Six ways to reduce outsourcing risk

- May 17, 2008 2 MIN READ

Outsourcing can provide an array of strategic and life-balancing benefits to soloists. But there are risks in having a third party take on our business functions. This article provides six tips for reducing your outsourcing risks.

1. Set progressive milestones

Breaking projects into phases or distinct interim deliverables gives you clarity over progress. This then enables you to guide a wayward project back on track before too much damage is realised. These phases can be tied in with the payment schedule to ensure you are paying for tangible results. The longer a project continues without checkpointing, the higher the outsourcing risk to you.

Try sampling services first. It may be more expensive in the short term, but you gain invaluable insight into how the provider operates before you lock yourself in to more.

2. Define what quality means to you

Ensure you clearly understand and have documented, both qualitatively and quantitatively, what a successful outcome is for you. For projects, these take the form of Quality Guidelines, and for ongoing engagements; Service Level Agreements. Use these to monitor and control your provider’s deliverables.

3. Seek references and testimonials

It is standard to seek references when hiring staff and it should also be the case when outsourcing. The two most important questions you need answers to are: Would their customer use the provider again? If not, why not?

Want more articles like this? Check out the outsourcing section.

4. Don’t just buy the cart when you need the horse too!

To ensure long-term business continuity, obtain copies of the files and inputs which created the end product. This applies particularly to software, websites and design, but can be applied to many other fields such as architecture or accounting. In the example of software, get copies of the software source code, even though these files may be unusable to you in its current form. In the long run, source code for custom-built software is actually worth more to you than the compiled application.

For example with accounting, it’s the MYOB or Quicken files containing all your data, not necessarily the BAS submission, that’s important to you in the long term.

If your supplier goes out of business or you choose to go elsewhere, you will be able to engage another firm to take over quickly and painlessly. You can lower your risk further by structuring your engagement to provide you with the raw files progressively.

5. Own the products of the engagement

Legally in Australia, copyright of work is automatically granted to the person who originally created it. Your agreements must ensure that legal title of all works is transferred to you upon completion, payment or some other event.

If you don’t own the copyright to the works created, you may be liable to pay ongoing royalties or financially settle the transfer of ownership separately. Talk to a lawyer if you’re not sure.

6. Protect your business with Non-Disclosure Agreements

Confidentiality or Non-Disclosure Agreements (NDAs) are critically important when your business relies on trade secrets, proprietary knowledge or the development of a not-yet-launched product. Any agreement put in place needs to cover all staff, vendors and third parties involved in the project or service. Don’t leave it to chance, after all your competitor may be closer than six degrees of separation away from the supplier. Have a pro-forma NDA drafted by your lawyer.

Have a think about current or forthcoming outsourcing arrangements – are you managing the outsourcing risks as well as you could?

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  • Andrew Caska

    Caska IP Patent Attorneys

    'Flying Solo opened up so many doors for us - I honestly don't know where I'd be without it"