A 10-Step Guide to Understand Outsourcing


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Outsourcing has been a regular item on the agenda of most businesses regardless of scale because it works. How you manage the outsourcing agreement impacts how effectively it generates productivity for your business.

It has been a proven strategy for business development. Proof: the global outsourcing industry has not had a period of decline since the start of the new millennium. Its estimated global market value is $500 billion.

A few years ago, when I began with online marketing, I wrote content and did outreach for a niche that didn’t particularly interest me, and I often found myself doing many things I never enjoyed. These tasks were so time consuming that they were a nightmare to my productivity. Luckily, a friend with real experience in business recommended that I outsource all the work I didn’t enjoy doing.

Since then, I’ve learned a great deal about outsourcing. Here’s my top 10 list of best practices that help entrepreneurs maximize this venture.

  1. Develop a complete understanding of outsourcing.

Businesses that turn in an unfavorable report on their outsourcing experience do so because they have made the most grievous error prior to the commencement of the outsourcing arrangement; they neglected or failed to develop a complete understanding of the concept of outsourcing. As a result, they enter the venture with unrealistic expectations. Conduct a comprehensive study on outsourcing through research, references, and third party interviews. The study will become your reference point in developing your outsourcing framework.

  1. Define the scope, purpose and vision of your outsourcing project.

Most businesses still view outsourcing only as a cost-saving strategy and are completely oblivious in its ability to contribute to activities that generate revenue. While this is due to an incomplete understanding of outsourcing, it is also because businesses have not properly identified the scope of the outsourcing project, its purpose and vision. What are your objectives? What do you want to accomplish with this venture? Businesses that fail to define the parameters of the engagement will not know how to maximize the full extent of outsourcing’s capabilities.

  1. Qualify Right-Fit service providers.

Even if you are on a tight timetable, do not pick the first service provider that submits a proposal. Always create a short list of candidates, perhaps 4-5 service providers and thoroughly review their respective proposals. Conduct due diligence work on all candidates and make this as thorough as possible. Finally, invite each candidate to a comprehensive, all-encompassing interview and extract as much information as you can on the entities as well as the personalities. The objective is to find the service provider that best fits your company’s profile.

  1. Respect the Learning Curve.

When you’re outsourcing, understand that what you’re doing is developing talent to manage certain aspects of your business. It doesn’t matter if the service provider has 1 year or 10 years of experience; an entirely new learning process will take place and this will have to be respected. You have to designate the first quarter of operations as part of the learning curve and allocate time for orientation, training, and periodic testing periods. Establish metrics and use these to chart the progress of the service provider.

  1. Do not select based on pricing.

Like any first time entrepreneur, I judged virtual assistants by the salaries they demanded. This was a mistake. Initially I was looking to hire assistants who were willing to do a lot of work for cheap. The work they did was very sloppy and, most of the time, useless. After months of working with virtual assistants, I chose the best ones that worked hard. While I paid them almost double, it was worth it. I am sure I’m getting the work I need done to be properly completed.

Outsourcing has grown from a cost management strategy to a strategic partnership. It is no longer commoditized as an avenue that merely lowers cost, but as an avenue that leads to increased productivity and sustainable growth. Outsourcing lowers cost by capitalizing on comparative advantages and economies of scale. It also takes advantage of existing technology and skilled manpower; most regions of which are at par with world standards. If you focus on lowering costs, you will undermine how outsourcing can address the primary objective of all business: profits. You have to be judicious in reviewing pricing points. Lowering prices will eventually reach an equilibrium point where productivity is compromised.

  1. Design a payment schedule that is beneficial to all parties.

Trust is a big factor in the success in every business arrangement. At the same time, this is still a business and people need to cover their risks. You can set up a bond or escrow, the release of which will depend on the accomplishment of established milestones. Or you can set up a virtual work area where you can see the screen of your service provider if the payment set up is on an hourly structure.

  1. Outsource services based on scale.

Always begin your outsourcing venture with a small, pilot test group. The idea is to observe how the components in the outsourcing plan are working. It gives both parties the opportunity to identify the potential problem areas in technology, manpower, operations, and work flows. Once the pilot test group meets the predetermined benchmarks and metrics, scale up operations, but only until the point where productivity remains uncompromised. Note that additional cost components can be effectively managed and accommodated by revenues.

  1. Respect cultural and social nuances.

If you are hiring from another region, you have to be mindful of the cultural and social nuances bound to exist. Communication is composed of feedback and reaction. Cultural and social nuances influence how people behave, react, or respond to feedback. Businesses that reported that the outsourcing venture underperformed did so because they were misinformed of these cultural and social nuances and were incapable of identifying behavioral cues that could have maximized performance.

  1. Thoroughly review contracts and attachments.

A number of service agreements fall apart because of contract disputes. Take the time to review the contract and its attachments thoroughly with your service provider. Contracts are generally structured the same, but there are provisions that are relevant, yet unique, to your arrangement with your service provider. Make sure all parties are clear on the agreed upon working arrangement.

  1. Negotiate for support services.

It should not be enough that the product or service has been delivered. Negotiate for support services at least until such time that your competency level to manage the product or service is sufficient. The service provider does not have to be onboard full time; you can place him or her on a retention basis through fixed or pay-per-hour basis. There are service providers who will not charge you for up to 3 months from date of turnover.

Don’t enter an outsourcing agreement with the mindset that success is automatic. Be patient. Choose your virtual assistant with eyes on the long term. As with all relationships, you need time, effort, and accommodation to make it work. With the right team, I had more time to concentrate and focus on what I enjoyed and mattered most to me. You will do that too.



Reprinted by permission.

Image Credit: CC by Dave Dugdale.

About the author: Felix Tarcomnicu

Felix is a young entrepreneur who has recently started ResumeOK. He is passionate about technology, startups and online marketing.

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