Outsourcing: Most don't go far enough … do you?

The majority of your peers who outsource see the payoff they were after, but that’s not tough to do — they were setting the bar way too low. It would seem like a rousing endorsement for outsourcing:

• 83% companies that outsource some functions achieve the ROI they’re after, while
• 70% of them report they’re “satisfied” or “very satisfied” with the experience.

A shame their expectations are less-than-ambitious.

That’s the assertion of a new report by Deloitte Consulting. They found that the vast majority of businesses are missing out on major opportunities to gain efficiencies and even grow their businesses.

The problem: They focus solely on the cost savings potential.

Yes, you’re looking to a third party to shave money off your payroll, A/P, or collections process. But you could be getting so much more.

Here’s where your peers are falling short and how you avoid a similar fate with any outsourcing your company undertakes:

Shortfall #1: There’s no master plan

When many companies decide to outsource part of a given function, it’s all about the cost cutting. And there’s nothing wrong with that, per se.

But if you don’t go into any outsourcing relationship with a clear road map for what you want to get out of this endeavor, those initial savings are all you’ll see.

Even the outsourcers see it: A scant 6% said their clients came to them with a clear outsourcing strategy that was tied to their overall business plan.

The time to crystallize what you hope to achieve is before you approach an outsourcing vendor. You may want to outsource payroll processing to save some money, but maybe you also are looking for some additional technical expertise or you hope to speed your monthly close.

No matter what you’re after, how you communicate it is critical. You’ll need to walk a fine line between too much detail (your outsourcer doesn’t need to know every painstaking move) and no guidance at all (the vendor does work for you).

Shortfall #2: Not enough effort into selecting the right outsourcer

Of course, you’ll want to be confident you’ve chosen the right provider for the job. That’s one place many of your peers wish they could have a do-over: A third of companies say they wished they’d spent more time evaluating and picking the vendor for the job.

A great way to do that? Handle the process like you would with any other major vendor: Send out requests for proposal. Some must-includes:

• An idea of where your company is now and your goals going forward
• An emphasis on the results you want to achieve from outsourcing
• A requirement the outsourcer shows how it understands your company’s needs, and
• Service-level targets. (Don’t accept a vendor’s boilerplate targets here – push for company-specific ones.)

Shortfall #3: They don’t follow through

Those service level targets may be one of the most important things your company does – it’s your way to keep the trains on track and make sure you’re getting everything you expect out of the outsourcing deal.

Don’t be afraid to put some teeth to it, either. Nearly half (45%) of your peers say their outsourcing contracts include provisions for penalties should the vendor not live up to its end of the bargain.

Of course, your service level agreement is only part of the equation. You also want to track external measurements, like customer satisfaction (in-house or outside ones), to see that your expectations are resulting in the payoff you’d envisioned.

If you need to revisit those expectations, so be it.

Make sure other top execs understand: This will consume more time and resources, but there’s a larger potential payoff in store for the companies that persevere.