The current economic downturn puts Outsourcing high on the agenda for organisations seeking cost savings. There are however many traps associated with hasty sourcing decisions. Here are a few tips:

• If you are desperate for better cash flow in the short term, many outsourcing initiatives may be counterproductive because the transformation project requires an upfront investment and savings take time to accrue (e.g. due to notice periods and severance payments). Therefore, you need a conscious decision on whether cash or profit is the most important KPI and align your strategy accordingly. For example, there are some cash rich providers who will not charge for their project cost in the transition period, instead spreading these costs over the contract period.
• Savings are often based on a Full Time Equivalent (FTE) number. Consider if saving 10 FTE is made from outsourcing 50% of the tasks of 20 people, roles may need to be redefined and broader skill profiles gained before actually cutting headcount. This must be planned for early on, otherwise people tend to stick around and find something to fill the other 50% of their time, usually a non value adding task.
• The decision is not just between outsourcing or not outsourcing a process. There’s a whole sourcing continuum starting with core staff to temps, agency staff, contractors, consultants, outsourcing and “crowdsourcing”. To make the right choice in this continuum you need to consider various criteria such as the nature of the task, importance to core processes, the capabilities of your organisation and prospective providers, the economic context, and many more.
• When offshoring, be aware that any cost savings could be eroded quite quickly through changes in exchange rates.