Outsourcing Internal Activities to off-shore companies

A very popular cost-savings activity called outsourcing has impacted many different industries in the world, specifically the U.S. Though the history of this activity is very long and interesting, suffice it to say that a majority of the activity has taken place over the last 5 years. It has now impacted manufacturing and service industries.

I was responsible for outsourcing some main activities of the last company where I was COO. This company was a service-based technology company.

Here are the following steps and some issues that you should be prepared to look at if you are going to pursue this activity.

1) If it is a service-related industry - Control the information!
Many outsourcing companies take over one part (potentially the most redundant, low-value activity) of your company's value chain. Even though it might be the lowest value, in most cases, it still has to do with information important to your company. Be very aware of how that information can be used and control it. (This could entail system changes or password-based policies.)

2) Perform many levels of due diligence on your potential outsource partners
This action could have lasting impact on your customers. Make sure that you:
- get a client list from the outsourcing company,
- visit the outsource clients and the outsourcing company (if possible),
- interview a few of the people from the outsource company that are going to be doing the work (not just the managers of the work),
- check with any associations your company might be a part of and see if others have dealt with your outsourcing companies.

3) Have 2-3 backup partners ready to go.
This is not pessimistic and certainly not a waste of time. There will come a time when one outsourcing company cannot handle what you need (it could be they can't handle the actual activity needed or can't handle the volumes or can't handle the quality expected). At that point, you need to be able to take that whole activity and give it to one, possible two, other backup partners. If you haven't planned for this quick transition completely with your backup partners, you are in trouble. You could be held hostage at the point when you can least afford it.

4) Have a rapid transition plan ready to go before you even start up with your first partner.
As part of #3, have that plan of transition clearing written out and understood by everyone necessary within your company (but also possibly with your backup partners).

5) COMMUNICATE !!
It sounds obvious, but definitely communicate all the time with your outsourcing partner. Have a regular meeting (either every day or at least every week). Think about communicating to your customers and if so, how and when to communicate with them.

At my company, a group met everyday to review the status and quality of the work from the past day. We also provided a memo to customers detailing out the plan and benefits (for our company and our customers) to making this action.

6) Try a small rollout/test if possible.
In the best case scenario, perform a test (use an understanding customer account) with your outsource partners and backup partners if possible. This will allow you to work out all the kinks - technology/system, communications, timings, processes and procedures.

7) Finally prepare for legal issues if there are going to be layoffs.
In most cases when an outsourcer is used, to get the best financial impact, layoffs of current staff must occur (or reallocation to other activities within the company). Layoffs at any time are very difficult and litigiously dangerous. When it has to do with outsourcing, the emotions tend to be higher and therefore the threat of legal action also higher. Have your HR lawyers connected to the plans as early on as possible.