In four previous articles on Managing an Outsourcing Initiative, we discussed:
- Planning
- Analysis and Selection of the Outsourcing Vendor
- Designing the Outsourcing Contract and Other Documents
- Implementation
To wrap things up, our fifth and final article will take a look at an effective tool for measuring the success of your outsourcing initiative ” the Balanced Scorecard.
Measuring Success
It all comes down to results. It's how we determine the success of any strategy. A well-planned outsourcing relationship, therefore, will include ways to measure how well goals are being achieved and needs met.
To be meaningful, the results expected from an outsourcing initiative should be objective, measurable, quantifiable, and comparable to pre-established criteria.
A powerful technique for managing and measuring the success of an outsourcing initiative is the use of balanced scorecards.
Balanced Scorecards
A balanced scorecard is unique in that it presents a mixture of financial and non-financial measures. Each of these is then compared to a ‘target' value within a single concise report. The report provides a summary capturing the information most relevant to those reading it. This helps both the outsourcing user and the provider focus attention on the management and implementation of the outsourcing strategy.
Balanced scorecards include categories representing the most general level of expectations. These are usually built around cost, service, and quality. Within each category, specific attributes are defined through a joint buyer-provider process, with the exact composition and number depending on the goals of the relationship and the service in question. An appropriate measure for each attribute is also decided upon.
Key principles to remember when determining the composition of the balanced scorecard:
- Only measure what you want to manage.
- Develop the balanced scorecard jointly with the outsourcing provider.
- Balance long-term and short-term goals.
- Gather and report information over a period, for instance, monthly.
- Expect early results to be close to the “floor”.
- Anticipate continued improvement (month over month).
Sample Balanced Scorecard for
Receivable Collections Outsourcing
| Service | Floor (lowest acceptable result) |
Target (expected result) |
Ceiling (result to strive for) |
| Amount Written-Off | $400,000 | $300,000 | $200,000 |
| Days Sales Outstanding | 58 | 47 | 41 |
| Percent Current | 5% | 10% | 15% |
| Average Speed of Answer | 40 seconds | 30 seconds | 20 seconds |
Utilizing a balanced scorecard provides:
- An established set of metrics by which to measure performance that can be changed as requirements in service levels change.
- A mutually-agreed upon performance management system which can be used to reward exemplary service.
- Historical information to help decide the future of the outsourcing relationship when it is time to renew the contract.
- A manner for reviewing performances over time and in comparison of the same period in prior years to account for seasonality or other cyclical factors.
Conclusion
Achieving the results you need from your outsourcing initiative begins with the planning process. It continues with the selection of a provider that can meet your objectives, the construction of a well-developed outsourcing agreement that includes criteria by which to measure success, and lastly, the effective implementation of the entire process.
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