Outsourcing methodology is essentially a proper management process to access financial, technical and HR aspects. The methodology is there to help organisations assess, plan and execute a set of decisions. It also aids in setting expectations, both within and outside the organisation, as well as indicate where specialist help/knowledge may be needed. Organisations should, therefore, view methodologies as a set of decision tools.
(Rothery and Robertson, 1995)
Within the literature there are three recognised outsourcing methodologies, which are;
1. The Seven Steps to Successful Outsourcing (Greaver, 1999)
2. Methodology for a Company Outsourcing Appraisal (Rothery and Robertson, 1995)
3. Three Phase Methodology (Momme, 2002)
In this section, the author will summarise the three recognised outsourcing methodologies but will have a focus on Greaver (1999) work as the primary methodology.
Greaver (1999) suggests that there are seven steps to successful outsourcing. He states that the listed steps can and should be tailored to fit the specific organisation and outsourcing situation. He also goes on to say that although the steps are listed in their approximate chronological order, many of them are interrelated and should run somewhat parallel. The steps are listed in Figure XX and it shows a somewhat staggered start/finish line, with an emphasis on the parallel tracks.
Figure XX: Staggered Start/Finish for the Methodology Phases. (Source: Greaver, 1999)
The author will now discuss Greaver’s (1999) outsourcing methodology;
Step 1 – Planning Outsourcing Initiatives
As with any initiative, planning activities, including project management issues, are of vital importance. Cross-functional teams are formed to study and implement outsourcing initiatives. The project team assesses the risks, the resources, information and management skills needed to alleviate those risks.
Step 2 – Exploring Strategic Implications
When implemented correctly, outsourcing can prove to be a powerful strategic tool. However, in order to harness its power, organisations must ask themselves fundamental questions regarding outsourcing’s relevance to the organisation. Questions such as:
· Vision of its future
· Current and future structures
· Current and future core competencies
· Current and future costs
· Current and future performance
· Current and future competitive advantages
Answering these questions will enable the project team to better understand how outsourcing can fit within the organisation’s strategies, and how its implementation will affect those strategies.
Step 3 – Analysing Costs and Performance
Measure the existing costs of activities against the costs of outsourcing them, including future costs; analyse current and future performance.
Step 4 – Selecting Providers
The project team identifies qualified providers. The detailed request for proposals (RFPs) is prepared and delivered to the potential providers. On the return, the proposals are evaluated and compared against other proposals and to the expectations of the organisation (as per the RFP). Both qualifications and cost should be taken into consideration. At this point, due diligence should be performed, such as reference checking, output testing, and site visits. Finally, a prime provider candidate is selected and the negotiations can commence.
Step 5 – Negotiating Terms
The negotiations begin with a term sheet, this is used to convert the RFP and resulting proposal into an informal contract summary. Both parties negotiate the terms and reach final agreement on the major issues. The term sheet includes specific terms for the:
· Scope of services
· Performance standards
· Management and control
· Termination provisions
At this point the term sheet leads to detailed negotiations, enabling the lawyers draft up legally binding agreements.
Step 6 – Transitioning Resources
When the deal is done, the transition of resources follows. Human resources issues are addressed with sensitivity and generosity. The other factors of production, such as equipment, facilities, software, and third-party agreements, may then be transferred to the outside provider.
Step 7 – Managing Relationships
The final step is arguably the most important of all. A key to building the new relationship is how the two parties monitor performances, evaluate the results, and resolve any problems that arise. It is vitally important that the relationship is built on trust and commitment to success. Proper relationships are formed by people, not by the contract. This will be tested when unforeseen problems arise and perceptions of unfair advantages emerge.
Monitor performance, evaluate results, and resolve problems; build a strong, committed relationship with your provider.
As the contract closes to its end, the relationship team considers whether to extend it, renegotiate it, or conduct a new competition.
Rothery and Robertson’s (2002) outsourcing methodology is very similar to that of Greaver’s. However, instead of steps, they have identified them as phases.
The phases of Rothery and Robertson’s outsourcing methodology are:
Phase 0 – Initiation
Phase 1 – Assessment
Phase 2 – Planning
Phase 3 – Contract
Phase 4 – Transition
Phase 5 – Management
This methodology may be considered slightly more detailed than Greaver’s as each phase answers the following:
· What the phase does.
· How long it should take.
· Who is involved?
· What is delivered?
· What decision is taken?
Momme (2002) three phase methodology:
This methodology mainly has similar steps to the two previous methodologies, however, it focuses on how to distinguish between strategic and operational phases. Based on the rationale that top-level managers in organisations will need a management tool which mainly focuses on strategic outsourcing considerations. On the other hand, purchasing staff and other staff involved in the day-to-day work on outsourcing will be more interested in tools which can help guide them through the necessary operational decisions and actions (Momme, 2002). Momme’s (2002) framework is structured around three distinct phases; a strategic phase (why, what, who?), a transition phase (how?) and an operation phase (how to manage). Based on these phases, below in Figure XX is a framework that identifies the six generic steps to the outsourcing process.
Figure XX: The Outsourcing Process. (Source: Momme and Hvolby, 2002, p. 71)