Avoid These Outsourcing Pitfalls

By Mark Brousseau

Before outsourcing your back-office operations, be sure that you have a thorough understanding of all of the costs – direct and indirect – of your current operation, as well as a complete understanding of all the costs from the outsource provider.

Many companies that consider outsourcing simply look at the unit cost of their existing operation and do not consider the impact the in-house operation has on ancillary operations, said Steve McNair (mcnairs1@aol.com), president of FTP Consulting Services, Inc., based in Southlake, TX. McNair told me that this is the No. 1 mistake companies make when considering outsourcing.

“When considering an outsourcer, many companies do not identify all the costs associated with the service or operation being outsourced,” McNair explained. “The most commonly overlooked expenses are the staff the company must maintain internally to handle the exceptions work from the outsourcer. Other overlooked expenses are the communications and travel expenses associated with managing the outsource provider, whether they are across town or across the country.”

The most common mistake companies make after outsourcing an operation is that they forget the outsource provider requires management oversight – and often more oversight than what was required when the operation was in-house.

“Many companies do not develop the structured communications and metrics required to properly manage an outsource provider,” McNair said. “More often, companies take an ‘out of sight, out of mind’ approach. In this scenario, the communication of company’s strategy, expectations and irritations are left unsaid, causing problems to fester until the relationship is beyond repair.”

McNair said communications is a two-way street, where both a company and its outsource provider need to be pushing one another to perform. When all of the effort is one-sided, the project will inevitably fail.

“A key element of a company’s communications, should be realistic, timely and accurate metrics,” McNair said, noting that most companies scale back their benchmarking programs once they’ve outsourced. McNair said this is backwards: “The greater the distance between the company and its outsource provider, the greater the need for a metrics program that will not only monitor progress, but also provide warnings of potential problems.”

What do you think? E-mail me at m_brousseau@msn.com.