The best outsourcing arrangements are those that grow from a client-service provider agreement and into a strategic partnership. After all, there should be mutual interest in order for the outsourcing venture to succeed.
As the client, you want to be assured of high-quality work on a consistent basis. As far as the outsourcing partner is concerned, the objective is to secure a long-term engagement of services.
5-Step Process On How To Choose Your Outsourcing Service Provider
The concept of outsourcing is effective in theory. In every agreement, there are always 2 parties involved. Agreements establish the obligations between the parties.
If companies are defined by their individual values, purpose, and vision then conflicts are very much possible between the parties involved in the agreement. As in real-life, these conflicts must be mitigated, managed, and resolved for the relationship to succeed.
Thus, you must always qualify your prospective outsourcing service provider before signing on the dotted line.
We have provided you with a time-tested, proven effective 5-step approach to qualifying your potential strategic partner in business development:
1. Define Your Purpose
Why do you want to outsource?
That is the underlying question that you must answer before you pursue the outsourcing option. There are several reasons why companies want to outsource:
- Reduce Cost – This remains the number one reason why companies outsource. In times of great economic uncertainty and volatility, it is understandable why businesses would prioritize cost-cutting measures.
However, if you put too much emphasis on cost, you might end up commoditizing the process of outsourcing.
One of the biggest mistakes by first-time outsources is to focus on pricing. The process of finding the right outsourcing partner becomes a bidding war. They end up choosing the outsourcing partner based on the lowest price not on capability.
Eventually, the outsourcing arrangement becomes a representative of the saying, “Penny-wise, pound-foolish”. The company could have selected an outsourcing partner that could render better quality work but instead chose one that offered lower rates.
It is perfectly fine to factor in costs in the selection process. However, set parameters and be disciplined about it. In the end, the quality of work must always take precedence over pricing.
In addition, here are some important outsourcing statistics to help you understand how much you can potentially save your organization by hiring remote workers.
- Increase Business Productivity – To understand how outsourcing increases business productivity, ask yourself, “how much time do you spend filtering email?”
Now, imagine if you outsourced email filtering to a Virtual Assistant? The time that you previously spent filtering email can now be repurposed to managing tasks that are directly related to your business.
Let’s expand the coverage of outsourcing.
In addition to email filtering, outsource calendar management, phone handling, appointment setting, market research, content writing, digital marketing, web management, customer support, graphic design, accounting, payroll preparation, human resources, and SEO.
You get the picture.
You will have more time to manage the tasks that will contribute directly to your business’ bottom-line while ensuring all the other functions are properly attended to.
- Improve the Quality of Work – Again, let us emphasize the need to contract the services of a qualified third-party service provider.
Finding the right outsourcing partner is similar to finding the right employee for the company. You want to make sure you hire the best person for the job.
When you outsource tasks or services, you have to be 100% sure the prospective outsourcing company has the requisite skills, experience, and expertise to guarantee you top quality work every time.
Thus, outsourcing not only saves you money but it also offers you the opportunity to improve the quality of work because you are hiring experts at a lower cost.
In our case, we have clients who initially hired us to design and develop their websites.
Eventually, we were contracted to manage their websites and protect the assets from hackers, phishing expeditions, and other malicious attacks.
Over time, these clients asked us to run their digital marketing campaigns because they do not have the time or expertise to learn digital marketing.
By outsourcing digital marketing to Mountaintop Web Design, our clients were able to save money, improve the quality of work, and lower the risk of incurring costly mistakes.
- Integrate New Technologies, Systems, and Techniques – There are businesses that outsource because they want to scale up or improve their business model while limiting capital risk exposure.
The outsourcing partner becomes a “testing laboratory” where systems are designed, developed, and tested. A system is composed of different processes and frameworks.
A company can run any combination of processes and frameworks and assess which ones deliver the best results.
For the reason that outsourcing carries the benefits of comparative cost advantages and economies of scale, capital risk exposure is kept to a minimum.
You can read more about the benefits of outsourcing in our article “How Outsourcing Tasks Can Save You Money – And Build Your Business”.
Is it possible to have more than one reason to outsource? Yes. However, it would be advisable to prioritize the reasons why you plan to outsource. From there, you can prepare a mission statement or an Executive Summary that best encapsulates your purpose.
2. Conduct Comprehensive Research on the Outsourcing Venture
Whether you are thinking of outsourcing to a local or international service provider, you must always do comprehensive research on the potential partners as well as the process itself.
- Learn As Much As You Can About Outsourcing – We have written a number of articles on outsourcing. In addition to the link we provided earlier, you can also read “Outsource To Build Your Business – Which Tasks To Outsource”.
These are excellent sources of information. Our articles are well-researched. Other than the traditional research methodology, we interviewed businesses that have outsourced to verify or closely validate online data. You can be assured that the information you find in these articles closely approximate real-world experiences in outsourcing.
Likewise, you should do your own research and learn as much as you can about outsourcing.
What kind of studies should you come up with?
- Market/Industry Study – Find out the trends in the industry; which regions are growing and the functions that are commonly outsourced.
- Feasibility Study – Determine the numbers for the project. What are the initial costs? How much cost savings should you expect? What are your revenue targets? What are the risk factors?
- Talk To Individuals/Companies That Have Outsourced – One of the best ways to develop a deeper understanding of a concept is to talk to those who have done it.
Review your list of contacts in your email or social media and find out who among them have experience in outsourcing. Reach out and invite them for a 1-hour meeting to discuss the pros and cons of outsourcing.
You can also join business groups in social media platforms such as LinkedIn, Facebook, and Google+. Initiate a discussion on outsourcing. For sure, you will get valuable inputs from group members.
- Contact Agencies – There are agencies that can connect you with potential outsourcing service providers. The advantage of using the services of an agency is that the service providers in their list have already been vetted. You can even request for recommendations from previous clients.
For example, if you plan to outsource services to the Philippines, you can reach out to the Contact Center Association of the Philippines (CCAP) and the Business Process Association of the Philippines (BPAP) which are the regulating agencies of the outsourcing industry.
CCAP and BPAP can recommend a list of member-outsourcing service providers that are in good standing.
- Do Due Diligence Work – Outsourcing is a growth industry. Thus, you should expect a few unscrupulous groups to abuse the opportunity and scam unsuspecting companies.
Due diligence should always be part of the research process. Once you have drawn up a shortlist of prospective outsourcing partners, run a quick check to find out if they have an “unsavory” past.
Sometimes a simple Google check will yield “interesting” results. Of course, these pieces of information still have to be verified. At the very least, you can raise a few red flags on a few potential outsourcing partners.
Some companies put up special groups or teams that are tasked to conduct comprehensive research on outsourcing. The research is compiled and organized into report form and distributed to the company’s main decision makers.
In some cases, the company sends a team to visit the region of interest. For example, company “A” may send a small delegation to India to meet with prospective outsourcing partners.
3. Send Out an RFI or Request For Information Sheet
When you are confident on your list of prospective outsourcing partners, ask them to fill out an RFI or Request For Information sheet.
The RFI will give all the information you need on the experience and capability of the service provider. It should include entries for the following pieces of information:
- Year Company was Established
- Number of Clients
- List of Directors and Officers
- Social Media Pages
- Core Competencies
- Current Technology Profile
- Major Accomplishments
- Number of Managers
- Number of Personnel
- Current Organizational Structure
- Current Operational Workflow
You should also ask the prospective outsourcing partner to attach a copy of its business papers – SEC Articles of Incorporation – as proof that the company is legitimate.
Are there potential red flags you should look out for?
- No website
- Refusal to answer RFI
- Inactive or dormant social media pages
- Invalid business papers – not updated
- Refusal to provide business papers
The RFI is a standard document in outsourcing. Any party that refuses to comply should be scratched out from your list of potential partners.
4. Design and Develop a Partner Qualifying Process
If you were hiring a full-time employee, would you hire the first person who applied for the job? Our advice to you is “No”. It’s not because the first person is the least qualified of all the applicants. However, by hiring right away you forego the opportunity of comparing the candidates.
The same approach should be applied when choosing your outsourcing service provider. You must design and develop a partner qualifying process in order to select the best candidate from the list.
Technically, the RFI is part of the qualifying process. Set aside the candidates that have the most enticing RFI profiles. The next step is to invite the prospective outsourcing partner to an online interview. You can use Skype, Viber, or any other audio-visual platform that you are comfortable with.
Prepare a list of questions or topics that you want to discuss during the online meeting. These questions should touch on the following:
- What is the timeline for the commencement of operations?
- What is their hiring process? How do they source talent?
- How will the prospect guarantee the protection, security, and integrity of all shared data?
- What are their disaster recovery plans?
- Do they have a built-in career and succession planning program in place for their people?
- Do they have a Process Improvement System in place?
- How often are personnel re-oriented or re-trained?
- Do they regularize employees?
- Do they have a grading and employee evaluation process in place?
If you are considering an outsourcing partner from a remote location such as the Philippines and India, you will have to discuss the issue of language, cultural, and traditional barriers.
5. Cover the Engagement with Contracts
Last but certainly not the least, make sure the engagement is covered by contracts. What contracts are we referring to?
- Service Level Agreement – Defines the level of service and the guidelines/ standards for maintaining the quality of work.
- Confidentiality Agreement – This document is intended to protect the interest and all information that is shared between both parties.
- Memorandum of Agreement – Summarizes the conditions of the agreement between the Client and the Outsourcing Partner. Includes a detailed summary of the obligations of each party.
Make sure the agreements are notarized. A copy must be sent to the Outsourcing partner.
Conclusion: Outsourcing – Your Hedge Versus Uncertainty
While the shortest distance between 2 points is a straight line, the same can’t be said about the road to success. There will be steep climbs to make, sharp drops to avoid, and dangerous curves to navigate.
The uncertain nature of business makes success fleeting for many entrepreneurs. If revenue targets are not met and you don’t have deep pockets, it will be difficult to navigate your business through the rough patches.
The usual course of action is to cut costs. However, once you reach the equilibrium point where every unit of cost that is cut results in diminished quality of output, the cost-cutting measure becomes counter-productive to business.
Instead of cutting costs, streamline them through outsourcing.
Delegate or transfer tasks, responsibilities, even entire departments to qualified third-party service providers who can maintain or improve the quality of output at lower costs.
The keyword is qualified.
If you enjoyed this article, please feel free to share it especially with someone who is thinking about outsourcing.
And if you want to know how outsourcing can help your business grow despite tough times, please feel free to give us a call or an email. We will be more than happy to discuss the benefits of outsourcing with you via a free 30-minute consultation.