Choosing an Outsource Service Provider | Intetics Co./ Web Space Station

Article

Choosing Your Outsource Service Provider

You have carefully weighed the advantages and disadvantages of outsourcing and finally decided to outsource your project. Is there a surefire way to choose an outsource service provider (OSP) that best fits your needs? Is there an established selection procedure that can be applied on all occasions? Is there a complete list of requirements that a potential OSP should meet? Even if this article doesn't give you an affirmative answer to all these questions, it will help you avoid costly blunders.

When you begin choosing a vendor, an image of a perfect OSP can come in handy. I'm not much of a bar-hopper, but for some reason when I think of a perfect OSP, a bartender I once met comes back to my memory. Nothing can be farther from the outsourcing business, I know that, but still… I remember a bar in one of those small New England towns that make you trust Norman Rockwell. A friend of mine played piano with a jazz band at that bar once a week, and he invited me to listen to them. The place was packed with local folks, and I seemed to be the only stranger there. I sat at the counter drinking my beer and watching the bartender. When a customer entered the place, the bartender never waited for them to order - sometimes he said, "Hey, Bill, the usual tonight?" but more often he just fixed a drink that the customer took as soon as they managed to get to the counter through the crowd. This is sort of an unspoken courtesy throughout the industry, and I don't know why it impressed me so much (maybe it was a mixture of different things: the fascination of New England fall foliage, the magic of jazz, and the look of all those retired old-timers taking it easy). All I know is that your OSP should be able to serve you the way that guy served his customers. It was easy for him because he had known his regulars for years or at least for months, and it's always a challenge for an OSP, but believe me, the OSP you're looking for must have enough experience and knowledge to identify your needs at first grasp and to tell you the solution before you finish describing your problem. Let's see what you can do to find such an OSP.

Creating an Image of a Perfect OSP

	Compare the information on the potential providers against the image of a perfect OSP that you have created and leave out the ones that don't seem to be your perfect OSP.

I know a man who is the owner and CEO of a software developing company. The business is so small that he has to outsource almost any project, at least in part. He has gradually developed his own standard practice of looking for and selecting vendors. His favorite part is checking an OSP's background in any legally possible way.

He collects and looks into the information on the vendor's top management and staff, he thoroughly examines the company site, he searches the Internet forums for opinions on the vendor's work, he checks the company's trade marks and even patents, if any. His nit-picking might seem funny, but I have to admit that he's been pretty successful in exposing all kinds of deception. A company boasting to have over 40 employees on staff shrank to a small attic-based family business; a Chief of Technology claiming to hold a Doctorate in physics from the University of Oxford was discovered among the University of Delaware missing alumni; the CEO of an outwardly respectable business appeared to be charged with fraud of $8 million facing two federal counts and up to $16 million in fines. My acquaintance hasn't been as successful in finding a reliable OSP, though. His vendors don't meet the deadline, they supply him with software full of bugs, and they even try to cheat him out of his money. Just recently he told me he had every reason to suspect that his offshore vendor had been deceiving him for years. That man's problem is simple: he has an image of an imperfect OSP on his mind, and this is exactly what he looks for every time he needs to find a vendor. And he does find such vendors, that's all.

I'm not trying to say that you don't have to check on your potential vendor at all. What I want to say is that it's a good idea to create an image of a perfect OSP, and then pass on to the selection process. The answers to the following questions might help you:

What kind of expertise should your OSP have?
Will you agree to deal with an OSP that resorts to subcontracting?
Do you want your OSP to have the experience of working with your direct competitors?
How big should your OSP be?
How many people would you like to work on your project?

This list isn't complete; you'll have to add your own questions (and answers) depending on your circumstances.

On the Internet, in newspapers and magazines, or even by word of mouth, you'll find a lot more vendors than you would like to contact. Compare the information on them against the image that you have created and leave out the ones that don't seem to be your perfect OSP.

Choosing an OSP on a Competitive Basis

	Well-planned and effective RFPs (Requests for Proposal) create competition between the potential vendors and, consequently, cut your costs.

Choosing an OSP on a competitive basis takes a lot of time and effort, so I believe that you should finally have not more than two or three potential vendors on your list. If you think you need the service of consultants in this area, you'd better invite them before you begin the selection process. A stitch in time saves nine.

The procedure of choosing an OSP on a competitive basis involves the following steps:

Collecting and checking information on the potential vendors. In order to make sure an OSP has the necessary experience, examine the company's portfolio and case studies looking for the projects in the same area as the one you are going to outsource.
Preparing an RFP (Request for Proposal). An RFP helps you create competition between the potential vendors and, consequently, cut your costs. It has to be well-planned and effective, which makes this part time-consuming and sometimes even money-consuming. However, if you do it right, you will see your efforts rewarded.
Scrutinizing the proposals received. Comparing proposals might appear a difficult task if your potential vendors don't stick to the same standards, and it happens too often, especially among offshore OSPs. To avoid this problem, you have to specify all the necessary details in your RFP (this once again emphasizes the importance of the previous step).
Getting references. You should contact at least one client of each potential vendor for the information on the quality and promptness of the service rendered. If a potential vendor doesn't provide a list of clients on the company site, ask the OSP to refer you to a customer that will be able to supply you with the necessary information. Needless to say, you should keep it in your mind that this customer might want the OSP to pay back with better (or cheaper) service, and in this case the information won't be objective. Think your questions over carefully. For example, don't ask point-blank, "Were you satisfied with the quality of the service rendered?" Ask for comments and/or advice instead, "What would you change if you could start that outsourcing project all over again?" Finally, if the client contacts the OSP on a permanent basis, try to find out as much as you can about the vendor's current volume of work. Steer clear of those vendors that have either too few customers or too many projects.
Making the final comparison. This is the crucial part, and giving tips here is like walking on thin ice. What can I say? Use your common sense. Don't choose the vendor that lacks the required expertise even if this vendor makes ample promises and offers you the lowest price. Take into consideration a combination of factors, not just the one that seems to be the most attractive.

After you let an OSP know that it's on the list of your potential vendors, it may offer you consulting services that you might need during the selection process and contract negotiating. This offer is double-barreled: the OSP is going to get some money from you as payment even if you choose a different vendor, and it's going to be easy for the OSP to push aside the other competitors and influence your decision. If you need advice, you'd better get it from a disinterested consulting firm and do it at an earlier stage.

Choosing an OSP on a Non-competitive Basis

	If you decide to choose an OSP on a non-competitive basis, follow the procedure described in the previous section - just allow for the lack of competition.

I know another small business owner who never arranges any competition between potential vendors; he just gets on the Internet and picks the one that offers the best (meaning the lowest) price, and that's it. You probably won't believe it, but he is usually satisfied with his vendors.

The products that he offers for sale on the Internet are cheap, and a top priority with him is minimizing the expenses, not achieving superior quality. This might not be a representative example, but it illustrates one of the reasons why people will sometimes choose a vendor on a non-competitive basis. Other reasons may be as follows:

the information about the project you are going to outsource is confidential, and you don't want to disclose it to any number of potential vendors but one;
in order to implement the project, an OSP must have unique expertise, and looking for several vendors that meet this requirement simply doesn't make sense;
you don't have enough time and/or funds for preparing RFPs and comparing proposals.

If you decide to choose an OSP on a non-competitive basis, you can follow the procedure that I have described in the previous section - just apply it to the OSP you consider your potential vendor and allow for the lack of competition.

Additional Issues to Research

	Try to determine whether your potential vendor will be able to live long, extend the service, offer more services, and provide adequate support.

Regardless of the way you select the potential vendor, it's a good idea to conduct a small research at the point when you are about to make your choice and pass on to preparing a contract. I advise you to determine whether your potential vendor will be able to:

live long. We all are aware of the current slump in the IT industry. You must be sure your OSP will be financially secure to execute the contract. Watch out for those vendors whose services are too cheap - this may be a bad sign. Try to find out if the OSP has retrenched their employees or sold assets lately.
extend the service. Your business should grow, and you might want to increase the scale of the service rendered. Will your vendor's capacity meet your future requirements?
offer more services. It's easier to deal with one provider than with several of them. If your first experience in outsourcing is successful, and you decide to outsource more projects in different areas, will this OSP be able to offer you appropriate services?
provide adequate support. Your potential vendor should have technical support procedures that are documented and available to customers. A technical support phone number and an e-mail address might not be enough to cope with a serious problem, and such problems are apt to happen. Is there a critical problem procedure which allows customers to request the escalation of their problems all the way to the top (to the top management)?

Conclusion

	If you are satisfied with the quality of the service rendered by your OSP, hold on to this bird in the hand and start building partnership relations with it.

Instead of a conclusion, let me give you another piece of advice. If you are satisfied with the quality of the service rendered by your OSP, hold on to this bird in the hand. Wise vendors cherish regular customers - in case you find the price a bit too high, you can bargain over a future project and get a discount.

Or better, start building partnership relations with your OSP, and you will finally get yourself a bartender who will fix you a drink as soon as they see you enter the place. You are sure to enjoy it even if it's wishy-washy pale ale I had the misfortune to order that night.

You may download any article published on this site and reprint it on your Web site or in your opt-in newsletter solely for your own non-commercial use, provided that you reprint it in its entirety and without modification, preserving all copyright and proprietary notices in the text, and that you add an attribution link to acknowledge your source.

For any additional information, contact Basil Tesler.