Outsourcing Best Practices: 5 Key

Outsourcing Best Practices: 5 Key Considerations

Outsourcing in today's globalized yet cost-conscious environment can be an ideal way to use new sources of labor and technology to gain a competitive advantage. Utilizing the demand for outsourced labor has also proven advantageous for many overseas firms. However, when a firm is contemplating using outsourcing to save revenue, it is still important to keep in mind the same cautions about quality control and revenue optimization as when conducting the same operations in-house. The following best practices are essential considerations when contemplating outsourcing and also can be helpful for a firm providing outsourcing as guidelines for service improvement.

Consideration 1: Calculate the complete cost of the proposal

The complete cost of a bid does not necessarily mean the figure provided by the bidder will be the only costs incurred by the firm outsourcing its operations. When taking into consideration the costs of a bid, a firm must also consider the technology, process changes, and other demands that will necessary to get the outsourced work to the desired end state. An individual buying a new car would not simply take the lowest price offered, if that lowest price did not include the cost of air conditioning, a radio, power windows, or tires (Goolsby 2007)! Whatever amenities the buyer needs to being the project to completion must be reviewed when comparing proposed bids. A slightly more expensive proposal that incurs fewer hidden costs may be a better bargain in the long run. Likewise, the bidding firm must review the costs it may have to bear to bring the project up to the buyer's specifications, before it agrees to a new project. Although hidden costs will always arise, some effort must be made to predict where these will occur, before a firm goes 'bargain hunting.'

Consideration 2: Currency Fluctuations

Doing business overseas can be a great savings, but it also requires a business to keep a watchful eye on the international economic environment. Some of this risk can be contractually transferred, but regardless, it should always be remembered that, for example, a technology firm that outsources its labor, the dollar-to-rupee rate always puts the final costs somewhat up in the air. This is "a very significant part of the service delivery costs and the currency fluctuations can have a very strong effect on providers' costs and margins" (Goolsby, 2007).

Consideration 3: Don't Micromanage

Although a buyer should be aware of how the provider is abiding by the contract, the buyer should also allow the provider some flexibility to "harness economies of scale and standardized processes. The buyer often does not allow the provider to make enough money so it can save and redirect some to make the necessary investments in process optimization, compliance, technology, etc. This results in tensions and, therefore, risks" (Goolsby, 2007).

Consideration 4: Is everyone equally committed to best practices?

Best practices and process optimization ensure the provider will save money. But some providers do not implement best practices, or their customer organizations do not allow them to do so, which means that sometimes the provider's business practices must be taken into consideration as well as the cost of a bid. A firm that does not implement best practices can be risk for the buyer, if the provider is running things on band-aid solutions. Conversely, a provider may be frustrated when dealing with a firm that does not instate best practices, or has a different definition of what best practices are.

As an example, Kathleen Goolsby cites "a tiered service delivery in HR BPO would see a sequence of tiers that the users encounter (tier 1 being call center reps using scripts, tier 2 being staff that have the ability to answer more questions, and tier 3 being experts. Best practices would ensure the user stays, whenever possible, in the lower tiers, as they are more cost-effective" (Goolsby, 2007). But the firm using the outsourced call center might prefer that more calls are direct to high-quality users, and that more high-quality staff members are present at the call center during peak hours, to ensure that customers gain a better sense of quality assurance from the company, and thus are more likely to patronize the organization.