Over the last few years the list of goods and services that companies outsource has expanded into key parts of the business and even into core competencies. What hasn't changed is that most organizations continue to be dissatisfied with the results of their outsourcing. Non-fulfilment of expectations creates disastrous results for the company's customer base and reputation.

When examining successful and unsuccessful outsourcing experiences, the critical success and failure factors that emerge are the same, time and time again.  Below is an overview of some of these key success factors and how they can improve your success and satisfaction with outsourcing. Starting with some common reasons for dissatisfaction or even failure, we can then look at the critical success factors and what can be done to create more successful outsourcing solutions.

Common reasons for dissatisfaction or failure:

• Outsourcing the wrong products or services
• Outsourcing for the wrong reasons
• Suppliers underbid the contract because they didn't fully understand the requirements
• Unrealistic expectations
• Unclear objectives or specification between the parties
• Prices rise unacceptably over the period of the contract
• Supplier isn't motivated to excel once long-term contract is signed
• Wrong supplier
• Wrong contract strategy
• Risks are not thoroughly analysed and mitigated
• The contract and relationship are not managed

So what are some of the critical success factors?

1. Be sure you're outsourcing the right products or services for the right reasons. Base your decisions on true Business Needs, understand what you want and if the market can deliver it better than you can. When considering outsourcing a product or service, start by identifying your true business needs.  This can be tricky because we tend to think of solutions not the business needs that the solution is trying to deliver.  For example, a solution may be that you move production to a factory in P.R.C. but the business needs are to lower the cost per unit of production whilst allowing greater flexibility for increasing and decreasing sales volumes.    Understanding your Business Needs from the service will allow you to be clearer about what products and services you want delivered whilst allowing suppliers to use their expertise to find the best solutions and to be innovative and continuously improve.

2. Understand your objectives in outsourcing.  Are they to reduce costs, increase service levels or flexibility, reduce time to market, gain expertise you don't have or simply to get people off the books?  And are these objectives and the targets realistic?
A key driver for outsourcing is often to save money.  Unfortunately, very few companies thoroughly investigate the savings claims made by suppliers and understand if these are achievable within their organization.  If another company has made double digit savings by outsourcing a key service, understand how their starting point compares to yours.  If your current service provision is more effective or efficient than theirs was, you may not be able to achieve the same cost savings or service improvements they did.

3. Conduct a thorough sourcing exercise. Once you're clear about your business needs and objectives you can source suppliers who can deliver both.  They should also be aligned with your business goals now and in the future and their company culture should be one that you can work with.  This requires a thorough investigation of the supply market's existing and potential capabilities.  Be clear about what you want out of the relationship and the benefits that would create real customer delight.

4. Understand how your internal provision compares to external providers.  I have seen businesses decide on outsourcing for cost and skill improvements and when a full costing and service comparison (including all hidden costs and service benefits) is completed, realize that they are better placed to deliver what they want and need than the external market is.  What they may need to do is improve some of their current in-house practices.

5. Develop a strong contract strategy. Before deciding on your contract strategy perform a vulnerability analysis.  Understand what could go wrong or reduce outstanding results, its impact and what can be done to mitigate these vulnerabilities.  This will be important for your choice of supplier and will direct elements of your contract strategy like the type of contract and the length of the relationship.  

6. Does your contract strategy motivate your supplier to provide a good responsive service and continuously improve? Ensure you have pricing mechanisms to stop the price from spiralling out of control. Service level agreements should clearly state your expectations of the level of service delivery and give unambiguous methods of measurement, which all parties clearly understand.  This should be created by negotiation for a clearer understanding between the parties ensuring that delivery is practical (although perhaps challenging). Don't forget that we don't live in an ideal world so think about what could go wrong and agree a process for rectification.

7. Don't ignore the implementation. Often companies can find a good supplier and negotiate a good contract but forget about the implementation phase.   You will need a thorough project plan, which shows what you (as well as the supplier) needs to do, including communication with employees.

8. Manage the contract and the relationship. Starting at implementation, the most successful contracts are proactively managed to ensure they are not only good on day one but continuously improve instead of stagnating or even degrading.  Outsourcing doesn't mean signing a contract and then forgetting about it.  You have outsourced the work but don't abdicate the responsibility.

9. Don't forget an exit strategy. Give some thought up front to what you will do if it all goes wrong.  Have you built in the ability to terminate the contract?  Do you have a good runner-up service provider who could step in? Will you maintain enough knowledge to change your arrangement or bring it back in-house or is there no turning back because you will lose all your expertise?  Did the supplier invest so much money when they took over that you're financially constrained from relinquishing the relationship?

Whether you are just considering the outsourcing of a service, looking to review an outsourcing relationship or have a current arrangement which is not delivering as required, addressing these key success factors will help you to avoid some of the errors of others and join those businesses that have successful outsourcing relationships.