LAST UPDATED : APRIL 2021
Outsourcing is now an entrenched way of life for businesses cutting across size, location and industry. Businesses rely on outsourcing arrangements to cut costs and scale effortlessly. Outsourcing also offers easy access to talent, and enable enterprises to manage cash better.
The COVID-19 pandemic has increased outsourcing as businesses try to cope with the uncertainty brought about by the pandemic. The increasing impetus on digitalization has resolved many technical and regulatory challenges to outsourcing. The global market value of outsourced services was about $92.5 billion in December 2020. Of these, contracted services is worth $66.5 billion and BPO services accounted for $26 billion.
But outsourcing is not as simple as assigning the task to the first vendor who comes by. Successful outsourcing depends on identifying a competent partner. Here is a five-point checklist to select the right outsourcing partner.
READ : Outsourced Remote Resources Are Exceptionally Productive. How?
1. Seek Value over Cost Arbitrage
70% of companies who outsource do so to get a cost advantage. Cost savings is the single biggest factor for outsourcing. But selecting an outsourcing partner based on cost alone is foolhardy. The vendor has to deliver on time and budget, but with adherence to the highest quality standards. Beware of vendors who quote an unrealistically low rate – they may cut corners to get profits.
Cost arbitrage should never be a blind criterion for selecting a vendor. Identify vendors who put in effort to maintain quality standards at a lower cost.
- Be aware of the vendor’s cost structure. Identify if the vendor has efficient business processes, which would enable them to pass on the benefits to you.
- Always negotiate rates. Identify areas where the vendor can reduce cost without compromising quality. Negotiate on cutting costs in such areas.
- Have clarity on the cost structure of the arrangement upfront. Be wary of hidden fees and spontaneous changes.
- Check the financial stability of the vendor. A stable partner will be around long term, and will not try to cut corners for short-term profit.
- Examine the vendor’s ability to deliver the required service. Consider if the vendor or key members of the vendor’s team have undertaken similar projects.
- Discuss the vendors’ work process. Understand the checks deployed by the vendor to enforce quality standards. Have an idea about the resources deployed by them to ensure seamless work processes. For instance, consider if the vendor complies with data security and other regulatory protocols. The European Union and many other geographies have strict data protection laws. Violation of these regulations, even if done by an outsourcing partner, makes the principal liable for hefty fines.
- Check the vendor’s credentials. Many vendors exaggerate or make outright false claims about quality standards and protocols. Check if the quality certifications claimed by the vendor are genuine.
2. Consider the Agility of the Vendor
40% of enterprises opt for outsourcing for increased flexibility. Outsourcing allows businesses to start new processes and tasks effortlessly, without significant investments. They may also reduce resources when not needed, without long-term commitments.
- Consider the tools available to the vendor. 15% of companies enter outsourcing contracts for access to tools and processes. They leverage the services of their agile partner to gain a competitive advantage. Seek vendors who have the latest hardware and software necessary for the job on hand. Prefer vendors who can integrate their systems and technology seamlessly with your technology.
- Ensure easy scale-up and scale-down. Seek flexible contracts. The best contracts enable provisioning resources quickly. Likewise, it enables ending the resources just as fast.
- Consider the need for speed. Check the ability of the vendor to execute tasks quickly. 20% of businesses opt for outsourcing for speed to market. A nimble and agile vendor could deliver services faster, compared to in-house work. Often, speed depends on the ability of the vendor to mobilize resources fast.
- Factor in the technology adoption. Leading outsourcing vendors are agile. They invest in emerging technologies such as automation and Artificial Intelligence. 75% of enterprises use RPA to support the remote workforce. Performance issues, a big concern some two years ago, are no longer a major factor. The COVID-19 pandemic will see 48% of businesses worldwide increase RPA adoption by 5% or more.
- Ensure systems-oriented work: Make sure the vendor has a system in place to meet the needs. A seamless system ensures work goes on without depending on a set of individuals. Seek an active way to track the progress of work, with regular updates.
- Get feedback. Give more value to client testimonials over certifications. Contact the clients directly and seek feedback or recommendations.
3. Evaluate the Vendor’s HR Capabilities
Understand the vertical capability and expertise your vendors have, despite whatever success stories they claim. A vendor may have efficient work processes, satisfactory quality standards, and a competent talent base. But what matters is their adaptability, and ability to gather the resources needed for a new project.
- Audit the resource who will do the tasks: The talent fit is crucial to getting your job done on time. Say yes only after you evaluate each resource. Check the qualification, technical expertise, and experience of the resources. If possible, speak to them directly through video conferencing.
- Evaluate the vendor’s capabilities to recruit talent. Many vendors quote a cheap price to get the order, and seek resources after netting the order. The result may result in a gap between what is promised and on boarded. However, it is also not realistic to expect vendors to have all resources on hand before bidding on a project. There will invariably be some gaps between the expertise needed and the expertise on hand. Moreover, turnover is always high in IT firms, and firms may have to go in for talent acquisition mid-way. The vendor’s HR team in effect recruits the resource for you. Find out how well they understand your needs, and how capable they are in recruiting talent. Explore their track record in sourcing top talent. Review their compensation packages. Discuss recruiting strategies and options with the vendor’s HR team.
- Review the vendors’ hiring policies and processes. Collaborate with the vendors’ HR. Make sure the new hires to the project team has the knowledge, discipline, and skills needed for the job.
4. Look into the Communication Channels
Outsourcing takes place in different geographies, mostly in varying time zones. Smooth communication is the key to get things working.
- Assess the communication facilities and capabilities. Ensure the vendor has a robust and reliable communication platform. For instance, outsourcing delivers synergy when the partner can filter your emails and messages to the right people.
- Seek effortless, round-the-clock communication. Develop systems to ensure seamless communications, with nothing falling through the cracks. Make sure the vendor has a go-to person to engage with the company, as a single point of contact.
- Avoid language mix-ups. Make sure there is no mix-up with languages. English is the preferred language when it comes to outsourcing.
- Develop a consensus on the performance metrics. Communicate with clearly defined metrics. For instance, say “We want our website uptime at 99.999% instead of vaguely communicating “We want our website up all the time.” Likewise, say “We want you to respond to all customer support tickets within twelve hours,” instead of “We want you to respond to all customer support tickets promptly.”
- Consider the culture. As far as possible, seek cultural sync with the outsourcing partner. An open and transparent culture motivates employees and results in better output. Ethical values and flexibility in teamwork increases positivity. Make sure the partner understands your corporate culture, and respects the values, and beliefs.
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5. Consider the Macro Factors
Outsourcing is often synonymous with offshoring. Conditions in the destination country is often just as important as the credibility of the outsourcing vendor. The stability of the government, the state of the economy, the extent to which the rule of law applies are some factors that will influence the performance of the vendor.
- Rule of Law. Pick a vendor who operates from a country that respects the rule of law, and has a functional legal system. For instance, it is risky to outsource to a vendor operating in a country that has lax intellectual property laws.
- Political Stability. The outsourcing partner may not be able to meet deadlines or honor commitments if operating from geography rife with civil disturbances or war.
- Infrastructure: The low costs in a third-world country may not be worth it, if the poor infrastructure impedes delivery of services. For instance, erratic power supply could cause missed deadlines.
Countries such as India, the Philippines, and Poland have skilled and educated professionals. These countries have also become the world’s outsourcing powerhouses because of the availability of infrastructure, respect for the rule of law, and a stable political environment.
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Outsourcing is growing, and will retain its growth trajectory regardless of the pandemic. 58.8% of US marketers see no COVID-related changes in the outsourcing marketing activities. By the end of 2021, the overall value of outsourced IT services will surpass $413.72 billion. The global IT outsourcing market will be worth $425.19 billion by 2026. But only those who enter outsourcing with a robust and structured business model will succeed.
Check to see if Suyati’s Dedicated Global Team (DGT) model is the right one for your business. From presenting a transparent cost model and creating a team based on your precise requirements to executing your projects on time and within budget, the DGT is built from scratch for you.