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Outsourcing Best Practices
SIM – Philadelphia
April 1, 2003
Presented by:Michael Speaker
President, MSC Services, Inc.
2
Overview
Outsourcing Strategy Program Goals & Scope Organization Impact
Vendor Selection Approach Due Diligence Best Practices
Contract Negotiation Negotiation Best Practices
Q&A
3
Outsourcing Strategy
Outsourcing strategy must balance 3 key components
Review balance at each phase of strategy design through execution
Neglect of one component may have significant negative impacts
Goals & Scope
OrganizationImpact
Vendor/Partner
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Strategy Best Practices
Get educated on outsourcing capabilities, best practices, and pitfalls early
Visible executive sponsorship is critical
Identify all stakeholders early and get buy-in
Communicate strategy early & updates frequently
Avoid temptation to pilot too early
Plan for the long-term before taking short-term actions
Plan to find a partner, not just a vendor
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Defining Goals & Scope
Define needs including in/out of scope activities
Set clear & measurable goals
Understand success factors for all stakeholders before analyzing vendors
Cost should not be the only driver
Goals & Scope
OrganizationImpact
Vendor/Partner
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Organization Impact
Minimize negative impacts via good communication
Clear up common misconceptions & fears early
Should not be a “big secret” –communicate appropriately at all levels
Ensure best performers get extra communication & assurance
Be ready for patriotic concerns if considering offshore
Goals & Scope
OrganizationImpact
Vendor/Partner
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Vendor Selection Approach
Cross-functional team defines selection criteria in advance
Use due diligence effort as a vehicle to attain buy-in
Key selection criteria: Cultural/Organizational fit Domain experience Resource quality Technical capabilities Risk/reward balance
Goals & Scope
OrganizationImpact
Vendor/Partner
Establish good two-way communication with finalists before negotiation – start to develop a partnership
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Due Diligence Best Practices
Look objectively at vendor qualifications - stay focused on proven capabilities & industry experience
Use caution - outsourcing firms have savvy salespeople
Get to know the vendor, not just the sales staff: Visit vendor facilities – perform random interviews with
resources performing similar work
Analyze methodology: How well will vendor methodology integrate with your
methodology? Is there sufficient flexibility?
Assess how vendor overcomes cultural barriers
Assess level of onsite work required at existing clients
Leverage internal or 3rd party outsourcing expertise
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Negotiation Best Practices
Outsourcing firms are hungry – customers have the advantage (be aggressive but reasonable)
Agreements are complex – do it once and think long-term (avoid “nickel-n-dime” charges later)
Mature firms are excellent negotiators
Get quality guarantees/penalties
Name specific account management resources in the contract: Interview resources first Guarantee for 18-24 months by name to ensure momentum Usually at no cost
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Negotiation Best Practices (Continued)
Resources Be specific about the skills you need/foresee Guarantee skillset availability at contract price Define experience levels (what is “advanced”?) Tiered volume pricing by skillset works well Price Onsite, Onshore and Offshore separately Negotiate travel cost as a fixed price per week for short-
term onsite/onshore assignments - do not include in hourly rate
Telecommunications Cost Plan carefully - be as specific as possible Making changes later typically costly
