How to Leverage Outcome-based Outsourcing

Outcome-based outsourcing was previously discussed as a good alternative pricing model for more business benefits. Here's how Australian SMEs can make it work.

Examine and measure internal conditions effectively.

Both parties should have a clear understanding of the current conditions of the business, and what may happen if nothing is done. This way, the service provider will have a clear picture of what needs to be implemented.

Get an expert in negotiation.

Get an expert to negotiate the best market price for outsourced services. Big service providers utilise estimating models to determine the hours needed to deliver a service. Estimates may end up higher when you bid out the requirements. An expert can dissect the estimating model and reduce the cost of a fixed fee bid.

Give a fair deal.

Keep in mind that investment goes both ways in an offshoring or outsourcing engagement. As the old adage goes, you get what you pay for. To ensure that service providers are capable of delivering their end of the bargain, ask measured questions.

Use the incremental approach.

Give your service provider time to perform and ramp up. They are also affected by economic factors and other market conditions. It’s more ideal to ask for your desired outcomes in stages. For example, the service provider should deliver x number of savings in one year, then twice more in the second year.

Get the incentives right.

Understand key drivers and put the right incentives.

For example:

When outsourcing customer service for tech support, one of the key performance metrics is a low average handling time - the total average a call centre agent talks with a client on the phone. While this will push customer service representatives to take more calls and resolve issues faster, they may end up rushing the conversation. Stress levels easily increase and the focus shifts to quantity instead of quality.

Incentives should be based on the outcome of the call. This will improve services and call reduction, which in turn will lead to better feedback and less need for new employees.

Share your gains.

Reward providers when they come close to achieving the desired outcome. It will encourage the service provider to persevere even if they were 800,000-dollar short of the $10 million savings that was agreed. If it's unfair to the service provider in certain situations, it may not be good for you as a client. Rewarding them for exceeding your goals is also a good incentive.

Consider other suppliers.

In many cases, SMEs source to the same service provider to develop and maintain applications. Consider outsourcing maintenance to a different service provider. This will give you a second view of the warranty.

Visit regularly.

Visit offshore sites or outsourced operations regularly. Due diligence is not just about monthly or quarterly reviews. Make sure that the offshore staff have the right working conditions. Their safety and environment have an impact to their quality of work, and any problems that may arise will also affect the reputation of your business.