Outsourcing Metrics

Development and maintenance of performance metrics is the key element to successful HR Outsourcing.

Outsourcing business operations to other companies may have a positive impact on the organization's bottom line in addition to improving efficiencies. The typical outsourcing engagement lasts for a number of years, and is governed by a contract setting the terms and conditions between the organization and the outsourcer for the duration of their relationship. Prior to developing an outsourcing strategy it is important to determine and document the organization's expectations from the outsourcer, the type of communication between the two sides, as well as production and service delivery details.

However, it is not enough to simply outsource specific business operations and leave it on auto-pilot. The organization's management must continuously evaluate the performance of the outsourcer in order to gain the most value and provide a framework for continuous improvement.

The organization should define its expectations in various aspects of outsourced business operations. Measuring performance then becomes a simple test of whether or not the outsourcer team achieved the expected quantity or quality levels. It is crucial to perform measurements against each expectation.

The primary motivation to outsource the production or service delivery operations is usually to reduce costs of the product or service. In order to manage cost savings, the organization should compare in-house operation costs to the actual costs incurred by outsourcing. It will also show whether the outsourcing arrangement is costing the organization more than anticipated.

In order to manage the outsourced operations more effectively, the organization should consider the outsourcing partner as an extension of its business. All performance controls applied internally must be applied to the outsourcer as well. By setting clear standards and a way to measure against them, the organization's management can quickly identify inferior outsourced products and services. It is therefore important to define and communicate production and quality standards to the outsourcer, using the language that is not subject to interpretation.

It is also important to clearly define the overall structure of the outsourcer's management team, and clarify managerial responsibilities. From the consumer point of view, there should be no difference in dealing with the organization's internal products or services or with outsourced providers. If the consumers are disappointed because of an outsourcing arrangement, that could have a long-term negative impact on the organization's profitability. It is crucial to find a way to measure specific consumer impact to keep the outsourcer focused on the organization's quality standards.

Outsourcing efficiency and cost assessment is the basis of the continuous improvement strategy. It helps the outsourcer's team make internal changes that not only improve the quality of products or services, but also helps them control their own costs. Continuous improvement efforts must be related to the lower cost of product or service delivery, increased customer satisfaction, productivity improvement and overall quality improvement.

In conclusion, the organization's management should perform outsourcing health checkups on a regular basis. The measurement and analysis information should be used to support the continuous improvement strategy for outsourcing delivery, deal governance and risk management. This strategy provides a quantifiable way to document problems, errors and disagreements, but is also a way to communicate about the outsourcing agreement.