The major commercial outsourcing risks that can be avoided
Money left on the table at contract signature
Occurs when current costs are higher than they need be; thus the agreed contract prices are, in reality, too high.
In preparation for outsourcing, the end-to-end process must be understood and its drivers, impacts and results quantified. This requires a robust process measurement system. sfn®, signals from noise, meets this need and drives tightly targeted, sustainable performance improvement. The improvement actions taken even over a short period will improve current results enabling a better contract price.
Cost benefits not being achieved
Outsourcing only part of an end-to-end process frequently has unforeseen consequences.
Too often outsourcing call centres or processing, in pursuit of lower payroll-operating costs, occurs without having control and measurement over the full process cycle, both in-house and outsourced activity. In the absence of this control, inadequacies in how the outsourced work is performed will have unforeseen knock-on impacts elsewhere along the chain and those costs will significantly reduce benefits.
New costs discovered
All processes have variability in activity level and result but as variability is rarely measured, or reflected, in service contracts this omission has surprising consequences.
Few if any service sector processes perform at constant elapsed time, cost and quality; outsourcing doesn’t change this. Specifying contract performance targets as averages (such as clearing 90% of the transactions overnight) is naïve as it ignores the cost impact of the remainder (10%). One of the key attributes of sfn®, signals from noise, is that it calculates and displays the systemic variability (inconsistency) in each process, as currently designed and operated, enabling realistic and beneficial contract terms to be targeted.
The service providers margins are too great
The contract terms seemed right at the time but two years later, there is a view that the service provider is making too much.
Providers are strongly incented to better target margins thus they place great emphasis on performance improvement. The less you improve performance before outsourcing the greater the scope for the provider to achieve extra margin. Using sfn® before outsourcing reduces this scope. It drives improvement by comparing actual results with the capability of each process (as designed and operated) pinpointing for action individual performances outside of the calculated norm.
Customer service is being damaged
When the whole of a process is under common management (or in-house) people go to great lengths to overcome deficiencies elsewhere for the sake of the customer but outsourcing breaks this link and customers can quickly suffer.
The behaviours of a service provider are driven by the reward/penalty structure in the contract. Specifying rewards as a price per transaction or separating the outsourced part of a process from the remainder loses the focus on service provided to the end customer. sfn® provides the whole process view, which allows reward/penalty structures to be determined based on the performance of the whole, and drives added value through improved service levels.
Monitoring meaningful service levels is almost impossible
Monitoring the performance of the service provider is often frustrating for both parties - reported performance doesn’t align with the experiences of either your employees or your customers whilst the provider is seeking recognition for value added which simply isn’t seen by you.
A constructive relationship needs one performance measurement system in place shared by both parties, which draws performance data from transactional systems (no manipulation) and represents the full cycle of the process. This enables both to have the same view of drivers, impacts and results and facilitates joint improvement activity.