Outsourcing: Good Contracts are Only the Starting Point

Stick to core competence and competitive advantage, and outsource the rest: such has been the mantra of businesses for decades now. The logic is simple. By using external partners specialised in the non-core activities, for example, accounting, logistics and pay, an enterprise can benefit from that partner’s economies of scale and superior expertise. Profits go up and business continuity is reinforced. Yet outsourcing still gives rise to disappointment and animosity. It turns out that while a watertight contractual agreement is a pre-requisite for dependable outsourcing, it isn’t sufficient.  Organisations need more.

The UK Government recently published a report on its outsourcing activities, including areas as sensitive as its nuclear energy establishments. The report was unabashedly critical of the results of some of the outsourcing. The main reason cited was not the inherent quality of partners’ services or the deliverables defined at the outset. It was the lack of continuing management of the outsourcing agreements once they were in place. The government mistakenly expected to be able to ‘set it and forget it’. The same applies to any organisation using outside services. Without falling into the trap of micro-management, companies and organisations need to continue to keep tabs on the outsourcing agreement and its results.

There are three key ingredients for successful outsourcing: an objectives-based approach; accountability; and top management commitment. This is in contrast with agreements based on a task-oriented approach, no clearly identified persons to take responsibility, and no continuing interest from top management. And some organisations still operate like this, despite the fact that outsourcing may nonetheless involve activities that are vital to the survival of a company. If you can’t ship goods or pay employees, for example, your company is unlikely to last very long. For the sake of business continuity and satisfaction, outsourcing needs to be treated as a continuing project, not as a one-time event.

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