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A Strategic Guide for Local Government On: Outsourcing


What makes outsourcing a success? What makes it fail? The following critical success fac- tors from those who have previously been involved in outsourcing should provide insight into how to successfully weave a little magic into outsourcing programs.

Develop a Strategic Plan for Outsourcing: One of the first tasks to accom- plish when deciding to outsource is to work through the strategic planning process and develop a clear vision, goals and measurable performance objectives. The vision statement steers the project to the end expected result, and the goals define the expected objectives to be accomplished to obtain the result. Performance objectives and measures provide city managers with the tools to both track overall effectiveness and demonstrate the results of the initiative.

The vision and goals should provide a commit- ment to adopting best practices to be commu- nicated to policy makers, staff, citizens, and the vendor. It also assures buy-in to embrace the resulting strategies and action plan.

Conduct Site Visits to Other Entities that Outsourced: The public sector is different than the private sector in that the governments are willing to share information. In the private sector, information is viewed as a competitive advantage. Site visits provide an opportunity to see firsthand how another city or county manages its outsourcing operation. Visits also offer the chance to hear lessons learned. In addition, if elected officials or executives are unsure as to whether outsourcing is the right direction to take, site visits help leaders visualize how the process can be accomplished within their own jurisdiction, and how it can help their organization increase efficiency and customer satisfaction.

Identify Clear Scope and Inventory: Scope expansion, which happens when there are out-of-scope tasks or uncounted inventory, should be avoided. Scope change is defined as

any activity that modifies the deliverables, cost or schedule of a project. Change management is clearly a vehicle to allow for managing changes in the scope because of unforeseen issues or tasks, but it adds additional costs to the pre-defined budget. If scope is clearly defined in the beginning, costs can be main- tained. A detailed SOW can help identify the scope of the project. The SOW establishes a baseline of services to be delivered. It should be sufficiently detailed to allow the organization and vendor to assess if a change is an addition- al request not included in the originally defined scope.

Maintain Business Knowledge In House: Strategic, contract and project man- agement, and related business knowledge should remain with the government party so that operations are controlled in the best inter- est of the citizens. Most importantly by main- taining business knowledge in house, the organization protects itself if the vendor discon- tinues services. The agency can continue the services or transition the services to another vendor ensuring critical government systems continue to function. Retaining the manage- ment of the critical elements keeps the project under the organization's control.

Develop and Follow a Commu- nication Plan Throughout the Process of Outsourcing: The key phrase is “through- out the process.” Communicating at the end does not work. Informal communications will begin as soon as the outsourcing plan is initiat- ed. The most important element in the com- munication plan should be people-focused to reduce resistance to change. Most employees will be worried about change and how the change will affect their jobs. This can lower morale and reduce productivity. A communica- tion plan is helpful to iron out the details ahead of time. Considerations should include: mes- sage, audience, schedule for communication, and communication vehicles to use. (See “Communication Vehicles to Use” sidebar on p.13.)


Create a Relationship with the Vendor: Successful leaders of outsourcing engagements say over and over that the relationship between the vendor and the out- sourcer is one of the most important elements in ensuring that the government achieves its performance objectives. Both parties need to be flexible when changes occur in technology and processes and both need to trust the other for maximum results. Although the two parties have differing objectives, both need to look at the relationship as long term. The vendor must understand that the government’s needs evolve throughout the life of the contract, and the vendor should be prepared to react quick- ly to those needs. The government, on the other hand, should realize the contract should be flexible enough to allow the vendor to be creative in how it responds to necessary changes.

Use SLAs, Penalties and Rewards: Usually government organizations include SLAs in contracts along with penalties to ensure quality service from the vendor; however, most organizations never refer to the SLAs once the contract begins. If a vendor’s per- formance is continually lacking, invoking penal- ties may help to turn the performance around. However, most organizations stated that they prefer to manage the vendor relationship through a flexible arrangement of give and take. As a result, in designing RFPs and con- tracts, governments must balance the desire to zealously protect their interests against the costs of unnecessarily high service levels and the risk of “scaring off” high-quality vendors with overly difficult terms and conditions. Rewarding effective performance is a win-win solution for both vendors and governments.

Cross-Train Employees: Training is crucial to ensuring smooth operations. Not only does the organization need to learn the outsourcer’s operations, but also the out- sourcer needs to understand the organization’s business processes. The two parties will be working together over a long period of time,

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