Pick Areas to Outsource: Companies must evaluate which, if any, internal functions would be better performed by an outsider. Outsourcing back-office operations such as human resources, finance, accounting and information technology (IT) can not only cut costs, it can also ease administrative burdens and improve flexibility and scalability.

Get Senior Management’s Commitment: As with any other significant undertaking, it is absolutely critical that the outsourcing project has support from senior management. 

Pick the Project Team: Outsourcing requires a great deal of in-house management in order to determine and deliver business requirements, ensure technical capability and manage the external relationship. Without this oversight, the potential for strategic gains can erode.

Once senior managers have signed on to the project, it’s important to have the committed participation of affected departments. Their representatives must be part of the process, because their input is critical to the project’s success. They must support the decision, whatever it turns out to be. 

Assess Current Operations: Outsourcing relationships often fail when a firm outsources an activity its own personnel do not totally understand, and the provider promises to meet requirements that have not been fully defined, communicated and understood.

In order to make an intelligent decision about whether or not to outsource – and to whom – you first need to fully examine your needs. Make sure that outsourcing is a good fit for your overall corporate strategy.

Define the Scope of the Project and Develop Objectives: Begin by defining the problem and the desired outcome. (Are you trying to lower operating costs, increase flexibility or gain access to best-of-breed solutions?) Find out if your competitors’ strategies are working successfully for them. Determine whether outsourcing will enable your organization to concentrate better on your core competencies. Evaluate the risks and determine if they’re acceptable.

Determine Outsourcing Skills Needed: You’ve defined the project. Now you need to decide what skills are critical for a vendor to have in order to service you appropriately. Look for:

• Expertise in the process being outsourced.

• Extensive project management skills.

• An understanding of your business.

• The ability to integrate best-in-class service providers into the process.

• The willingness to establish performance measures.

• Knowledge or expertise that your company lacks internally. 

Identify Potential Providers: Identifying potential providers can be a challenge, since there are hundreds of firms offering an array of services for a variety of clients. The industry is segmented in a number of different ways, so understanding your needs and which types of companies can best meet them is the first hurdle to clear. To start your search, get referrals, read trade publications and surf the Internet.

Do Due Diligence on Vendors: Several vendors have submitted proposals and you’re narrowed the field to two or three top prospects. Now, you need to go beyond the proposal to make sure the vendor is a match for the project.

• Ask for references.

• Make sure that their corporate vision and goals are compatible with yours.

• Evaluate their experience so you don’t hire someone who doesn’t have the right expertise or capabilities.

• Find out how the firm trains and develops staff, and how successful it is at keeping them.

• Discuss the vendor’s contingency plan, so you’re clear what happens should something goes wrong. 

Make Vendors Accountable: The buyer should hold the vendor responsible for living up to specific requirements. This can be accomplished with a contract that covers – among other things – the level of accountability, job parameters, scope of work and performance yardsticks. Determine in advance the penalties (including financial) for nonperformance, and spell them out in writing.

Give serious consideration to an escape clause. If things aren't working out soon after you begin, being able to terminate the contract without a penalty is much easier. For example, your contract might allow for a penalty-free termination within 60 days. 

Determine Whether You’re a Candidate for Outsourcing: Companies that are good candidates for outsourcing share several characteristics, including:

• Well-established goals for what they want from the relationship.

• Support from management as to the benefits of outsourcing.

• An understanding that outsourcing is a long-term strategic relationship and not a short-term, quick-change effort.

• Operational benchmarks for processes within their business so that outsourced functions can be verified and measured.

• Clearly delineated parameters for the process that will be outsourced.

• The basic drivers for establishing an outsourced relationship, such as the need to refocus on core businesses, reduce overhead, improve customer service and increase competitiveness.