More and more companies are considering outsourcing as a way to save money during these difficult economic times. If you believe the hype, outsourcing will solve all of your technology problems and virtually eliminate your IT costs for hardware, environmental, people, software, etc. Code names like SaaS (Software as a Service), Cloud Computing, Hosted Applications and the like are all different names for outsourcing your internal applications, processing and data.
A plain english definition. . .
“Outsourcing is the turning over of processes within your organization to outside service providers who can utilize economies of scale (by doing the same thing for many similar customers) to provide you with the same level of service you could get from performing the process internally.”
Outsourcing can be an alternative to performing some functions within your own company but rarely is it the only answer.
As recently as January of this year, a well respected major outsourcing provider, Satyam Computer Services, perpetrated a major financial fraud ($1 billion fradulent cash entry) that caused many of its customers to experience significant disruption to their operations. Some of their Fortune 500 customers such as Cigna, Cisco Systems, Caterpillar, Ford, General Electric, Nestle, General Motors and many thers were affected by the scandal. Some had systems and procedures in place to deal with the service disruptions and some didn’t. Those that didn’t experienced major business disruptions.
Just imagine that your worldwide (or local) payroll was interrupted, payments to vendors delayed, cash receipts from customers not deposited, invoices to customers not sent, internal customer list released to the public, etc. All of these things and many more are dangers that exist when outsourcing your critical business functions to any outsourcing vendor.
Remember that if it sounds too good to be true, it probably is too good to be true.
Many outsourcing software vendors charge their customers on a “per user” basis. “You can have all of the power of our software for ONLY $9.99 per month” is a common refrain. It’s a loss leader. Once you sign up for the basics you can be charged additional dollars for things like custom reports, additional backups, data downloads, telephone support, additional storage, additional bandwidth usage, “add ins” for additional functionality, upgrades, integration, data uploads and many many more items.
There are too many other dangers to outsourcing and giving up control of your business processes and data to an outside organization, just to gain a temporary dollar savings.
If you are considering outsourcing or already involved with an outsourcing vendor please keep these basics in mind when evaluating any outsourcing issues:
- Conduct a thourough initial due diligence and ongoing contract compliance effort
- Conduct a comprehensive ROI analysis to ensure that the outsourcing budget truly involves long term savings over inhouse processing
- Involve finance in the process to evaluate the vendor’s financial viability
- Engage experts who know the outsourcing providers and have experience evaluating their offerings
- Have a backup plan for any process that’s outsourced (another vendor, inhouse resources, etc.)
- Have an outsourcing expert review the contract in addition to the legal department
- Establish ongoing success metrics for accountability that are easily measured on a regular basis
- Have an exit plan ready before you sign the initial contract (in particular, how can you get your data back if you terminate)
- Use common business sense!
Not all outsourcing vendors are bad. Outsourcing can be beneficial in the right circumstances if you take the right steps to protect yourself and your company. Follow the nine step process above when looking at new outsourcing options and please remember “Buyer Beware”!