Outsourcing: What It Takes

By Guest Authors Richard Hooker and Steve Monas

[Last week, Richard and Steve explained why businesses of all sizes should outsource and stressed that organization is a critical part of outsourcing. Today’s post covers more skills entrepreneurs need to manage a successful outsourcing relationship.]

As in every other aspect of starting a business, your biggest enemy in outsourcing is you. Outsourcing is not just a way of saving money, or an excuse not to organize critical tasks, it is an entire set of management skills and knowledge that outsource entrepreneurs have to master. In this excerpt from our book, “Shoestring Venture: The Startup Bible”, we go over the skills and requirements vendor relationships require.

A relationship with an outsource partner requires care, nurturing, and close management. Your goal is not just simply to avoid the problems with staffing your business, you also want the best performance and dedication to your company that you can get, just as with any employee, but you now have to elicit that excellence and dedication from a distance. In other words, an outsource relationship does not exempt you from management or, more critically, leadership.

It’s an absolute certainty that one or more of your outsource relationships will go bust. The reason outsourcing relationships fail is subject to a fair amount of debate. Because so many American businesses are outsourcing so many of their functions, there’s an entire discipline devoted to figuring this problem out. My experience, and the experience of many corporate consultants, is that outsource relationships fail because of lack of management and leadership by the client. In other words, if you think a business process outsource relationship is easy, you’re mistaken. You must develop the skills and devote the time to manage that relationship and provide genuine leadership to the contractor or freelancer before and after you make the hire.

What skills do you need? You need the exact same skills companies like IBM or Exxon-Mobil need to manage their outsource relationships. The difference is this: IBM or Exxon-Mobil can hire an army of MBAs and McKinsey consultants with those skills. You, on the other hand, must develop those skills all on your lonesome. These skills are:

• communication
• negotiation
• project management
• contract and legal expertise (you can’t avoid this one—you have to closely read and really understand what is in a legal document)
• adaptability

When setting up an outsource relationship—even a one-time deal with a freelancer—you should focus on the following critical areas:

Alignment: when an outsource partner strives to achieve your goals, this is alignment. To achieve alignment, you make sure the vendor is rewarded for the performance you want and punished for the performance you do not want. If you want your call center to give the highest possible customer service, then you need the means to penalize the outsource partner financially if customers complain.

Growth: you want to meet your short-term needs with an outsource partner; you also want to know if your outsource partner can grow with your business. If not, you will find your outsource partner limiting your growth, the exact same problem you have with direct hires. So, based on a realistic expectation of what the future holds for your business, choose an outsource partner that can help fuel that future rather than hinder it.

Management: your agreement with an outsource partner should provide management tools to make sure that the service is performing as expected and has mechanisms to respond to change, such as a sudden spike in your needs.

This segment is a part in the series : Outsourcing