How to avoid three outsourcing pitfalls

What makes outsourcing successful? Attorney and Plesner Partner Jacob Christensen and Attorney and Plesner Partner Niels Chr. Ellegaard ask this question in the Danish newspaper Børsen.

Outsourcing makes it possible for companies to concentrate on their core business and benefit from the outsourcing provider's economies of scale and qualifications. There are many successful examples of this. Unfortunately experience shows that outsourcing collaborations often do not work. But what makes outsourcing successful?
 
Area studies and experience suggest three decisive factors:
  • Did the parties adjust their expectations in relation to the services, scope, price, quality and other terms when they entered into the outsourcing agreement?
  • Are the parties ready to enter into the collaboration?
  • Are the framework for the management and the parties' actual management of the collaboration sufficient?
The first factor is partly handled by entering into a suitably detailed agreement and partly by each party being completely open in connection with the formation of the agreement about the expectations and about what can and will be provided under the agreement.

The other factor about maturity involves both the customer and the provider: is the customer's organisation ready to accept the service from an external provider with the consequent limitations? And have the provider's procedures been well-documented, tested and are they sufficient to provide satisfactory services? A classic example is IT outsourcing where the customer's organisation must accept that any inquiries about the provision of services and events must follow specific procedures and not just be informal inquiries to the IT department.
 
The third factor about the management of the collaboration also involves both parties: did the parties agree on a suitable and efficient management framework? And are the parties in fact able to monitor and manage the scope, finances and quality as well as regularly, and in time, adjust the servicing to meet the customer's needs?
 
The challenge faced by the customer
Companies outsourcing for the first time will typically outsource its entire organisation in the relevant area and perhaps keep one or two senior employees to manage the collaboration. The other employees are usually competent in the substance of the services but often they lack the tools and experience to manage agreements and collaborations if all services have been outsourced to the provider. It is paramount to define such qualifications if outsourcing is to be successful.
 
When outsourcing for the second time the problem is often another, namely the dependency on certain human resources who are the only employees with the knowledge of the area. Sufficient attention is not always given to the challenge of having the right employees to manage the outsourcing when entering into agreements. Often, the problem only becomes apparent when the collaboration fails. It means that the senior management's focus should not only be on those who leave but also on those who stay.

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