Move from Tactical to Strategic Sourcing

"Don't do outsourcing as a knee-jerk undertaking. Do your homework. Do it in steps. Really understand the motivations for outsourcing." — Robert Brown, Principal Analyst, Business Process Outsourcing, Gartner Research

If you're working for a small to midsize company rather than a large one, the outsourcing tide has been slower to reach your doorstep. That's how business process changes work — the biggest firms push them forward, buoyed by more money to spend and bigger savings to realize.

So far, midsize businesses make up a fairly small portion of the outsourcing pie — just 20 percent of the market overall in 2004, according to IT research and analyst firm Gartner Inc. But outsourcing is moving down through the food chain, according to Robert Brown, a principal analyst for Gartner who studies business process outsourcing.

If your small to mid-size company is contemplating outsourcing a business process, many of the same tips that apply to larger companies apply to you. A key one is this, according to Mr. Brown: You'll want to check that you're thinking strategically about outsourcing, rather than tactically.

"Often, the natural tendency is to immediately start issuing requests for proposals without due diligence on the front end," Brown says. Instead, be sure you're looking at your long-term strategy, keeping your business objectives in mind at all times, and working to cement a long-term strategic relationship with your chosen vendor.

For starters, "the enterprise needs to understand its motives for outsourcing in the first place," Mr. Brown says. "It can be as simple as, the CEO has played golf with the executive of an outsourcing company — which isn't the best ingredient for a strategic sourcing decision." What Gartner advocates instead, Mr. Brown says, is a carefully thought-out strategy that starts with involving everyone. Once you understand the motivations for outsourcing, Mr. Brown says, you can go to the table with all the stakeholders giving their input.

To be strategic, consider questions like these: Where can we reasonably find areas that are acceptable for outsourcing? What areas of the business are good candidates for outsourcing? Can we get buy-in from the C-level executives? Can we get buy-in from the mid-level managers involved, including those in IT? Answers to those often-tough questions come from meetings and discussions that include all the business units involved.

Once you've done your homework, Mr. Brown says, you're ready to go out into the marketplace and collect bids from companies that can meet your specific needs.

Finally, it may help to try to envision the end state once you've done the deal, Mr. Brown suggests. "Two or three years in the future, what would the ideal output look like?"

Summary: Resist the push to rush into outsourcing by working strategically. Decide what you're outsourcing and why, meet with everyone involved, and make careful decisions before issuing any RFPs.

–> SOURCING TIP: Match Company Sizes

"We often find in our discussions with SMBs [small and medium-size businesses] that they want to be the outsourcer's most important customer," says Mr. Brown. But if you're a smaller company who chooses to work with one of the largest outsourcers, that probably won't be the case. "If you're an SMB and all you require is things like guaranteed availability and a good price point, you can get that from larger vendors," Mr. Brown says. But if you anticipate needing high levels of hand-holding during the relationship, or lots of change orders, a larger vendor probably won't be able to supply that for a smaller client. A better strategy, Mr. Brown says, is to find a smaller vendor, closer to the size of your company, and perhaps one who is local and works in your market — whether that's Southern California or the New York area.

Surprisingly, Mr. Brown says you don't necessarily increase your risk by working with a smaller, less well-known provider. "A lot of the smaller outsourcing vendors that I've had occasion to work with are fairly solid companies," he says. Again, the big advantage to you: "The smaller guys can bend over backward for your business and will really cater to you."

A final point about larger vendors is that many of them have shifted to reach down into the midsize market in today's economy. When the market picks up, Mr. Brown suggests, "There may be a tendency to retreat to their bread-and-butter clients after having dabbled in the SMB market, leaving their SMB clients high and dry."

Useful Links:

Gartner
http://www.gartner.com

Robert H. Brown, robert.brown@gartner.com