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Small Business Process Outsourcing Success - Best Practices for Organizational Changes
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There is a growing interest in outsourcing among small and mid-sized businesses, started as a cost saving technique but now small business outsourcing is considered as a strategic initiative for the business owners. As the size and complexity of the outsourcing project grows, managing the outsource vendor relationship also grows with it. Small businesses must have an effective organizational structure and governance to maintain successful relationship with the outsource vendors. Having a well drafted outsource contract alone cannot help, it needs resources like training, change management, organizational restructure, governance body, etc to successfully mange the outsource vendor relationship. If the outsource vendor is located in offshore locations then the small businesses need to consider issues like time-zone differences, cultural mismatch, etc, in managing the project teams. Only few small businesses understand that the hardest work begins only after the outsource contract has been signed. Many small businesses underestimate the complexities involved in executing and managing the outsource projects.
In this article we will explore the best practices for successfully managing outsource vendor relationship.
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1. Organization Changes
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In any business process outsourcing initiative, some business processes are outsourced and many are kept in house within the small business itself. If not planned and executed properly, the separation and integration of businesses processes cannot work smoothly. First small businesses should make organizational changes to support the outsource relationship with the vendors. The small business management should create four groups within their organization to support smooth functioning of the outsource relationship.
1.1. Executive Group
This group consists of C-level executives from small business and from outsources vendor's company. Though this group will not involve in daily outsource operational issues, the group members will oversee all other groups formed to successfully manage and execute the outsource relationship. The main job of this group is to make sure that all the groups have their conscience in making the right outsource decisions that will support the overall organization's short-term and long-term strategic goals. All other groups will report to this group either directly or indirectly.
1.2. Governance Group
This group is responsible for ensuring contract compliance, performance management, and issue resolution. The main purpose of this group is to take care of any issues arises between the team members of small business and outsource vendor. This group should consist of senior members from both small business and outsource vendor to manage the smooth execution of business processes. The main responsibilities of this group is to enable the executive group to make tactical, operational and strategic decisions that increase the business value resulting from the outsourcing relationships, while reducing the risk associated with using a outsource vendor.
1.3. Outsourced Business Process Group
This group is responsible for managing the business processes that are outsourced to the vendor. The focus of this group is to identify the business processes that are good candidates to outsource and actively involve in the transferring those business processes from small business to the outsource vendor. Generally employees from both small business and outsource vendor will be members of this group.
1.4. Retained Business Process Group
Generally, business processes that are strategic importance and have legal issues are kept in-house within the small business. This group is responsible for redesigning internal business processes based on outsourcing solution so that touch points and handoffs between internal and outsourced business processes are carried out appropriately. This group also responsible for operational planning, policy development, continuous process improvement, process change management etc.
Depending on the size of the small business, above groups can have one or more members be part of the group. By clearly separating the responsibilities of the each group and aligning them with common set of goals, small business can achieve their strategic goals like improved share-older value, increased operational efficiency, etc.
2. Avoiding Common Outsource Pitfalls
Any new company wide initiative will bring uncertainties in organizations, outsourcing is no different to this phenomena. The executive team should align the above groups to take proper decisions to answer following key questions:
- Due to the outsourcing, what are the overall business process changes and who is responsible for executing them?
- How do retained and outsourced business processes relate with each other and who is responsible for integrating them?
- Which groups are responsible for the ownership of the business processes and how do they make sure the smooth execution of them?
- How the in-house and outsourced business processes are measured and how the performance degradation reported to the governance group?
- How long it takes the governance group to address and fix the performance issues.
- How the quality of the outsourced business processes execution measured with the retained business processes?
- How the security of the business critical data managed in, outsource vendor's location? How the security breach reported to the small business executive group?
By rising above questions in the beginning of the outsource initiative, stage small business executive team can understand the complex nature of outsourcing and giving ownership of the business processes to an outsource vendor. A good solution is to use the small business BPO feasibility framework to answer all of the above questions and have a clear vision for all the outsource initiatives.
The entire small business outsource process does not have to be overly complex, but without the above-mentioned groups small businesses may not achieve their outsource goals. Typically companies wait until they negotiate and finalize the outsource contract and then start planning for the governance group and define the roles of other groups. This strategy will not work and companies often miss the expected outsource benefits and may end up in unsatisfactory service levels from the outsource vendors.
3. Achieving Strategic Outsource Value
Following are the take away points small businesses should consider in forming the various groups to have a long-term success in achieving strategic value in outsourcing:
Senior Management Involvement: The governance group must work closely with the executive group to convey the daily progress of outsource initiative and get feedback from the stakeholders on the outsourced projects.
Organization Involvement: Governance group must reach out all the departments of the organization to educate about outsourcing and get their feedback to achieve strategic business value of the outsource efforts.
Business Process Standardization: The retained and outsourced business groups must create business process standards so that the service performance of the in-house and outsourced business processes can be measured. Without proper measurement, you cannot measure the productivity gains achieved by outsourcing.
Achieving Goals: Achieving the goals of both the organization and the outsource vendor is very important. Organizations want to cut cost and improve the operational efficiency of the business processes. On the other hand outsource vendor wants to increase their revenue and decrease the service delivery cost. Good governance should call for achieving both of these goals so that both the organization and the outsource vendor will mutually benefit from the relationship.
Achieving Synergy: A good governance model should be build upon the needs of both the organization and the outsource provider. This helps both parties to build trust upon which they can resolve future problems that arises in their outsource relationship.
Outsource Contract: Having a well written outsource contract is must, but outsource contract alone cannot help in solving all the problems. Both parties should use the effective governance model to resolve the issues in a timely manner. Also the outsource contract must be updated regularly over the life of the agreement.
Management Transition: The executive group must plan proper management transition so that current team members will be given specific tasks once the outsource initiative begins. For example, senior managers from the outsourced business process group will be the members of the governance group to oversee the smooth functioning of the outsourced business process.
Overall Control: It is important that small business retain overall control of the outsourced and retained business processes. Outsource vendor can make decisions for the outsourced business processes and they will actively participate in the decision but ultimately it is the responsibility of the small businesses to make sure the entire business process value chain is working efficiently and effectively for the customers.
Managing the Risk: Any time organizations engages in new partnership there will be risks associated with it, it is no difference in outsourcing partnership as well. Both the executive and governance groups must work together with other groups to understand and develop proper mitigation mechanisms in resolving it.
3. Conclusion
By creating appropriate groups and assigning proper roles to the team members before starting the outsource initiatives, organizations can achieve their outsource goals. The members of the various groups formed for outsourcing helps both parties to invest time in the very beginning of their outsource relationship so that both parties can mutually benefit from their outsource relationship.
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