Why Outsource?

Why would you outsource a critical component of your business?  Isn’t that counter-intuitive?  Right?

Well maybe not.  Maybe it makes sense, but let’s check that out that logic.

• Scenario #1 – Senario: We have a critical project and we have to get multiple copies of the proposal to give to our client.  Our copiers here are perfect, but I don’t want to chance them jamming.  Send it to the printer.  Solution:  Outsourced!

• Scenario #2:  “Maybel, when will you have the taxes ready to file?”  Maybel responds, “with all due respect Mr. President, but those are prepared by our tax accountant.”

• Scenario #3:  “Mr. Marketing Manager, when will you have that commercial developed for airing on the superbowl?”.  Marketing Manager responds, “Sir it will be ready from the Ad agency next week.”.  President responds “Marketing manager, didn’t you create that ad yourself, you have plenty of talented people.”  Marketing manager responds “That’s crazy.  I have lots of great creative minds, but this ad for the superbowl is far too critical to leave to people that are inexperienced.”

In each Scenario, it makes complete sense to outsource.  People and businesses have been doing it for millennia.  It’s just that people are more conditioned to outsource some things more readily than others.

Outsourcing is more about making sound business decisions.  It’s about determining whether it’s feasible to effectively manage an outsourced resource, and how to manage its cost.  Most important to begin the decision-making process is to determine what the scope of the work is.  Second, once a scope is developed, try to imagine how that scope could creep so you understand your risks and how you can manage those risks.  With these two things in mind, then we apply cost and evaluate the work, the cost, and the risk.  We know we cannot see all the risks, but you must make a reasonable evaluation.

So, before the analysis, let’s look at how outsourcing things can help you grow your business.

Financially

• You may find that the outsourcing enables your company more than it was capable of originally. It always makes sense to find capable partners while you are not looking, than to be in a crush at the last moment with a great opportunity hanging in the balance.

• You need someone to perform a function but you don’t want to hire then fire. Outside of the demoralizing affect this has on your other employees, it has a huge liability associated with it.  You advertise for someone, you risk offending others not chosen.  You hire them and shortly afterwards you terminate them.  Will they go after you out of resentment for not being kept on when they thought they were doing so well?

• Your business is perking away just fine, and all your employees are busily engaged without excess capacity. An opportunity opens up and although its probably not going to end up being a segment that will yield much after this project, its right up your alley and you might as well make some money on it by bolstering your workforce with outside help.

• Rapid deceleration from a project. Sometimes you are exploring an idea and when that idea doesn’t pan out, you need to be able to back away from it quickly.  By outsourcing, it’s a simple stop notice.  Go no further.  If you try to stop quickly using your in-house staff, often times its many people that have become engaged and its not so easy to decelerate with demoralizing the team.

• Its also a great way of exploring new ideas without exposing those ideas all throughout your company. Maybe you just don’t want them to know something just yet, or maybe you know they don’t want to see you expending resources in other areas.  In any case, its easy to outsource to an entity that can run with the ball quietly and get the idea ready to hand off to a team with a plan in place.  Most employees don’t do well being handed “whitespace” and told to create something of it.  On the other hand, most employees feel empowered when given a task and and a set of goals to go after.  Outsourcing to the point of hand off just makes sense.

Confidential:

Some things just need to stay quiet until you are ready to move on them.  By using a Non-Disclosure Agreement, you can use outsourcing to maintain your anonymity while vetting a potential business venture or setting up a project.  Whether you know it or not, that happens every day.  People need to look at whether what they want to do is feasible, but if their competition found out about it, it would likely become significantly more difficult.  Either they race to beat you to market; or they become obstructionists and attempt to drive your costs up by stirring up a hornets nest of problems.

Confidentiality is a fickle thing.  First its very hard to get your own employees to understand confidentiality because they usually don’t even understand who in your organization knows what.  It is, often times, assumed by lower level employees that all senior management understands what is happening, and only lower level people shouldn’t know.  When you outsource, its very clear that the client determines who can know what.  An alias storyline can be developed to help the outsourced company perform the objective.

Sometimes you just need anonymity from your own company.  You cannot present a potentially controversial concept to other executives or your board of directors, until you’ve done your homework.  They have empowered you to move the organization forward and have authorized you to spend exploratory monies towards that objective, but only to a point.  Using an outside company allows you to maintain secrecy while continuing to move forward.  They will help you do your homework prior to presentation.  Some of the greatest business ideas were killed before they ever got started simply because the presenters hadn’t done enough homework prior to their initial discussions.

Practical Reasons

Sometimes there are just several practical reasons why you need to hire a company.  Examples might be:

Your company is located outside of the area and you just need someone to represent your interests in the local area.  This can be permanent, or just temporary depending on the situational needs.  It can be to attend a bidders conference, or respond with boots on the ground to a customer issue, or as a Manufacturers/Owners representative.

Your company is flat-out sprinting on some project or mission.  Your customer from last year needs your attention and you need to find the balance between current commitments and customer satisfaction.  Don’t choose, outsource to someone that can represent your needs and deal directly with you; without causing your company to lose focus on current commitments, but while maintaining what got you yesterdays and tomorrows customer, customer service and responsiveness.

Conclusion

The most important aspect in considering outsourcing is the group that you are looking at working with.  First, they will never be absolute experts in what you asking them to do because if they were, they would be your competition.  What you are really looking for is a group that listen to your needs, and understand your goals; then look with fresh eyes that are not jaded with your industry baggage about how something can be accomplished.  You want them to work autonomously, but understand that as they dig deeper, they will likely need to come to you to ask leading questions to help ensure they stay on track.  Make sure your goal is written down and is concise as it will be the one thing that guides the entire project, and what the final work product is measured against.  If, as the project is being developed, the goal is changed somewhat, keep track of the original goal and track the changes.

Next develop a proper timeline with intermediate milestones and measure progress against them.  Make sure everyone is clear and the timeline goals are reasonable and accepted by both parties.  Define the milestone and measure against it.

It all sounds familiar doesn’t it.  It’s no different than issuing a contract to your vendors, and it’s no different than what you receive from your customers.  Don’t reinvent the wheel, just be sure you understand it.  If there are intangible aspects of the project, you can still define the other aspects, and leave the ambiguous ones with only a goal attached to it.

Outsourcing has become a word synonymous with large corporations sending their work overseas, and has therefore earned a negative connotation.  This really isn’t the case at all in most circumstances.  Every business already outsources services already.  Unless you are entirely vertically integrated in its truest form, then you are outsourcing already.  In many cases, the outside world will require you to outsouce to independent third party firms for items like audited financial reports.

Maybe it’s time to rethink what outsourcing means.  It could mean growth and future profits to your company if managed well.  It could mean seizing an opportunity that would otherwise pass you by.  It should also be looked at as a potential way of dabbling into unknown territory that you aren’t sure you are fully committed to yet until you see how it plays out.

In the next article we will explore how best to manage an outsourced resource.

Ashtonco, LLC™ is a exceptional program and project management company.  Copyright 2017, all rights reserved.  Contact us at http://www.Ashtonco.com

How to manage an outsourced business management consultant

What is the most important aspect of working with your client?  The answer is: Its understanding what they need.  It’s a common principle.  What is the most important aspect of outsourcing?  Of course, its making sure your vendor understands your needs.  It’s all about effective communication.

So, you’ve decided to outsource part of your basic business package to someone else.  You’ve checked them out and performed your analysis of whether it makes sense to you.  In some cases, that’s running calculations such as ROI, and in other cases that’s an Executives instinct on what they think is best.  However you may have arrived at the decision, the question of this article is how should you manage them.

It’s all about communication and setting yourself up for success.  Let’s go through the ABC’s and 1-2-3’s of it.

There are 5 stages of any project according to the Project Management Institute.  Using PMI© as a guide we will break the management of the outsourcing into these elements for organization and simplicity’s sake.

Stage #1. Initialization:

• Goal – This is the first step. Ask yourself, what is it that you are trying to accomplish?  Define your goal with a one or two sentence statement that the entire project is measured by.  Make it concise.  Use the principle of an “elevator pitch”, which is a concise statement of what your business is that you can describe to a person in the time it takes to travel one floor in an elevator that leaves them understanding what you do.  In this case, it’s your concise goal statement.

  • Example: An Executive has decided to hire out the preliminary steps of considering a new market.  He needs to keep it quiet because he knows it will disrupt his team who is working at maximum capacity.  The company operates tugboats and the Executive wants to know if it’s worthwhile opening a 10-boat operation in Canada.  He has long since felt it might be worthwhile (ROI of 15% or more), but now it’s time to find out once and for all, and if it is worthwhile, can he achieve his goal for less than $10M capital expenditure?  His stated goal therefore becomes: “Can I open a 10-boat operation in Canada for under an “all-in” $10M capital expense and maintain a 10% ROI?” achieved within 18 months from start of activities.  It can’t be an ambiguous goal like “Is it feasible to open an operation in Canada?”  There is nothing definable, no measuring stick.  Be concise.

• Scope: Define, in writing, your scope of work.  Be concise and define needs and expectations.  Be sure to give the detail that you need them to have.

  • Example: Using the example above, what you need to do is define the project.  “Can existing tugboats be transferred from California to the West Coast of Canada; be operated there in one, two, or three ports; and gain enough work to keep them at a 60% utilization rate over the next 5 years?  Define the above:

    • What factors are included in the ROI calculation? For instance, is the transit there included, or considered a sunk cost.  What about depreciation on the vessel in the United States or costs to enter and operate in Canada?

    • How does this company calculate utilization rate? Is it measured over a 24-hour day period, or only 8, 12, or 16?  Is it calculated only as time away from dock, or only paid time with a ship?

    • Where are the vessels located in California? There is a big transit time difference between Crescent City and San Diego resulting in a large cost and time differential.

    • Is the preference to operate from a single port or multiple ports? If it’s multiple ports, what is the maximum number of vessels that you would prefer operating at one port.

    • What are the keys to seeing if a port is feasible? Perhaps water depth that allows the tugs to operate in.  Perhaps commercial traffic.  Perhaps whether there is leasable pier space. Known downtime due to weather, or seasonable use of port?

  • The key is to give enough information that everyone measures the results the same. It does no good to choose 3 ports that are too shallow or have no traffic, so you must define how to measure.  An example might be to give a daily operating cost for each vessel.  You can’t know if you are profitable until you understand your cost, but don’t complicate it, just use a standard all in figure for now.  In our example, let’s just say that each vessel operates at an average of $15K/day whether its sitting at the dock or under power.

  • Remember, the more “givens” you give, the better your answer will be. You are just doing a high-level assessment at this point and you don’t want your consultant to have to guess at all these things.

Now, you as the Executive, understand what you want and it’s time to go out and start to let your outsourced consultant begin to take over.  You have a good defined goal and scope, and you should be able to attract a candidate now.  They can see you have put some thought into it and it’s a likely project.  It needs to be held confidential from your own team and competition so ask the candidate to sign your standard Non-Disclosure Agreement.

Stage #2.  Planning:  The next step is planning.  The consultant is reviewing your scope and stated goal.  They are asking questions and understanding what it is that you need.  As they ask questions, they are developing a plan on how they will approach the task.  One of the questions they will ask early on is:  When does this need to be done by?  There could be lots of answers but let’s use our example above.  The Executive has just finished his quarterly Board meeting where he was asked about future development/expansion plans.  He wants to be able to go to the next Board meeting with some sort of analysis in hand.  This defines his timeline.  He has 2-1/2 months to complete a high-level analysis.  Of course, to be ready for his meeting, he can’t be handed the report the day before so what he wants are………Milestone-Updates.  Work together on milestones and how you define those.  For example, the milestones might be to determine all possible ports; define all ports with enough commercial traffic; permitting and related regulatory requirements; development of high level schedule of implementation; and financial analysis.  Each of these milestones are major elements in the project and having some of that information prior to the end of the project may be important.

Now, armed with this information, you and your consultant can have a discussion of cost.  The consultant now has the defined goal, the scope and related definitions, and a timeline with defined milestones. Negotiate your contract and define payment terms (e.g. Time and Materials with travel reimbursement).  Also, be sure to define how often to see time chits, what is expected on a time chit, and how often the consultant will invoice. Your consultant is under your NDA and you are ready to go, but be sure to tell them who they can talk to in your organization, if anyone.  Be sure to establish regular schedule of communication either by phone, in-person, or by email.

Stage #3.  Execution.  Now the rubber meets the road.  Everyone has a well-defined scope of work and understands how to move forward.  Its critical now that all questions be tracked so don’t allow emails to just fire back and forth.  Either set up an RFI [Request for Information] system with numbered requests, or set up a shared document (such as Google docs) where a question can be asked and answered in a tracked fashion.  The Executive should be able to respond to questions within 24 hours, or if they have no answer that can be the response.  The consultant must be careful to ask only relevant questions and be respectful of the Executive’s time.

The Executive in our example must respond to questions in a timely fashion, however for the most part he begins the monitoring process while the consultant executes the work.

Stage #4, Monitoring:  The Executive did his homework and worked with the consultant to develop a mutually agreeable schedule with defined milestones.  Taking the small amount of time up front to do this will save a tremendous amount of time and angst later.  Keep a list of the agreed upon dates handy and as the dates approach, talk to the consultant.  Keep the consultant focused on the next milestone, and the big picture.  The natural tendency for any project is to move slightly off track as obstacles present themselves, but the Executive must help keep the consultant pointed in the right direction or help establish new rules to accommodate the obstacles.

It’s in this monitoring process that the savvy Executive is looking to hear things, positive or negative, that will make them rethink the project.  In our example, the Executive might hear that the permitting process will take 3 years for foreign flagged vessels, and either that changes the entire approach or may the project a non-starter.  By staying abreast of developments against his original plan, the Executive can make decisions on the fly.  He may cancel the program early and save himself money if it’s not headed where he thought it would go; or he can adjust as the obstacles present.

Stage #5, Closeout.  If communication has been regular and fruitful, then closeout is simple.  Everyone has agreed to the goal, and how often billing is to happen; so, if everyone adheres to the agreed upon deal, then closeout is simple.  If something happened where one of the parties deviated from the plan, then the deviation should be very clear.  As soon as you see a deviation during the process, be sure to note it in writing to the consultant.  The object should never be to “catch” them; but rather it should be about ensuring you get you wanted.

Managing the outsourcing process need not be scary or daunting, but it should be an opportunity seeking process.  It’s all about communication; begin by being effective in giving it, receiving it, and processing it.  Its defining things so all understand.  Its working together towards a common goal, and treating your consultant as a valued resource.  It’s about holding the consultant accountable towards the established milestones and be sure to have him respond specifically to the goal.  By working together towards a common goal, you may very well find that the consultant provided you an opportunity that your in-house team could never have provided.

In our example, the Executive is well prepared to enter his next Board meeting with some real data.  He can respond intelligently to questions, and make forecasts.  The Executive and the Board can work together to determine if it’s a go, or no go.  If it’s a go, then it’s all about developing the scope again, redefining the next set of milestones, and determining timeline.  It’s a reiterative process, just with a higher level of detail.  This next step can be either taken in house, or continued with the outsourced consultant.  Often, it’s the outsourced consultant that can take it to the next step, where when the handoff is made; then in-house employees don’t need to create and invent, but rather simply operate, something that is likely to be more successful for them because it’s what they do every day.

David Ashton at Ashtonco LLC™ is a well know subject matter expert in contracting and project development for over 30 years in several related fields.  For inquiries, comments, or questions, please contact him at David.Ashton@Ashtonco.com.  Please also review the www.Ashtonco.comwebsite for other blogs and useful information.  ©2017, Ashtonco LLC™.