Secrets of outsourcing success

Outsourcing failures can be harmful to a firm in terms of cost, as well as reputation and therefore custom.

How can you avoid failure? Thorough due diligence can help to ensure success for both supplier and end user by making sure they are fully prepared and capable of handling the programme.

Due diligence is a two-way process. When undertaking the process, it is absolutely crucial that the focus is not purely on the supplier to do all the work.

Both parties have to be happy throughout the research, planning and implementation stages of the outsourcing contract; therefore, both parties need to contribute from as early a stage in the process as possible, as due diligence forms one of the first stages in building the relationship between users and supplier.

Due diligence normally leads to best and final offers, or Bafo, a stage which, if carried out correctly, allows all parties – as there may be two or more suppliers still competing – to understand what is actually being delivered, and therefore to set a price more realistically than, perhaps, sales-led pricing.

Part of the two-way due diligence process is to ensure that there are no hidden surprises after the contract has been signed. Operating joint teams will ensure that each party knows exactly where they stand and provide the basis for a healthy relationship.

By providing the supplier with all the resources they need, including user staff, the user is allowing proper prior knowledge and contributing to the later healthiness of the relationship.

The period of due diligence is not short. It may take four to 12 weeks – even longer on large outsourcing deals – and it is important that neither party is scared to ask for a longer period, more resources, or further clarification if needed.

Users should also look for the due diligence period to test the cultural fit of the supplier. Look for areas of conflict and see how the supplier deals with them. If you do not like the way they work, then you might want to think again.

When committing to any agreement it is essential that all the necessary considerations have been made, but when outsourcing deals often run into millions or even tens of millions of pounds, it is a decision that cannot be taken lightly.

Sometimes companies that are well aware of the escalating costs will try to rein in expenses. After all, most outsourcing deals are conceived on cost savings. But it is paramount that companies ensure that they do not cut corners in the wrong places and end up paying for it tenfold later.

Proper due diligence before an outsourcing deal is essential. Do not fall into the trap of doing it later.

Defining requirements

Many organisations, suppliers and end users have discovered, once a contract is under way, that the initial requirements have changed. It is imperative that a thorough needs analysis is conducted before the programme begins, so that the project can be scoped accordingly.

It is also important that the contract is structured in a flexible way, so that it can accommodate potential change. The due diligence process should be constructed to demonstrate your potential supplier’s flexibility towards change in the confines of the proposed contract.

Supplier selection

From cultural compatibility to work ethics, it is important that the customer selects a supplier they can work alongside easily. Outsourcing is not simply handing your process over to a supplier; close collaboration and sound communication is key to the success of the relationship.

The due diligence process should allow the user to confirm that the culture, work ethic and practice of the potential supplier matches their own.

No rose-coloured spectacles

It is important that end users approach outsourcing from a realistic perspective: predicting how the relationship and programme will pan out and wha t problems could arise is difficult.

This is why the due diligence stage is so crucially important: it both tests your relationship with potential suppliers, and helps to establish the foundations for the service thereafter.

As mentioned previously, there is often pressure on users to cut down due diligence, usually because other stages have not been estimated well and the programme is running behind schedule.

But although it is often described as just something to do, due diligence carried out correctly can be at the heart of a successful outsourcing agreement, as well as the acid test of one potential supplier against another.

Martyn Hart is chairman of the National Outsourcing Association

Starbucks signs global outsourcing deal

www.computing.co.uk/2167640

Top dos and don’ts of due diligence

Do be realistic

Unrealistic expectations of the supplier carrying out due diligence will cause disappointment and frustration further down the line.

Do allow for changes

Over time outsourcing changes, and the due diligence needs to test this change process.

Do consider everyone

Outsourcing deals often have far-reaching consequences and every stakeholder needs to be covered.

Do make sure that the supplier is right for you

A similar work ethic and corporate culture will create the most harmonious outsourcing deal.

Do be thorough

If corners are cut, this often leads to problems later. Meticulous due diligence will lead to unity between the two parties as they will be singing from the same song sheet.

Don’t rush

Due diligence is a process that cannot be rushed. There may be a temptation for firms to do it as quickly as possible to get on with the real part of the outsourcing contract, but in reality the due diligence lays the foundations and cannot be ignored.

Don’t stop talking

Communication is key at the due diligence stage. When supplier and end user talk through everything right from the start there is a much greater chance of the deal being successful.

Don’t hold back information

If you keep back any kind of information, there is always a danger that it will come up at a later stage and cause a rift in the outsourcing relationship.

Don’t stop reviewing

Due diligence often establishes the benchmarks at the start of the contract, but these benchmarks will need to be reviewed constantly throughout the lifetime of the agreement.

Don’t worry

There will always be advice available on outsourcing contracts. If you feel that something is not right at the due diligence stage, it is important that you seek this advice.