by Dr. Kenneth A. Polcyn

A successful partnership requires that the buyer have an understanding of its strengths, weaknesses, and objectives.

As discussed last month, there are many factors to be considered in choosing an outsourcing partner. First and foremost, one must know oneself. Then it is possible to establish criteria to determine the advantages and/or disadvantages of a potential relationship.

A primary question is: Why do you want to outsource? Have goals been established along with strategies, including outsourcing processes? It is within this context that you must think about your company: who you are, where you are going, and what the options are for getting there. It is important to know what you can or should outsource and the advantages relative to your goals.

The first step is to have intimate knowledge of all the company's business processes. This includes the purpose, inputs, outputs, resources required for execution, quality requirements, and associated costs. Second, you should know what company processes are core and not to be outsourced because they provide a competitive advantage. Third, in terms of purpose, there must be a clear understanding of what the process is to accomplish. Fourth, if you or a client are to provide input to the provider to execute a process, it is critical to know the specifications. What specific information must be provided to the provider, and what are the specific outputs required from the provider? Also, quality requirements must be established so that both input and output meet these standards.

To measure quality, there must be metrics. Therefore, your processes must have numbers (indicators) that measure, for example poor, average, or excellent performance. Moreover, these must be understood across the spectrum of management, technology, and staff-who is responsible for what? By having this knowledge, you have a foundation for negotiating metrics and measuring whether an outsourcing provider is meeting-or going to meet-expectations.

Regarding resources involved in processes, the human capital aspect relates to competence (knowledge/skills/experience) and cost/value. Therefore, when evaluating a provider, you should be aware of the competence of your personnel and that of the provider, and whether they have equal or better talent based on the objectives of outsourcing. Attempting to outsource processes without knowing the in-house human cost/value of performance is impractical. The same applies to technology resources used to support process execution. Without having a grasp of all of these factors, it is impossible to determine the actual merits of outsourcing. Can providers do it as well or better? Can they do it more inexpensively/cost-effectively? Will outsourcing improve company and customer value? In other words: What are the advantages?

Smooth Transition

Another consideration is human capital reassignment, should certain processes be outsourced. When outsourcing is under consideration, individuals become anxious, wondering what will happen to them if their processes are chosen. At times, productivity suffers and key employees may resign because of the uncertainty. Consequently, knowing the capabilities of the staff and their contributions in other process areas will enable you to inform, prepare, train, and transfer the desired personnel with minimal anxiety for everyone.

As you contemplate establishing a relationship with an outsourcing provider, an assessment of contracting capabilities should be conducted. This evaluation should address the internal legal staff's or outside law firm's competencies relative to the particulars of creating and evaluating outsourcing contracts (such as IT licensing agreements), as well as technical and business advantages and disadvantages. Obviously, the contract negotiating team should be experienced and prepared with all aspects of contracts relative to the type of products and services being provided, as well as dealing with the provider's business and contracting practices. Now you may ask: "Can we really be that thorough every time we outsource?" Maybe not. But a company must have criteria to distinguish between the known and unknown and be willing to go in-depth when necessary. If you don't, the potential problems/costs could be substantial.

From the discussions over the past two months, it's clear that both the buyer and the provider require considerable preparation if a relationship is going to allow each to achieve its objectives. For the unprepared, the results can be traumatic and costly.