineate who, what, when, and where of conflict resolution.
Some of the important contract considerations are Terms of the agreement, Minimum Services Levels, Ownership and Confidentiality of data, Warranty, Exhibits, KPIs and Incentives, Disclaimers, Bankruptcy, Non-Solict and Non-Compete, Super accelerated Events/ Act of God, Performance Measures, Status Reporting, Anticipating Change, Success Factors, Mainteance, Post Production Support, Payment Terms and Jurisdiction.