Know When to Outsource

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--By Harendra Jung Thapa 

Businesses of variable sizes, in terms of capital and capacities, exist in all forms of industrial sectors throughout the globe. Many are capable on their own to perform the chain of processes/functions pertaining to their products or services by means of their own staff, on their own premises and using their own internal resources and assets. However, we also find companies, large or small, who do not perform the entire chain of functions by themselves but transfer certain parts of the business process to another company. This is what business process outsourcing is and it all began from the early 90s and is now a trend that many to follow.

Business process outsourcing is rapidly spreading its wings across the globe. Many businesses have started outsourcing the functions pertaining to human resources, janitorial services, administration services, training, data management and many more to off-site companies (local vendors), near shore companies (near but across border vendors) or off-shore companies (foreign vendors geographically far off). Interestingly, although the need for businesses to outsource arises owing to different scenarios mentioned below, the underlying factors are cost and quality:

Cost advantage: If you find that one of the sub-processes in the product or service delivery involves a lot of effort and time, compared to the outside company which does the same thing in less costlier ways and with quality at par, why not think of outsourcing?

Need of technological advancement: Upgrading to more complex and advanced technology would demand a whopping additional investment. This would not be possible if your business is a couple of years into operation as the cost of the same could be far beyond your budget. However, there could be suppliers who do have state-of-the-art technology to do your bit of production or service process with the enhanced touch of quality.

Need for larger space to accommodate more employees: When you are planning to expand your business, certain business functions/processes may demand for more space allocation within the existing premises. At such instances, if you are not in the position to acquire the neighbouring premises or take that on lease, then you have no option but to think of outsourcing. 

Lack of expertise within: In case of companies of high investment, certain areas of work may require special skills and expertise. There could come a situation where developing such a set of experts within your team would require both heavy financial investment in training and time investment with no immediate return.

Advantage of partner’s good will: There are suppliers with well acclaimed brand repute who have specialized in providing a portion of the production or service process with marked dexterity. If you can outsource your business process to such a supplier then you will be able to enjoy the association with the brand name of your partner supplier and add intangible value to your products or services. 

Time is a constraint in building a new strategy and developmental plan: If you happen to be a top notch management staff of a business entity where multiple chains of processes or functions happen daily, you could be toiling hard day and night in the operational or administrative functions. This will deprive you of time that could be spent on strategic planning for future growth and development which should be your priority. This is the time for you to revisit your entire process and functions and identify that portion of the business process that is less important, very time consuming, less cost consuming and has no value addition.

Thus, under any one of the aforementioned scenarios, you could opt for business process outsourcing. 

Once you have chosen which process/sub-process is to be outsourced, you should carry out a cost benefit analysis and then prepare a detailed report that clearly spells out your intentions for outsourcing, your expectations from the vendor, your criteria for vendor selection, terms of reference and your flexible budget in terms of payment. This will make you ready for negotiations with the vendors once the other formalities of RFP (Request for proposal) or RFI (Request for Information) and bidding by the vendors are over. 

However, choosing the vendor who could be the right partner for outsourcing is a challenging task which demands a lot of analysis and assessment. Although you do get a lot of information about vendors from their proposals, it would be better to focus on some of the crucial information prior to selecting one for final agreement. Your prudence towards the following points could facilitate better decision making in final vendor selection: 

Identity of vendor (to be outsourced company): Is the outsourcing company a legally registered entity? Does it have a track record of excellence in catering services? Is the performance of the vendor well aligned with its vision and mission statement? How long has the company been performing the task similar to the one that you are outsourcing? Does the company have a board of directors of reputation and integrity? Has the company ever in the past had tax related or regulatory problems? Information to these queries will give you hints on the credibility of the company.

Alternative vendors/suppliers: Whether or not the vendors/suppliers who can be outsourced for your business process operate in good numbers is a crucial factor. In case of closure of the outsourced partner due to unforeseen circumstances or natural calamities, then there should be an option for you to choose another giving the same kind of service at par so that your business process remain uninterrupted.

Professionalism of the vendor: How does the company function? Do they have a standard of norms and regulations which are followed religiously? Are the staff well groomed, educated and competent to please the customer through their services? Do they deliver within the deadlines or struggle to meet the deadlines for service delivery? Answers to these will give you a clear perception about the company’s professional approach to the outside world.

Rating in the market of the vendor/supplier company: Compared to their peer groups, how well has the business of the to be outsourced company grown in the past couple of years? Does its brand image stand out comparatively? Does it have better out-reach than its competitors? Has it won performance based awards? Response to these queries will tell you how well the image of the company is perceived in the market it operates.

Capability of business continuity in adverse conditions: You should also be able to analyse or have information about the kind of disaster management plan the vendor has in place to cope with in unforeseen disasters caused by human error or by nature. The one that has a comparatively well structured business continuity plan and does have periodic drills of disaster management processes should be taken as a positive consideration.

Finally, when you are pretty comfortable in your assessment of the to be outsourced company, go ahead with the signing of the OLA (Organization Level agreement) and SLA (Service Level Agreement) with the terms that best protect your vision, mission statement and brand value without any compromise.

The author is a freelance writer/ Excel trainer and Data consultant.

Gideon Alubaka Habwe

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