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| Solutions for Our Times |
| For further information and to receive complete copies of any of the white papers you see here, Contact Al Uretsky, Managing Partner Estrella Partners Group, LLC Tel.: (623) 594-9283 auretsky@estrellapartners.com |
| Avoiding the pitfalls By John Scopaz Associate Partner Outsourcing – Part of most Business Operations Outsourcing has provided management with a powerful tool in its arsenal to control cost and enhance product and service delivery. Most analyses are quite thorough in outlining the benefits yet too many outsourcing initiatives have fallen short of expectations. It is interesting to muse about why we call something Outsourcing verses Outside Contracting. In common usage Outsourcing seems to refer to the 3rd party handling of functions that were traditionally internal to the corporation while we hire Outside Contractors to perform activities to do functions whose skill set were not generally available within the company. While we might outsource Check Processing, IT or Accounting Processes we Outside Contract for architecture, engineering and general contracting to build a new corporate facility. While this delineation may seem somewhat perfunctory it holds a clue as to why many outsourcing initiatives ultimately fail. Current Mode of Operation: When we contract with an engineer, architect or general contractor there is a tacit acknowledgement that these firms possess skills not inherent internally. We go through a judicious selection process to make sure we have validated the capabilities of these firms and that they possess the personnel and skills required to do a job. We also assess the compatibility we have in ideas and the ability to work together. Once a selection is made we then trust these Outside Contractors to make significant decisions on our behalf. In the realm of Outsourcing the exact opposite is often the case especially among the internal personnel whose functions will be displaced by the Outsourcer and who will be relied upon to manage the transition. We outsource functions we think we know very well. The Outsourcing contract process has become very well established. There are specialty legal and consulting firms that have developed significant practices doing this work and they do a thorough and commendable job. The metrics, clauses and processes are well defined with strict penalties for failure to perform. Unforeseen Pitfalls: In the IT space competition is particularly intense among IBM, EDS, CSC, Perot and others to garner contracts valued in the hundreds of millions and some times billions of dollars. Organizations go through an intense RFP process with six or more bidders often down selected to 3 or 4 for another round of negotiations and more often than not final contract content negotiations proceed with 2 entities. This process results in very fine tuned bids and strict contract terms. While it may seem that this process should result in a firm relationship often the opposite is true. Because of the lucrative size and long tenure, as many as 10 yrs, competing outsourcers often overextend themselves feeling that even if they lose money early on in the contract they will make it up over the long term. In addition, no matter how knowledgeable the outsourcer is the employees currently doing the function understand the nuances of providing effective service in a much more in depth manner than the potential acquirers. Upfront under funding combined with high expectations from a very knowledgeable customer breeds discontent. For further information and to receive complete copies of any of the white papers you see here contact Al Uretsky. |