5 Questions to Ask Before Outsourcing

By Robert Moskowitz

2 min read

Outsourcing is a proven strategy for business success, but it contains some hidden pitfalls.

Here are five important questions to ask — and answer — before you agree to let an outside vendor handle any of your company’s processes or operations.

1. How stable is the vendor? By outsourcing essential tasks, you’re making your company dependent on a third party. A vendor’s errors and shortcomings will invariably affect your operations, and any instability may make it difficult for your employees to do their jobs. Inspect the premises and the equipment a vendor plans to use to meet your service requirements. Check the vendor’s references (i.e., talk with its other clients), so that you’ll know what to expect.

2. What vendor performance targets will you set at the start? Outsourcing is an elaborate, long-term, and formal method of delegating specific work. You need make it clear to the vendor exactly what standards, deadlines, and quality levels need to be met for each of the tasks they’ll be doing. For example, if they’re handling  your customer service, you may require that they answer every call before the third ring, and that they solve every problem within 24 hours.

3. How will you measure the vendor’s success? Outsourcing is usually intended to pay off in terms of some or all of the following: cost savings, increased organizational and financial flexibility, tighter focus on essential parts of your business functions, increased ability to grow, and specialized knowledge within the vendor organization. To make sure you get what you’re paying for, identify and track the metrics that gauge the success factors you want from your outsourcing vendor.

4. Have you brought your employees on board with outsourcing? Switching important company processes or operations to an outside vendor can easily stir up concerns and even resistance among your employees, who may think their jobs will be the next to go. To build support for outsourcing and encourage cooperation with a vendor, consider forming a committee that’s made up of key employees, vendor representatives, and an outsourcing expert. The committee can work to analyze problem areas, smooth over difficulties, and allay any employee fears.

5. How will you transfer your business’s experience and knowledge to the vendor? One good reason to contract with an outside vendor is that it may have broader or deeper knowledge of the work you’re outsourcing. Even so, there is always valuable experience and knowledge within your organization — such as customer preferences, trade secrets, specialized suppliers, and the like — that your new vendor will need to absorb and master. A critical part of starting with a new outsourcing vendor is to set up adequate lines of communication and training sessions to transfer key information in an accurate, thorough, and timely manner.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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