Formalizing Your Outsourcing Decision Process


ÒYou can\’t just sit back and say, OK, I\’ll outsource this. That\’s not good enough any more. You have to be able to figure out, on a global basis, where does my supply chain give me the most efficient return?Ó -Dalip Raheja, CEO, The Mpower Group


In business, sometimes the simplest parts of the process can be the most challenging. That can be true in outsourcing as well, according to Dalip Raheja, president and CEO of The Mpower Group, a professional services firm that helps Fortune 500 companies with sourcing in general, including outsourcing and offshoring.

The issue that can slow down the outsourcing process and cause the most problems: Lack of alignment of the decision process. ÒBy far, that\’s where we pay the most attention to our clients,Ó Mr. Raheja says. ÒBy far, that causes clients the most anxiety and takes the most time.Ó

Companies wrestling with this issue — and that means virtually every organization — simply don\’t have their decision process well thought out and structured, Mr. Raheja says. ÒIt sounds like a basic, fundamental thing. But categorically, 99% of organizations have no clue how to approach [the decision process].Ó Why? Because companies simply aren\’t used to structured decision processes.

The solution, simple as it sounds, is to try to formalize your company\’s decision process. That includes clearly identifying the decision-makers, laying out the project in writing, communicating the scope to everyone involved, and getting all parties to agree — and to remember that they agreed. In some cases, Mr. Raheja says, it means Ògetting senior executives to sign off, so that two months later there\’s no disagreement.Ó

ÒAbsolutely, put it all down in writing,Ó he counsels.

During the project itself, Mr. Raheja says, many of The Mpower\’s clients don\’t understand the importance of the process. The light bulb tends to come on later, when the outsourcing project is humming along. ÒWe couldn\’t have done it without youÓ is often the reaction then, he says.

So is the fix as simple as the problem? Unfortunately not, although there are some issues you can address. Of course, hiring a good consulting firm that can help you with all this is one option. Based on his work, Mr. Raheja simplifies the process into these suggestions:

First, identify who the relevant decision makers are — and who they aren\’t. The last thing you want to do is spend meeting and decision time with individuals who turn out not to have any power over the decision after all. And that\’s more common than you might think, Mr. Raheja says.

Once you\’ve identified who will be making decisions, get that list sanctioned by the project\’s top name — the CEO, if need be. ÒThe Ôwho\’ is very important,Ó Mr. Raheja says. ÒOtherwise, the people who aren\’t going to make a decision will be trying to play an active role.Ó

Next, work to identify what parameters the outsourcing decision will be based on. What are the critical items that you\’ll use to make the decision? If it\’s cost, what are the numbers? Is it a percent, for example? What\’s acceptable and what isn\’t? These types of decisions are much easier to get people to agree to before the data starts rolling in, Mr. Raheja stresses. ÒBy getting everyone to agree to these decisions up front,Ó he says, Òthey can\’t manipulate it to fit what they want.Ó

That, in turn, avoids bottlenecks as the project moves forward. ÒWe\’ve seen it happen many, many times,Ó Mr. Raheja says.

–> ADVICE: Think in terms of global delivery models.

A global delivery model is emerging from the outsourcing movement, and you soon won\’t be able to distinguish between onshore or offshore providers, according to Mr. Raheja. He says successful companies will need to think in terms of global delivery models. ÒThat means that you understand where the cost arbitrage opportunities areÉ. You can shift delivery of your goods and services to where the best arbitrage opportunity lies — with risk mitigation, of course.Ó If you don\’t do that, Mr. Raheja says bluntly, Òyour competition will.Ó

In other words, Mr. Raheja says, ÒThe firm that you contract with will figure out where the best labor and other arbitrage is, and they will move the labor there.Ó The result will be transparent in many ways to the contracting company — your firm — which cares most about issues like price and quality, not where the labor itself is located. That means you might contract with a firm in India that offshores to China to bring down costs — meaning that the offshore outsourcer is offshoring.

That means that organizations need Òto start understanding what a global delivery model is,Ó Mr. Raheja says. ÒWe\’re moving toward virtual supply chains. I can be a competitor without owning any of the manufacturing myself.Ó

Summary: The process is critical for good outsourcing results. Take time to involve all the decision-makers, and get agreements in writing.

Useful Links:

The Mpower Group

Dalip Raheja, [email protected], (630) 268-8963