Outsourcing and Process Management

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My next door neighbour works for a military contractor. They are looking at taking over a division of another company on an outsourced basis and I asked him if he had done the process work behind this. He looked at me a little quizzically. "What do you mean?" he asked. I shook my head a little ruefully and asked him "Presumably you will be putting together contracts that define service levels around the outsourced division? Presumably these contracts will have financial penalties if you can't meet any given contractual clause? Presumably you have therefore, asked for (or created) a detailed process map for exactly what it is this division does and exactly how this division does it. This will then give you enough information to be able to negotiate better penalty clauses and payments based on actual data rather than something the outsourcing division is arbitrarily asking for?"

I think I hit a nerve there as my neighbour retreated quickly into his house with a nasty facial tick starting just above his left eye.

It never ceases to amaze me how companies - respected companies at that - can hope to enter into outsourcing agreements without knowing (from either side) what exactly they are outsourcing.

But it doesn't have to be that way.

I worked a couple of years ago with a pharma company that was outsourcing part of their clinical trial work to a third party clinical trial organisation. The first thing we did prior to bringing anyone in was to create a current state process map of the whole of the process to be outsourced. This allowed us - in negotiation with potential outsourcing companies - to delineate exactly which part of the process would fall under the jurisdiction of our company and which would be their responsibility. It also defined what the interactions would be between the two companies (the hand-offs and 'white space' which cause so much problem). Ultimately when we got into negotiations about the terms of the outsourcing we were in a much better position to be able to state our case for what was needed. It also meant that the outsourcing company was clear on expectations and responsibility.

With the current economic climate there are numerous companies that may be considering putting up some or all of their internal work for outsourcing. It is essential that you know and understand exactly where the demarcation lines are on this outsourced work.

Here are a few tips:

1) Before you go to any external company create an 'as-is' view of your current process. (I'll be talking about 'as-is' and 'to-be' processes in a later post). If the outsource company wants to change this process when they are managing it then they can do so. But only within the context of the following point.

2) Identify from your as-is process exactly which steps you are willing to outsource. (The whole philosophy of what to outsource is outside the mandate of this post but suffice it to say that you should not outsource your key business process - whatever that may be). Changes to the process by the outsourcing company must still fall within the steps you have defined above.

3) Concentrate on the linkages between your in-house and outsourced processes. What are the hand-offs? Who has responsibility? What is the regularity of data transfer? Again, if the outsourcing company has changed the process internally then they should still provide the appropriate linkages, to your satisfaction of course, back to your process.

4) Identify and define the expectations around those linkages. This is your means of controlling the outsourced process. The whole outsourcing contract will revolve around the ability of the company to provide what you need via the linkages you have defined. If they cannot provide what you need through these linkages then they are not the right outsourcing company for your needs.

5) If internal quality of process is key, define metrics to manage this. In other words if you are only bothered about what comes out of the process at the hand-off's, then only measure the hand-offs. If you are concerned with how the outsourced process is working then put measures in place to track this: For an outsourced clinical trial you would want, for example, to track patient enrollment rates, patient drop-out rates and adverse event information. But for outsourced printing you might only want to track quality of received product and turn-around times.

Outsourcing is probably one of the better ways of reducing your bottom line in the curent economic times, but it will only do so if you are aware of exactly what you are outsourcing and why. Address a couple of the points raised in this post (and get the right people in to help you define your process) and you are well on the way to doing this.

Reminder: 'The Perfect Process Project' is still available. Don't miss the chance to get this valuable insight into how to make business processes work for you.

Click this link and follow the instructions to get this book.

For more about me check out my "About Me' page

All information is Copyright (C) G Comerford

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