Monday, September 20, 2004

10 Steps to Successful Outsourcing

1. Train the outsourcing staff. The outsourcing staff needs to know how the product works, both from the internals and from the perspective of knowing the problems the customer wants to solve.

2.Qualify the vendor. Does the vendor have domain knowledge? Is it financially viable? Are there contractual safeguards in place to keep control over the intellectual property you give it?

3.Plan for your in-house staff to shift their work hours. If you don't shift enough people to work earlier or later in the day, then someone across the world who has a problem won't have someone to talk to. Too often, when an engineer at least eight time zones away needs information, no one is in the office and no one can be reached. Instead of round-the-clock work, the work is stopped until the engineer can determine the answer.

4. Document the requirements. If your native technical staff can't read your mind about what you want in the product, how can geographically distant, non-native English speakers understand your requirements?

5.Develop an appropriate change process. Especially if you have development occurring in multiple sites around the world, you need a clear change process to make sure only the changes you want are allowed.

6.Select outsource projects with nonvolatile requirements. If your requirements change frequently and you need to check out the evolving product with the user, development across the world makes it that much harder.

7.Plan for each project to take longer and cost more, especially at the beginning of an outsourcing relationship. My rule of thumb is to increase the estimated time by 30% for the first project. Then monitor the project to see if you need to increase that estimate.

8.Make sure you have the tools, information systems and processes in placeto support the outsourced teams. They'll need access to the source code, defect tracking system, database or other platform applications, builds, etc. -- the same project tools that the internal teams need.
Verify that the people who said they'd be working on the project are the ones actually working on the project. U.S. firms have been using the bait-and-switch approach to contracting for years. Senior staff sell the project and then proceed to the next potential sucker -- er, client -- while new college grads and other underexperienced staff work on your project. Well, guess what? The non-U.S. outsourcing firms have learned the same technique. If you don't verify who's working on your project, your project could be the learning ground for their staff to build their resumes.

9. Assign one of your best project managers as your internal project manager. Just because there's a project manager at the outsourcer doesn't mean you don't need someone in your office making sure all the appropriate handoffs are happening.

10 .Insist that the outsourcing company keep the same team for your project's duration. Otherwise, the time you spent training their people is wasted and you'll have to start the training process again.


Saturday, September 11, 2004

Outsourcing: Should it Stay or Should it Go?

By Mark Hodges Outsourcing HR processes is a major decision. Incredible value can certainly be achieved, but determining which portions of HR can be outsourced is fraught with difficulties. Common questions that arise during the decision-making process include: "How much of HR can be outsourced?" "Which processes should be in-scope?" and "Which HR processes and elements should be retained?" The answers are neither obvious nor easy. Most HR professionals agree there are 20 to 25 different processes that constitute the HR function, including payroll, recruiting, succession planning and HRIS, to name only a few.

HR professionals should examine all these processes and break them up first into subprocesses, and then further into discrete work activities. For instance, the payroll process can be segmented into at least seven subprocesses: process design, employee setup, calculations, pay distribution, labor distribution, issue resolution and reconciliation. A subprocess such as pay distribution can be segmented further into multiple work activities such as payroll runs, confirmations, etc. This decomposition of a HR organization's processes allows the HR professional to apply a disciplined approach to what can and should be outsourced versus retainedOne technique that is helpful in determining what should stay and what should go is to take each HR process under consideration and classify it into one of four process layers: strategy and governance (typically retained), design and expertise (typically retained and including consulting activities that lend themselves to knowledge centers), administrative and operations (frequently outsourced) and the technology/systems category (frequently outsourced).

Remember, it is rare that a process in its entirety (i.e., all four process layers) is outsourced. The norm is for a combination - a set of subprocesses are retained and others are outsourced.
From a HR service delivery perspective, the 20-plus processes in the HR function can be grouped into five distinct clusters of similar work activity.

• The human capital cluster includes labor and employee relations, strategy, third-party vendor management and employee communications. Core activities such as HR strategy and labor and employee relations are often retained (but with heavy reliance on consultancies). Vendor management, through which all third-party HR service contracts (training, benefits, recruiting, etc.) are managed, is a prime candidate for outsourcing. Most HR outsourcing firms specialize in rationalizing multiple third-party contracts and helping to harmonize terms, pricing and service levels. Employee communications can certainly be facilitated by a HR outsourcer, in terms of technology and employee communication campaigns, but it is still largely a retained function.

• The workforce planning cluster includes staffing, recruiting, expatriate administration, domestic relocation and workforce deployment. Most of these processes can be, and have been, outsourced. When mapped into the four process layers mentioned above, it quickly becomes clear that most of this cluster's activity is grouped into the technology and administrative layers, which are highly transactional by nature. What is not obvious is that a center of expertise such as expatriate administration, domestic relocation or recruiting are scalable - and inherently lend themselves to serving multiple clients instead of one. Therefore, these economies of skill can be leveraged across wider volumes than a single corporation, which much more efficiently drives unit costs down. Furthermore, HR best practices from multiple clients can be implemented more easily into its constituent clients, introducing innovation not readily possible from within a single client.

• The HRMS and HRIS cluster includes technology activities related to employee data management. This cluster includes the HRMS system (payroll, HRIS and time and attendance), employee records management, employee manager and self-service, and workforce analytics. The vast majority of this cluster can be outsourced and is analogous to IT outsourcing or technology hosting. The technology and transactional elements of this cluster are largely generic and transactional in nature, and are ideal for a third party with superior economies of scale and location.

• The compensation and reward cluster includes payroll, compensation, stock options, service awards and, in some companies, travel and expense reimbursement. Most of the administrative, technology and transactional activities (e.g., salary surveys, benefits administration and stock-option portals) can be outsourced, which encompasses approximately 70 percent of the total work of this cluster.

• The organizational and employee development cluster includes staff development, training, organizational development and succession planning. Much of this cluster consists of strategic, core and consultative activities, usually hallmarks of retained work. However, training administration and scheduling, online performance management tracking and "what if" analyses for succession planning are frequently outsourced. Typically, 30 percent to 40 percent of this cluster can be outsourced to a qualified third party.

Understanding the scope of potential work - how many HR processes there are, which can be outsourced and which should be retained - is critical. In most HRO deals to date, approximately 50 percent of the work is ultimately outsourced. After one to two years of the relationship, additional scope is usually added to the contract. It's best to initially place approximately 75 percent of the total HR work "in-scope" in order to allow HR outsourcers to be as creative and effective as possible. If the final percentage ends up lower - say 50 percent - that is fine. It is always better to start with more scope initially than the reverse. This allows clients, in conjunction with the HR outsourcers, to jointly determine the final allocation that best fits their business objectives.

This article was published in the May 16, 2003 issue of Human Resource Executive.


Friday, September 03, 2004

Top 10 Tips For Outsourcing Success

By Keith R. Crosley Contributing WriterArticle Date: 2003-07-18
Entrepreneurs and small businesspeople are always looking for creative ways to accomplish more of their business goals for less money. One strategy that can help you save time, money and frustration as you start and build your business is to outsource as much work as possible to skilled, but cost-effective, external service providers.

When I talk to buyers who’ve mastered the art of effectively managing external service providers, the same themes emerge over and over. I’ve distilled their advice into the following “Top 10 Best Practices” for working with external service providers. Following this advice can help you get the most out of your relationships with external vendors or contractors -- whether you use the web to find service providers or are requesting and evaluating quotes from vendors the “old fashioned” way.

1. Clearly define the scope and schedule for your project
This might seem obvious, but any successful outsourced project always starts with a clear statement of what you are hoping to accomplish. Define your project requirements up front. Service providers need accurate, complete information to present you with realistic proposals and to quote you a reasonable price. Be specific about the deliverables you expect the vendor provide. Give vendors as much information as you can about what you need delivered and the way in which you need the work done. Also, be clear and realistic about your schedule requirements - project schedules can have a huge impact on project costs.

2. Evaluate a service provider like you’d hire a full-time employee
When you’re evaluating proposals from service providers, don’t be afraid to ask questions. Just like hiring a full-time employee, selecting a vendor is a very subjective experience. Check their references and ask for feedback from other clients who have used their services. Engage in a dialog – if you have any concerns about a vendor’s specific capabilities, voice your concerns. Don’t just stew about it and hope for the best.

3. Look for specific experience fit
Ideally, the service provider you select will have specific experience with the type of project that you’re undertaking. You don’t want to be somebody’s “guinea pig.” This is especially crucial when outsourcing complex technical projects such as software development. For example, if you’re looking for someone to develop an application for the Palm PDA, make sure they’ve actually completed commercial projects on that platform for other satisfied customers. This advice holds true for other types of projects as well. If you need a business plan for opening a retail store, you’ll get best results if the consultant you hire has verifiable experience in the retail sector.

4. Don’t choose a vendor based solely on price
Though it might be tempting, never select a vendor based solely on price. Experienced buyers who have outsourced many projects and evaluated hundreds of proposals almost always recommend discarding the highest-priced and lowest-priced bid. Buyers report that their most successful projects are the ones where they felt the vendor offered a balance of good value and quality results.

5. Review portfolios and samples
Examine the vendor’s previous work (their “portfolio”) and make sure that their previous work meets your expectations for quality and style. If you’ve evaluated a vendor’s portfolio, references and previous experience and are still unsure of their capabilities, consider asking them to do a quick mock-up or provide a basic outline of a work plan. A service provider who really wants to win your business might be able to give you a rough concept so you can better understand their approach to solving your problem. But never cross the line between asking for a mock-up and insisting that a vendor provide you with finished work “on spec.” No qualified professional expects to work for free.

6. Start small
When engaging with a service provider for the first time, start with a project that is relatively small and simple in scope. This will give you a better idea of the provider’s style and capabilities before you entrust a “mission critical” project to them.

7. Tie payment to clearly defined project milestones
Just as you should be clear about project scope, make sure that you define a work plan for your outsourced project with clearly defined milestones. Having scheduled checkpoints where you review the status of the project as it works toward completion—is an easy way to ensure that you meet your final deadline and that the final product meets your standards. Tie the vendor’s payment to these milestones. A good guideline for IT and software development projects is to pay no more than 20% to 30% of the total project price up front, with the rest of the payments awarded based on the completion of 3 or 4 milestones.

8. Negotiate ownership of work up front
For any type of outsourced project, make sure that you are clear about who owns the resulting work product and any important components of that product. Make sure the service provider understands how you intend to use the deliverables that they are agreeing to provide. For example, the development of a custom software application for your personal use would be substantially different from the development an application that you intend to package and re-sell.

9. Don’t forget about support after the project is complete
For technology projects, it’s a good idea to specify a warranty or support clause so that you are assured of some amount of continuing support from the vendor after the project is complete. It’s much easer to negotiate a support clause before the service provider begins work, rather than after the completion of the project. Even creative or business services can benefit from a support clause. Suppose you need some changes to a business plan based on feedback that you get from potential investors. Or maybe you find that you need that snazzy new logo delivered in a new type of file format. Specifying some amount of free support or negotiating discounted prices for future modifications can save you time, money and headaches later on.

10. Get it in writing
During the course of a service engagement, the scope of the project, deliverables or even the agreed upon price may change. Make sure that you clearly communicate any schedule, scope or payment changes to your service provider and get confirmation from them - in writing - that they understand and agree to the changes. Similarly, keep a record of any agreement changes requested by the service provider and whether you accept or reject those modifications. Save copies of any email exchanges that you have.