Outsourcing realities: what business executives need to know
Congratulations! It’s been three years since you decided to outsource accounts payable. Or, accounts receivable, or customer care, or payroll, or HR, or procurement, or any one of a dozen business process functions typically outsourced, in part or in full. You’ve finally stabilised operations, established consistent market standard processes, addressed the fears from the field, started realising those projected savings, and convinced IT that it is possible to improve response time without creating a horrific security breach. But wouldn’t it have been nice if someone had told you to likely expect the following: 1) it will take longer than you think; 2) change will be really hard; and 3) your IT department will have to re-prioritise its work?
The difference between a strategic decision and a tactical one is that undoing a strategic decision is difficult. Outsourcing a business function (e.g., accounts payable, procurement, customer care) is a strategic decision. If you are considering going forward with an outsourcing strategy, knowing three key outsourcing realities and how to mitigate them will help you be more successful.
1. It will likely take longer than you think, but that’s OK.
It takes time to get outsourcing right and in the long run you will be more satisfied and more likely to achieve or exceed your business case. Companies often cut corners to meet project deadlines. Here are three areas where you should not compromise:
- Don’t finalise the RFP until all services to be performed can be defined in terms of business outcomes;
- Include broad market-based SLAs (e.g., performance, accuracy, quality) that will be met within the first 90 days of services commencement, even if you don’t have a baseline;
- Hold firm on tollgate reviews and don’t accept the deliverables or milestones until the provider fully meets the contractual obligations
2. Change is hard, but resist the temptation to push it off until a future phase.
Make the business changes that enable long-term benefits (e.g., cost reductions, faster cycle times, higher accuracy/less re-work) by allowing enough time to transform the operations. Making real changes is harder to implement after go-live and it may be more costly to undo what was initially implemented. To help drive adoption and acceptance:
- Address the change management challenges head-on with directness, transparency, and honesty;
- Include the Communications team early on by involving them with stakeholder analysis and message development;
- Proactively visit the users that will be impacted and listen to their concerns – don’t be afraid. Hold town halls, ask for their input, and address their concerns in subsequent communications.
3. IT will raise some legitimate concerns (data security, data hygiene, remote access, resource availability, etc.), so engage them early and often.
Most IT concerns are legitimate, but also entirely solvable. Your internal IT department will be significantly impacted by an outsourcing initiative, so make sure to include them early in the process and listen to their advice, as their support will be critical to success down the road. To help IT get comfortable with the process and share what they can do to make the transition a success:
- Partner with the CIO’s office early and often by asking for a dedicated IT leader to be part of the team;
- Conduct detailed design reviews at least twice during the development phase to ensure the provider is developing tools that will work in your environment;
- Allow at least two weeks of user acceptance testing (UAT) on the finished solution to ensure existing legacy applications and data are not negatively impacted.
While outsourcing is not for everyone, there are few back-office processes that cannot benefit from the expertise of an outsourcing provider, as long as the processes are repeatable, rules-based, and have measurable outcomes. The keys to success are being aware of the challenges and developing a plan with realistic timelines, having an understanding of what needs to be changed to achieve the business case, and adopting a partnering mentality for both the outsourcing provider and key internal stakeholders.
About the Author
Paul Singer is a director for Pace Harmon, an outsourcing advisory and business transformation firm providing guidance on complex transactions, process and operational optimisation, and provider governance.