By Bob Shultz
Partner, Quote to Cash Solutions (Q2C) LLC
In Part 1 of this series, we looked at seven advantages to outsourcing order to cash functions. In this final installment, we will examine the many challenges to outsourcing.
As you are undoubtedly aware, outsourcing is not easy. It requires planning and tight partnering between the provider and the client. To be successful, critical challenges must be overcome. All the processes related to the outsourced functions must be considered and satisfied. The quote to cash process must be managed holistically by looking at performance measures and Service Level Agreements illustrating joint accountability for the desired outcomes. The impact on your customers should be positive.
Your company may be dependent on the provider’s technology. Make sure it is robust and secure. Your users and management team should have complete transparency into day-to-day account management and performance results. Integration of all documentation with easy access to materials for research, collections and legal purposes should be embedded in the provider’s process.
Below we look at the biggest challenges to outsourcing.
1. Requires Significant Pre-Implementation Preparation
Prepare your company for changes with thorough upfront planning. By doing so, you can see the efficiency, support and the hoped for return on the outsource investment.
Prior to engaging an outsource provider, it is essential to define the scope of the engagement and the expected results, and also be comfortable with the anticipated return on investment (ROI).
This requires input and participation by all internal stakeholders affected by the new arrangement.
- Metrics: Both parties must agree on specific Service Level Agreement (SLA) metrics. These will be incorporated into the outsource engagement agreement.
- Communication plan: Require the outsource provider to report to and meet with internal clients routinely.
- Pre-engagement due diligence: The provider must have a thorough understanding of the client’s policies, processes, customers, pre-engagement performance issues and trends, backlogs, systems, and workflows. The due diligence should also include an assessment of the needs and capabilities of stakeholder functions outside the scope of the engagement where there are mutual concerns. Doing this is essential and will definitely keep the noise level down once the change is underway.
- Provider’s staff and management: Understand the provider’s staff qualifications and management structure, tenure and turnover history. Nothing is worse than handing over key functions to a third party, particularly in a remote location, when the individuals assigned the work are not trained, do not have the requisite experience, and are not managed by someone with experience in a similar engagement.
2. Potential Loss of Managerial Control
Whether you sign a contract to have another company replace an entire function or department or single task, you are turning the management and control of that function over to another company. It is imperative to set specific expectations for performance and transperancy at the outset of the relationship. This is how a client manages the provider. Identify the SLA’s that represent the service levels you are looking for. Try to integrate linked functions with common targets.
3. Hidden Costs
- Beware of hidden costs as you negotiate the outsource agreement.
- Extra fees and charges may result from a request by the client not covered in the contract.
- Consider legal fees and the cost of ongoing liaison and communication with the outsource provider in determining your real costs.
- Regardless how effective and efficient an outsource provider is, an internal dedicated resource is essential for day-to-day liaison. This individual will be responsible for coordination between the internal stakeholders, management and the outsource provider.
4. Threat to Security and Confidentiality
Evaluate the outsourcing company carefully. Understand how they maintain data integrity and security. What is acceptable down time and recovery time? Are they keeping redundant files in a safe location? You contract should have a penalty clause for any breach in security or confidentiality. If your company is required to comply with Sarbanes Oxley confirm that the provider is SAS compliant.
5. Quality Problems
The outsourcing company is motivated by profit. There is nothing wrong with that, but this is a key reason to set expectations up front. As previously stated, define SLA’s carefully. Make it financially painful for the provider to miss expectations. The real objective is to reduce provider errors and delays that adversely affect your business. Require the provider to report shortfalls in expected results and provide an action plan to get back to acceptable performance. Often, the client finds that their own internal operation is to blame. Use the provider’s feedback to fix the root cause internally.
6. Tied to the Financial Well-Being of the Provider
Since you will be turning over part of the operations of your business to another company, you will now be tied to the financial well-being of that company. Do a thorough risk assessment up front. Make sure you periodically review the outsourcer’s financial stability and standing in the marketplace.
7. Employee Attitude and Morale
The word "outsourcing" can have negative connotations for your internal workforce, especially those left behind. Be sure your key individuals are part of the outsourcing engagement early in the process. They must be kept aware of the engagement’s scope and intent. Open and frequent communication is key.
8. Compare the Service Level and ROI Between Outsourcing and Developing Internal Capability
Before deciding to outsource key functions, take a look at what it would take to develop your own internal capability.
- Is it cost effective to simply automate a process that is currently labor intensive?
- Would process integration between departments reduce costly delays and exceptions?
- If there were coherent measurements, performance tracking, accountability and reporting timeliness and transparency, would costs go down and customer service improve?
- Lastly, what is the value of your company’s “intellectual equity?” By outsourcing entire functions with no one left internally with the knowledge and expertise needed to perform those functions, you become increasingly dependent on the provider. At some point it becomes an overwhelming and possibly an insurmountable task to bring the functions back in house. You have nobody capable of taking the handoff.
The bottom line: The grass is not always greener.
For more information about Bob Shultz’s Q2C consulting service, visit his website at www.QuotetoCash.com. To learn more about DataServ’s automated Q2C solution, click here or send a message to info@DataServ.com.