We hear so often that deciding what to outsource is simple. Outsource activities non-core to your business. So how do you do it? Outsourcing must be about leveraging your outsource partner’s core business that is not part of your core business efficiently and effectively.
The same metrics and measures used to track your business goals must be used for your partner. The reason to outsource is still largely to drive efficiencies: higher quality delivery, lower costs, and more responsive service. It’s also about effectiveness in terms of positive impact on your business; whether that is growth, market share or profit margins.
In addition to metrics and measures, your partner must also share in the risk as part of how they earn their reward. Gone are the days of “you save me this much on my labor costs and we’re good”. If your partner is not aligned and measurably able to prove they are helping you drive to your business goals then they are an old-school vendor, not a partner.
I envision an effective business-partner relationship as the partner “owning” -- being responsible for the piece of your pie that is not core to your business. An ineffective model would be letting them go off somewhere to eat your slice of pie at your expense!
To this end include these key elements in your business-partner model that many leave out:
- Partner Commitment – Insist on your partner putting “skin in the game”. Do this by defining all those great ideas you both think are given successes by the metrics and measures you defined for your business. Then share in the rewards and failures appropriately. There is no reason your business should feel all the pain if it fails. And sharing the rewards is a good ingredient to a long-term relationship.
- Low “switching cost” – I have always asked my partners to define a plan that will make it easy and low risk to switch from them to an alternative partner. That’s includes a Knowledge Transfer (KT) plan, copy of any of their documented/digital training materials, and commitment to participate throughout KT.
- Productivity – Think beyond the initial goals of cost reduction. If you can convince yourself every year should not be better than the last then stop here. Otherwise set a year-over-year productivity target for your partner in terms of percentage or monetary unit. It will keep your partner innovative, energized and away from complacency.
- Working Relationship – OK, maybe you are the “boss” in the relationship, but a smart person once told me “You can be right, or you can be in a relationship.” The relationship is best when transparent, focused on success of both parties, and where authority is used to get decisions made effectively; not simply to exercise hierarchical rule. If you trust your partner then leverage that trust for both your advantage.
These are concepts for sure. All the processes, SOPs, tools and models that can be used to help manage the delivery of outsourced services are already available. There is nothing strikingly new, except that advances in technology and social media have made them exponentially more effective and easy to use. My point is that its more about how you integrate the non-core you outsource to remain an effective and efficient part of what is core to operating your business.