Cost savings. The lowering of the overall cost of the service to the business. It can also give your business the edge when adapting to changing market conditions.

Cost restructuring. Operating leverage is a measure that compares fixed costs to variable costs. Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also makes variable costs more predictable.

Redirection of internal overhead. Outsourcing should free up your business to focus on its core services. This will benefit your organisation by allowing your staff to concentrate on their main tasks and on future strategy, becoming contract managers rather than administrators.

Improve quality. Achieve a step change in quality through contracting out the service with service-level agreements.

Knowledge. Access to intellectual property and wider experience and knowledge.

Contract. Services will be provided to a legally binding contract with financial penalties and legal redress. This is not the case with internal services.

Operational expertise. Access to operational best practice that would be too difficult or time consuming to develop in-house. The outsourcing company you choose should be a specialist in the process or service you ask them to provide.

Staffing issues. Access to a larger talent pool and a sustainable source of skills.

Capacity management. An improved method of capacity management of services and technology, where the risk in providing excess capacity is borne by the supplier.

Catalyst for change. An organisation can use an outsourcing agreement as a catalyst for major step change that cannot be achieved alone. The outsourcer becomes a change agent in the process.

Risk management. An approach to risk management for some types of risks is to partner with an outsourcer who is better able to provide the mitigation.

Service level agreements

Service-level agreements (SLAs) are contractual obligations, which normally form a contract. SLAs can be used in any supplier contract where a business’ ability to meet its customer requirements is dependent on the supplier.

See them at work

If possible, visit each service provider. Look at the environment in which their people work and enquire about staff retention and turnover. Check their IT systems and equipment, management and quality assurance procedures. See what access you would have to their systems and whether they operate in real time. Try them out with a small trial to see how they perform and how they would deal with the additional volume.

Financial stability

This relationship is for the long term, so make sure that your potential partner is financially stable. If it is a limited company, get copies of recent accounts, obtain bankers’ references and consider getting a report from a credit agency.

Account management

Account management is critical to the relationship. How will your account be managed and how good – and available – is your account manager?

Customer references

Find out who the provider’s existing customers are, and obtain references from those in a similar sector to you.

Get prospective partners to sign a non-disclosure agreement at the start of your discussions so you can share information with confidence.

Remember that although the supplier takes responsibility for the process, you still need to actively manage the relationship.

Take your time making decisions and make sure you are clear about the terms on which you and the supplier are working together.

Make the effort to establish a good relationship – this calls for flexibility and regular communication on a number of levels and across a number of functional departments.

Nominate a member of staff to take responsibility as a liaison and for contract management (relationship manager).

Set expectations up front and ensure that there is no mismatch between you and your partner.

Don’t just choose an outsourcing supplier on the cheapest price. The supplier might look to increase their margin over time.

Establish regular communication within your company – staff may have concerns about their own jobs, so keep them informed.

Attempt to form a partnership with your supplier for several years because it is more likely to yield the best results. Switching suppliers can be a lengthy process, so it pays to commit to building a long-term relationship from the outset.

Aim for a smooth transition/migration. Even with good planning, it’s a learning curve for both parties. Use the experience as an opportunity to modify the SLAs for the future.

Measure success. There should be financial benefits as a result of the new arrangement but other reasons for outsourcing could be a little harder to quantify, such as generating a higher profile for your business, improving credibility, improved processing capability, fewer defects or greater speed to market. Include these  factors in your assessment, consider how you’ll measure them and how often.

Plan a clear exit strategy. All outsourcing contracts should contain an exit strategy. Does the outsourcing company wish to tie you into a contract that can run for many years or is it confident of its ability to deliver and, therefore, approach contractual issues with flexibility in mind?

The contract should also include clauses covering:

• Dispute procedures
• Who has responsibility for what – and the lines of reporting