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What steps should a company follow once it decides to outsource a function? The company first
considers the strategic implications of its actions and determines that the project or process does not
fall within its core competencies. After doing so, the company should:
• Define the project.
• Select a list of qualified vendors.
• Create the request for proposal (RFP).
• Evaluate vendor responses.
• Evaluate each vendor‟s qualifications.
• Negotiate a contract.
• Manage the vendor and the project.
Defining the Project
The first step is to create a cross-functional team comprised of the various project stakeholders. The
leadership of the project should be the ultimate users of the process or project. If it is an IT system
being outsourced, the end users and the IT organization must partner together to manage the project. If
a hospital outsources, for example, its radiological interpretation, managing the project will require an
internal team of radiologists, radiological technicians, IT personnel for sending the digital images,
financial analysts, and legal personnel. The project should be led by the radiology department. The
team should be responsible for developing the specifications, drafting the RFP, evaluating the vendors
and RFP responses, and, ultimately, managing the relationship with the outsourcing provider.
Clearly define the objectives of the project, including a detailed specification of the project, service,
or process. Determine how to measure success and the specific metrics the company will use to
determine whether the product or service is working properly. These metrics could be:
• Cost.
• Response time.
• Quality of service.
• Turnaround time.
• Accuracy.
• Reduction in staff.
• Facility usage.
• Return on investment.
• Customer satisfaction.
Without detailed specifications or defined metrics, the project is guaranteed to fail. No one, neither
the vendor nor the customer, will know whether the project was successful, which will probably lead
to dissatisfaction and, possibly, a lawsuit.
Selecting Appropriate and Qualified Vendors
There are a number of small as well as large vendors available to provide outsourcing services. Many
specialize in vertical industries or in specific services (e.g., IT development). While small companies
are usually more willing to negotiate than the larger ones, large companies like Hewlett-Packard,