Five Questions to Ask Before Outsourcing

This is no doubt a topic with many opinions, some shared and some polar opposite. As context, I have worked with outsourcing partners across the globe for 15+ years in the areas of software development and contact center solutions. I have had some great experiences and other earlier experiences that have ranged from frustrating to a complete waste of time and money.

Let’s first define outsourcing; It is the act of subcontracting work, that would have otherwise been delivered internally, to a another company with the aim of improving performance in one or more of several areas including: cost, quality, flexibility, speed, etc.

There are five questions I always review when thinking about outsourcing. Let’s take a look at each question in a little more detail.

1. What does success look like?

This should be one of the first question you ask when you start any endeavor, not just outsourcing. If you don’t know what success looks like and more importantly know how to measure success then pause, and figure that out. Success could be reducing costs by 50%, increasing overall velocity with round the clock delivery, etc. I strongly recommend having a way to measure success and not just hope that you will know success when you see it.

2. What is the nature of work being outsourced?

I always say that you should never outsource work that you don't know how to do yourself. In an ideal world, you would only outsource repetitive, simple, commodity type work. Save the strategic (aka cool) work for your own employees. I have known internal employees become very frustrated when they think he ‘best’ work is being given to outsourcing partners.

I have plenty of LinkedIn connections who happen to be relationship managers at outsourcing companies and they will argue that they can easily handle the strategic work in addition to the commodity work. I agree with them, but just because they can handle the cool, strategic work doesn't mean it is the right decision to outsource it to them.

Another factor to consider is the range of work you are looking for an outsourcing partner to support. If you think they are going to be a 'silver bullet’ solution that can work on everything you do then you will probably be disappointed. Just like internal resources, they need to be trained and given context around the supported business processes. You would not expect to hire an engineer off the street (even a brilliant one) and have them work on all your products in a few short weeks. They need to learn the nuances and build experience over time (months, sometimes years) therefore your expectations should not be higher for an outsourced worker.

3. Which logistics are important?

This is the area that most companies immediately jump to when they consider an outsourcing partner. Logistics to consider include:

Language: Do not underestimate the challenges caused by language barriers. Teams have to be able to communicate well with each other and understand the nuances of language. As an Englishman who came to the US over 20 years ago, I recall many instances of miscommunication with my new American colleagues even though we were speaking the same language (two nations divided by a common language). Just imagine the miscommunication possibilities for people who do not share a first language.

Time Zone Difference: This is extremely important especially in work like Software Development where outsourced teams and internal teams are working on the same product. There has to be overlap between the teams in different time zones to enable a good transition every day. Even then, there can often be a lag between questions and answers because of the limited overlap time. One solution to the problem is to have the outsourced team match the working hours of the internal team. This can often lead to higher prices because outsourced workers are human beings who for the most part want to work during regular business hours in their location.

Location: Do you want a partner who is onshore, nearshore or offshore? This is a relevant consideration if you are planning frequent visits to the outsourced location and very important if there is a significant time zone difference (see above). Having said that, in the modern world of great communication tools and fast network connectivity, the location is only really important when you consider any language or time-zone barriers.

Internal Resources: How many of your internal employees will be responsible for supporting the outsourcing partner? Their time should be factored into the total cost of outsourcing. Most companies need to assign relationship managers to handle the administrative and financial side of an outsourced relationship but in the case of software development there often needs to be dedicated product managers and technical leads to ensure the right work is delivered to the right quality. If you expect some of your internal product managers and engineers to manage outsourced partners as a side of the desk effort then I promise that the quality of work will suffer.

Compliance / Security: This question traditionally comes up when considering outsourcing call center functions. There was often a basic fear that outsourced call center agents could write down customer credit card information and later use it for illicit purposes. Ten years ago, I remember touring an outsourced facility in the Philippines and we observed a call center agent with their personal cell phone at their desk. They were immediately and unceremoniously escorted out of the building leading to a situation that was uncomfortable for all present and obviously disastrous for the worker. The previous example is valid and needs to be managed but it is only the tip of the iceberg when we are considering compliance and security. The reality is that you will need good lawyers to write watertight contracts, great technical teams to implement world-class system / network security and very strong process management practices to document the flow of work. You also need to perform regular audits / reviews (including onsite) to be certain of compliance.

Communication Channels / Tools: This may seem like a minor point but make sure the outsourced partners you are considering use the same tools e.g. Slack, Hangouts, Skype, etc to communicate (or at least compatible tools). Communication really is the key to success for everything in life and if you have impediments to communicating before even a single word is spoken then success becomes much harder.

I could go on for a long time discussing other logistics including software deliver methodology (Agile vs. Waterfall), dedicated vs. shared outsource locations, length of contract, escalation/issue management, etc. but in the interests of time I will move on.

4. How much of your total work do you want to outsource?

This questions only really applies when you are at the extremes. I think that most companies can feel very comfortable in outsourcing 5%, 10% and even 20% of all their work. Some more mature companies can even outsource 50% or more, especially if they are not highly innovating. The problem comes if you are outsourcing so much work that the critical mass of subject matter expertise lies outside your own walls and before you know it, your culture is changing to reflect your outsourced partners. On the other extreme, if you chose not to use any outsourced partners then you are probably missing out on cost-savings, delivery velocity, etc.

There is no golden rule here because it all depends on the industry you work in, health of your company, level of innovation, comfort with outsourcing, etc.

5. How much are you willing to pay?

Don’t even attempt to answer this question until you have worked through all the other questions above. It’s too tempting to think that you can cut your costs in half by outsourcing and assume that everything else will be equal, because it is not. My best advice in this space is the same advice when contracting any work, get multiple quotes (ideally through a rigorous RFP process) and then negotiate the best deal. Having said that, be careful not to compromise on too many of your answers from the first four questions just to save a few dollars. There are some amazing, very reputable outsourcing partners in the world who can help you meet your business goals. There are also some very shady outfits so always check references.

In conclusion

Outsourcing is not a silver bullet but it can be a great way to help you achieve cost, quality, flexibility and velocity goals. Please let me know if you have any additions or comments. I have great experience in this space but I do not claim to have all the answers and I always love to learn from the experiences of others.