Many organizations may be under pressure due to a perceived ability of an outsourcer to perform the same functions better, faster or cheaper. In most cases it is true. Established service providers can deliver much in the way of savings and best practices, but it does not mean it's the right solution for every organization. If there is explicit management support to improve your support service group, you can take practical steps to implement best practices the professional service providers employ. For example, organizations can implement similar actions to that of an outsourcer like consolidations, service level management and charge backs, and even some best practices the outsourcers are limited to providing, like a Balanced Scorecard approach or Six Sigma program.

Outsourcing has been with us for years and is likely to stay, but along the way there have been missteps that have tarnished the benefits of outsourcing. Outsourcing dissatisfaction for organizations can be attributed to the following:

1. An organization's loss of control in the outsourcing relationship.
2. Cost overruns from the outsourcer.
3. Outsourcer is inflexible to the organization's changing business needs.
4. Lack of consequences for the outsourcer for poor performance.
5. Locked-in commodity pricing where the market pricing is falling.

From the outsourcers' point of view there may be dissatisfaction in the arrangement as well.

1. The customer wants "out of scope" services "in scope" without paying extra for them.
2. Locked-in manpower pricing where the market rates are rising.
3. The customer's key management changed and so did the size of the outsourcing arrangement.
4. The customer is not paying its bills.
5. Inability of the customer to make timely decisions.

Fortunately, we have the option to learn from the imperfections and refine the process for the next time. There are some practical ways to avoid the downside in an outsourcing relationship. AMC believes there can be a win-win outsourcing relationship developed. Here are a few suggestions for making any outsourcing relationship work.

1. Clearly identify what will be outsourced.
2. Make sure the stakeholders are "on-board" and the appropriate management structure is in place to oversee the outsourcing (governance).
3. Determine current internal level of performance.
4. Determine the total internal cost of the services.
5. Benchmark performance using a reliable external service that does not just use quantitative analysis, but takes a holistic approach.
6. Evaluate the selected vendors on price, performance and where they will add value beyond price and performance.
7. Create measurable service levels with thresholds and penalties for the outsourcer.
8. Make sure the service levels align with the overall business objectives.
9. Be prepared to renegotiate commodity services frequently to keep pricing in line with market rates.
10. Postpone starting work until a contract and service levels are agreed and signed.

Fair balance must be maintained in the relationship. This fair balance implies the customer contractually receiving more control than outsourcers have historically offered, but also that the customer is appropriately involved with the relationship. The appropriate service levels provide the framework for what will be determined as a successful relationship. The service levels must also have both penalties and incentives for performance. This will determine to what extent the outsourcer will be "adding value" to the business. For example, if the outsourcer consistently meets the targeted ceiling set in the service levels, then, as an incentive, the outsourcer receives the opportunity to be the preferred bidder for additional work. In this way the customer is clearly holding the reigns. The scope of service and associated performance expected are clearly defined and the outsourcer has a structure in place that will provide additional revenues for them if they perform. This is a win-win relationship.

At the Personnel level, the greatest concerns are with career growth, employment stability and an ability to lead a satisfying personal life. In some organizations, personnel considerations carry a great weight, while in other organizations they do not. Personnel issues are generally addressed with the potential outsourcer and become an integral component of the proposal. The proposed outsourcer's personnel actions will rely entirely on the direction provided by the management of the interested company.

Reactions to outsourcing encompass the entire spectrum of emotional possibilities. Negative reactions can generally be categorized with the acronym FUD (Fear, Uncertainty and Doubt). FUD occurs at all three of the levels discussed above. FUD is often a significant issue and feeds off the common tendency for individuals and groups to dislike change, to be risk adverse, and to fear loss of control (even when there is no loss). The cure for FUD is twofold. First a solid, factual business case for (or against) outsourcing should be presented to upper management. Such a business case will take great care in establishing pro or con arguments for each of the above discussed levels. Second, once the organizational leadership is "on-board," clear communication about the organization's intent should be delivered to the other stakeholders, directly affected employees and middle management.

In general, security concerns are not any greater for the customer using an outsourcer than one who does not. In terms of data storage and access, an outsourcer will apply the same security levels and protocols the company would use at a minimum, if not more. Many service providers are undergoing the same security changes as publicly traded companies, like SAS 70 audits. To meet more physical security concerns, some outsourcers offer elaborate disaster recovery plans for the customer, whether daily offsite tape storage or mirroring data to a secure and remote data center. In some cases, outsourcers have developed bunker-style data centers that are secure against a military type of physical attack.

The more typical security threat for a company can be from their internal staff. Access to payroll and invoicing systems is one of the more common threats. The outsourcer, in these cases, may even have an advantage to handling some of this more sensitive information as an unbiased third-party who does not care "what so and so makes." This liability-shifting to the outsourcer for data handling makes it an additional advantage for the customer to outsource, because the outsourcer is now responsible for inappropriate access, data loss, data corruption, etc.

Additionally, you may have a difficult time discovering published cases of security violations by an outsourcer. If a violation has occurred in a relationship, the outsourcing contract will typically direct the parties to dispute resolution procedures. If the situation is not resolved there, then the parties may go to court, but privacy clauses would likely keep the details from leaking out to the media. Many companies and outsourcers steer from negative press as a source of distraction for them, and to avoid raising shareholder concerns.

In conclusion, the security issues need to be dealt with in the contract. A good outsourcing contract will contain provisions for the following:

• intellectual property rights and obligations
• confidentiality issues
• insurance requirements
• limitations on liability
• dispute resolution with appropriate levels of recourse

The contract should spell out what takes place if "so and so" happens. This is where legal counsel, experienced in outsourcing, can make a difference for the customer and their shareholder confidence.