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Managing an Outsourcing Initiative-5

Originally published: May 2011


Phase 5 – Measuring Success

In four previous articles on Managing an Outsourcing Initiative, we discussed:
  1. Planning
  2. Analysis and Selection of the Outsourcing Vendor
  3. Designing the Outsourcing Contract and Other Documents
  4. 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 Receivables

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:
  1. An established set of metrics by which to measure performance that can be changed as requirements in service levels change.
  2. A mutually-agreed upon performance management system which can be used to reward exemplary service.
  3. Historical information to help decide the future of the outsourcing relationship when it is time to renew the contract.


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, finally, the effective implementation of the entire process. (For details, see links to previous articles listed above.)