Are your outsourced operations running optimally, or do you suspect your firm may be overstaffed, over-equipped with services that are over-priced? They might be. Operational excellence is required in today’s competitive market. Here are 7 ways to investigate the health of your outsourcing relationship.
- The Right Process – You cannot have a cost-effective, efficient operation without a competitive request for proposal (RFP) process with proposals from multiple vendors. You may get lucky and get a great vendor that does everything you want them to but chances you are overpaying for their services. Or you may partner with a vendor that gives you a great price, but chances are you will be disappointed in their service.
A competitive process includes a detailed RFP with service level schedules for each area of service, monthly reporting requirements, scorecard, etc. Vendor interviews with the service provider’s key decision makers and account management team and lastly a contract that protects both your firm and the service provider.
- Experience counts – A good friend of mine was diagnosed with colon cancer. Due to the nature and location of the tumor, it was going to be a tricky process to remove it. He could go to the local medical center for the operation which performs this procedure on average once a month or he could go to Sloan Kettering in New York City which performs this operation 2 to 3 times a week. He chose Sloan and despite things not going as smoothly as hoped, he is alive and well and still beating me in golf. Could he have achieved the same results at the local medical center? Perhaps, but one never knows. Why take the chance?
Your outsourcing contract comes up once every three (3) to five (5) years and it has a major impact on your back and middle office operation if it is not operating efficiently. Industry-wide insight is invaluable. If you don’t have the experience in house to run it, hire a consultant.
- Choosing the right vendor – I often get asked who the best vendor in the marketplace is. Being unbiased, and what I truly believe, is that they all have their pros and cons. Much depends on which services are being outsourced, the manager overseeing the operation, the size of the account, etc.
In managing over 300 outsourcing RFPS, here are just some of the signs to look out for in choosing the right vendor:
- Did they follow the process as detailed in the instructions for the RFP? If not, what will they do once they get the contract?
- Did they bring the person who will be handling the account on a day-to-day, month-to -month basis to the presentation? If they didn’t, that is an issue. This is the person you will be sitting across the table from you for the next three (3) to five (5) years.
- Was their pricing within the norm or close to the benchmarks? Were they open and transparent with their pricing?
- Were they flexible with the contractual terms and willing to put some skin in the game in regard to penalties for non-performance?
- Do they have a solid IT component?
- Does their expertise align with the services you are outsourcing?
- The Right Team – Ever buy something from a company and the people you bought it from disappear? They are unreachable, never return an email or phone call and you end up looking for them on the back of a milk carton. Ensure through the RFP process that the service provider’s team will stay involved, be consistent, and have the authority to make decisions.
- Contract/Relationship Maintenance – Clearly outline in the contract, the roles of parties involved, the frequency and nature of the monthly, quarterly and yearly meetings. There is nothing worse than sitting through a yearly meeting that is nothing more than a glorified sales pitch from uninformed upper management for additional services when there are severe operational problems to address. Make sure upper management from the Firm attends and participates.
- Corrective action plan and scorecard penalties – Clearly outline in the contract what happens when things don’t go well. Don’t hesitate to request from your service provider a corrective action plan if there are performance issues – as a matter of fact, they should be presenting one without it being required. In Item 1, I mention a scorecard with penalties. It is always surprising to me that firms are reluctant to collect penalties after the 3rd or 4th infraction. Granted, everyone involved would rather have the performance, but the dollars will make sure they are paying attention.
- This is forever – right? – As with any relationship, there might be an end. Make sure your contract has cancellation for convenience (cancellation for any reason), no non-solicitation penalties or severance language. In addition there should be detailed terms outlining the vendor’s performance during separation and clearly defined assumption language.
Firms implementing these 7 steps will reap substantive benefits in their outsourcing relationships—but to get the secret sauce and take your situation from good to great, let’s talk. Here’s my email: firstname.lastname@example.org.