How to make good decisions about business outsourcing

Successful executives in the 21st century have a number of critical issues to resolve, such as reducing operating and capital expense, doing more with less, global competition and innovative programs aimed at enhancing the customer experience. Among the decisions to enhance performance, northern Nevada leaders are looking at outsourcing to deliver additional value to company operations.

Starting in the 1980s, service companies such as IBM, CSC, EDS signed large, multi-year contracts with GE, AT&T, Apple, Walmart, Wells Fargo and Boeing, generally starting with data centers and subsequently moving to other business functions. As this approach proved to be successful, additional company functions started moving toward the outsourcing model.

Outsourcing initially did not have a very positive reputation as employees and employers came to equate outsourcing with off shoring and loss of American jobs. Slowly, some of these off shoring jobs have returned to the U.S. as the cost of business in China and India have risen sharply. Analyst firm Nelson Hall, says that Business Process Outsourcing (BPO) is poised to hit $450 billion in 2012.

In 2012, outsourcing in northern Nevada has become more accepted as companies look to reduce cost, avoid hiring technical personnel, eschewing expensive IT capital upgrades, focusing on streamlining critical business processes and generating innovative customer-centered solutions. Northern Nevada has some very good companies that provide a variety of business services.

Common business functions that are frequently outsourced are:

* Human resource: payroll, benefits, staffing, application development and support, Web development and hosting

* Information Technology: email, infrastructure, 24/7 Help desk and call centers

* Accounting and Finance: credit, collections, accounts receivable, taxes

Business functions you probably don't want to outsource are R&D, laboratory, mergers and acquisitions, project management and program management.

There are a number of reasons why a company might consider outsourcing selected business functions. The most common reason companies outsource is their interest in reducing costs of certain business functions. There are other reasons:

* Access to skills and resources not found internally

* Outsourcing provides the ability to concentrate on core business such as manufacturing, growth and acquisitions, customer centric initiatives, ecommerce, new products, etc.

* Outsourcing provides flexibility in instances where various business functions are seasonal or cyclic. Manufacturing at holiday time may require additional supply chain assistance, production planning and shipping/receiving.

* Introduction to additional efficiencies such as best practices, policies, service-level agreements, etc. not yet in place internally.

Making the right decision can add significantly to your organization's bottom line. The reverse is also true: outsourcing can be a millstone around your organization's neck if not done correctly. As with most other industry efforts, outsourcing is not without its share of risks. Among the most common risks:

* Loss of security and risk to intellectual property

* Financial or operational risk if service-level agreements are not met

* Does your outsourcer provide similar services to a competitor of yours?

* Conflict of interest

* One size does not fit all potential customers

As companies continue to search for the right combination of in- house versus outsourcing, how can they matriculate thru the evaluation phase and reach expected outcomes? How can you be sure you make the right decision for your organization? There are several quintessential questions you need to answer before going forward:

1. Why do you want to outsource? What is your motivation? How do you separate your company's core processes from those non-essential business functions? How will you measure success? What are your company's expectations? SLAs need to be documented in detail before you initiate an outsourcing project. Link SLAs with top business processes. You must define your company's expectations clearly, and verify you have broad support internally for doing so. Outsource for the right reasons.

2. What business function(s) do want to outsource? Companies that clearly think through this analysis generally have better success. It's a very dicey decision, and you want to have confidence you've made the right choice.

3. Thoroughly vet the vendor selection process. Identify vendors that have been successful in your industry. Try to find a "partner." Look for a vendor that is active in your industry and understands your business. Check references thoroughly and visit reference sites if possible and talk to the people that have been through the conversion process. It's better to know the "gothchas" up front than to find out about them later in the process. Nobody likes surprises. Search the Internet for any reference to your vendor regardless of good or bad comments. Deloitte Consulting reports that 48 percent of CIOs would do a better job in vetting a vendor if they had it to do over again.

4. Select a well respected leader to "own" the outsourcing project. A senior individual in your company with a proven track record will have a better chance of success of leading the conversion efforts. An individual at a senior level will understand the business motivation for outsourcing and will proactively campaign for a successful engagement. He or she will be able to manage internal opposition and form new internal relationships as they become a more mature leader.

Following these four steps will substantially improve your company's success in outsourcing non-critical business processes.

If you are still not convinced, contact a northern-Nevada based expert for help. There are a number of qualified providers that can assist. It doesn't hurt if you check out outsourcing for your company. You never know you might find the goose that laid the golden egg!

Tim Averill is chief executive officer and Chief Technology Officer of Averill Consulting Group Inc., an information technology company in Sparks. Contact him at 775-284-4210 or through www.AverillConsulting.com.