Outsourcing success means understanding your business

If you're going to outsource a business process, you should first work through how your organisation already works, says Danny Bradbury.

Business process outsourcing has gained a bad reputation over the years, thanks to its association with Anne Robinson. Anne Robinson? Yes, Anne Robinson. Well known for her catchphrase, "You are the weakest link, goodbye," she struck fear into the heart of hundreds of contestants on her game show by dismissing them from the game.

Similarly, managers who mention outsourcing tend to petrify employees, who worry that they may be the weakest link in the company and begin to fear for their jobs.

But knowing when to outsource a business process isn't simply a case of identifying where you can save the most money. Rather, it involves a more subtle understanding of the way that your business processes interlink and which of them is the most mature.

Given that business processes are often wide-ranging activities spanning lots of different departments, including IT, HR and finance, simply ripping them out of the organisation without forethought can create more problems than it solves.

According to Duncan Aitchison, international managing director at outsourcing consultancy TPI, which helps advise customers on how to construct long-term outsourcing strategies, outsourcing on an ad hoc basis as a knee-jerk reaction to changing business conditions is inadvisable. "I'm less comfortable when these things are done piecemeal," he warns.

Rather, outsourcing should be used as a means to a long-term end and undertaken after examining where you want your business to be within a set period of time. Outsourcing should help you to get to that point, rather than simply being done to shave a few pounds off a localised operational cost.

This long-term focus explains why Kevin Houston, general manager of business process outsourcing consultancy HCL, breaks down the outsourcing process into four main stages. The first involves an organisational strategy in which management mapped out their business direction and goals. Creating this strategy can be much easier if a company practises good programme management.

Without this plan, outsourcing is a non-starter. The organisational strategy will also produce a policy for the evaluation and selection of potential partners, along with a set of internal guidelines to help you manage the relationship.

Only at this point does it become feasible to choose the business processes most likely to be outsourced. eFunds International, which provides business process outsourcing services to UK clients with a particular focus on offshore outsourcing in India, has turned this part of the process into a science, introducing the Performance Readiness Index (PRI).

The PRI is a matrix to help you assess the readiness of individual business processes for outsourcing, explains Karen Williams, director of international marketing communications. "We end up with a roadmap so that you can see the relative benefits of moving one process versus the other," she explains. "It weighs the criteria, suggests a timetable and estimations of the kind of savings that you might be able to anticipate."

There are various criteria that can be plugged into the PRI. Williams breaks them into broad categories such as the strategic direction of the organisation. The process might be easy to move offshore operationally but it may not correlate with what the senior management is trying to achieve, she explains. There are also cultural issues, in which the people working within a process are assessed to see if they are ready for change.

At the end of the assessment, different processes have an average weighted percentage score that gives management a bird's-eye view of their readiness for outsourcing. A matrix is also produced, with a dot representing each process, mapped according to different criteria such as time and potential savings. This helps companies to get a snapshot of how the business processes rank.

Houston argues that differentiating your core processes from your non-core ones is a fundamental part of the operation but Aitchison is not so sure that you can divide things along these lines. "It's one of those debates that rages backwards and forwards," he admits. "Pharmaceutical companies outsource R&D and that's about as core as you can get." There is no right or wrong decision here, he says - it's about where you want to focus your people and financial capital, and again must be aligned with your long-term goals.

Choosing the outsourcing supplier can be done in three ways, says Houston. You can issue a detailed request for proposals or you can take the single-source approach, working with a tried and tested partner. The third, fast track method involves accelerating the shortlisting process, he says. "Use a specialist consultancy firm to do a lot of the legwork and come back to you with two or three vendors who can deliver."

The third stage of the outsourcing process involves contract development. This is not as easy as it sounds. Companies taking a long-term approach to outsourcing face a volatile market which is likely to change across the time period of the project. Structuring flexibility into the contract is therefore important, Houston warns.

Creating performance measures that can withstand those market changes is vital, as is having a contract that avoids misunderstandings about cost. The contract will form the basis for the fourth and final stage of the process, which is the management of the ongoing relationship.

From a programme management perspective, outsourcing isn't really like Anne Robinson's Weakest Link at all. It's more like the US game show Jeopardy, where the contestants are given the answer and have to figure out what the question is to win. In outsourcing, knowing where you want to be before you decide how to get there is probably the best winning strategy you can have.