Phases of Outsourcing

	Message From: CHRM	Total Posts: 178	Join Date:
Rank: Leader	Post Date: 17/07/2006 22:02:26	Points: 890	Location: India

Dear Colleagues,

What you choose to outsource should be done for legitimate reasons, other than cost benefits. While cost benefits are a plus, outsourcing to reduce costs alone would be a mistake. It is pertinent that when deciding to outsource, attention is paid to legal and tax ramifications.

Phases of outsourcing

Organizations that have successfully outsourced go through three major phases in the process.

Phase 1. Internal Analysis and Evaluation.

In phase 1, senior management examines the need for outsourcing and develops a strategy to implement it. This phase is mostly internal and conducted in the highest level of the organization.

For an organization to benefit from outsourcing, the initiative should come from the top. Only the top level executives have the power to define the vision and implement the changes that are necessary for outsourcing to succeed. As you develop a strategy, consider the following: Clarify organizational goals in relation to outsourcing.

Identify areas to outsource. Define the core competencies of the organization and the functions of the business that are not core. An organization should outsource its non-core functions so that in can focus on its core competencies. Having identified non-core functions, gather facts and figures to determine where you will get the quickest and best return on investment. To determine the return on investment, analyze current return compared to what an outside vendor may offer.

Develop a long term strategy. If you are outsourcing a function that already exists, remember that employee support and morale will be critical. Job retention should be a major feature of your strategy. In some relationships, workers are hired by the new vendor. From the beginning, communicate honestly and openly with employees about how their needs will be met.

Phase 2. Needs Assessment and Vendor Selection

In phase 2, people inside and outside of the organization provide more detailed information and advice. This is a research phase in which you learn about your own specific needs, and find out which qualified vendors will be best to meet those needs.

Research needs

To find out more about your own needs, research the needs within the organization, and learn from other companies who have outsourced the same kind of function. Plan to visit these companies to find out what their experience has been. Form a team of people to help you ask the right questions and analyze the information you gather. You may need team members with expertise in the following areas:

- Legal
- Human Resources
- Finance
- Procurement
- Specific function to be outsourced
- Write a Request for Proposal

By now you have learned quite a lot about specific services, costs and other issues pertaining to the function you wish to outsource. You will now write a request for proposal. A request for proposal should do the following:

Be structured in a way that will allow assessments and comparisons to be done in meaningful way

Define requirements in complete and measurable terms

Describe the type of relationship you are looking for

Explain the problems that you are trying to solve

Ask specific questions about corporate culture

Present the current costs to the organization

Specify a service level

Be honest. A proposal is a valuable opportunity for a vendor to grapple with very real costs and problems and prove to you that they can do an excellent job. Just as you will use the proposals to assess vendors, vendors use your RFP to assess you. A well-written, clearly defined RFP tells vendors you are serious about the project. They will work hard to solve your problems and get your business. On the other hand, a vague or unrealistic RFP will make the most qualified and experienced vendor think twice before spending any time going after business that may be unprofitable and unmanageable.

Assess vendors and make selection

Form a team to review proposals. The team should identify which vendor comes closest to meeting your needs. As they assess proposals, team members should use networks and references to find out about vendor reputation in the industry and look at the vendor's total plan and capabilities, not just price or a single aspect of what they do.

To make the right choice, be sure the vendor demonstrates:

a clear understanding of your needs and ability to solve your problems

financial stability

cultural fit

proven track record

Negotiate a contract

Once the vendor has been chosen, your will negotiate and sign a contract.

negotiate a reasonable price and performance measures

communicate often and openly

show your willingness for both sides to succeed

write a contract that defines the service level and the consequences if the level is not met

Phase 3: Implementation and Management

Decide in advance how you are going to manage the relationship. Create a system that allows you ways to:

monitor and evaluate performance

identify and communicate issues early

resolve issues quickly and fairly

help people in your organization adapt to a new way of doing things (Ideas from careersindia.com)