One of the most important questions in outsourcing is how to choose the right service provider or vendor to work with. While it has been mentioned innumerable times that outsourcing is not one-size-fits-all, there are guidelines that can help small and medium enterprises (SME) to narrow down their choices.
Should I outsource to a single service provider or use best-in-breed vendors?
This will depend on what service is being outsourced.
If an SME needs to outsource non-core tasks such as payroll, then outsourcing to a single service provider is enough. Australian SMEs can hire a small offshore team in well-known locations such as the Philippines. There is little time zone difference, and a wide talent pool of English-proficient professionals.
In IT outsourcing, businesses can partner with best-in-breed vendors. They can provide standardised solutions that can streamline business processes. SMEs have to keep in mind though that this may come with a sizeable price tag. For those who want to be market leaders and compete with bigger players, this is a good option to ramp up at a manageable cost.
Businesses can also use best-in-breed vendors through bundling. Bundling, as the name suggests, means IT services or products are bundled together and paid for at one price. The bundles are then outsourced to best-in-breed vendors. This utilises a multi-vendor approach, which entails integration and stricter governance.
How do I decide which service provider(s) to work with?
SMEs can start by specifying what they want to gain from the outsourcing engagement. From this, they can form the most important criteria to choose their service provider. For example, what is the most important: cost savings or technological solution? The former prioritises pricing, and the latter focuses on capabilities.
The basic factors that SMEs need to consider are:
- Broad capabilities vs. Expertise
- Low predictable costs vs. Variable pricing
- Customised solution (tailored to existing processes) vs. Standardised solution (transform current infrastructure based on best practices)
- On-site vs. Remote support
What is the standard outsourcing selection process?
The traditional selection process is:
- Prepare service requirements
- Issue a Request for Proposal (RFP) to find potential service providers
- Evaluate bids
- Negotiate the contract
Alternatively, SMEs can find service providers through referrals from their fellow peers.
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