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Look Before You Leap:  Important Factors in Selecting a Technology Outsourcing Partner

By Clifford F. Lynch

Logistics Viewpoints, ARC Advisory Group, August 4, 2009

Outsourcing technology, especially software, isnít just for the little guys any more. With the downturn in the economy, firms of all sizes are looking for outside help in managing their supply chains, particularly the transportation component. Many are finding that technology service providers can help lower costs, as well as conserve resources.

For those new to outsourcing technology, the first and most important challenge will be choosing a partner or provider. Though every firmís needs are unique, there are some basic criteria that every company seeking an outsourcing partner should consider. Following are 13 factors to weigh when making this important choice. Keep in mind that a poor selection will yield a poor result.

    Financial stability. Though it might feel awkward to question a candidate about its financial stability, itís an essential part of the due diligence. For one thing, you want assurances that the provider will be around for the long term. For another, if youíre signing a sizable contract, youíll need to ascertain that the provider has adequate financial resources to provide the support you require.

    Business experience. How much experience does the candidate have in providing logistics technology services in general? How about in your particular industry? Finding a partner that already knows something about your industry shortens the learning curve.

    Management depth and strength. When you sign an outsourcing agreement, youíre not just purchasing a service; presumably youíre also purchasing expertise. Make it a point to check out the people at the top.

    Reputation. Seek out some of the providerís clients and talk to them about their experience with the company. One question to ask: Does the provider simply do what itís told or does it constantly seek out ways to improve its capabilities and service to clients?

    Strategic direction. Just as your company should have a business strategy, so should the technology provider. Surprisingly, many do not Ė and a large percentage of those that do seem to have a planning horizon of one afternoon. You might argue that the providerís strategy should be the same as the clientís, and thatís true to a point. But a well-managed service firm should have its own goals and objectives as well. It should also have commitment and direction.

    Technology. Thereís no substitute for a careful, in-depth evaluation of the providerís products and current operations. Assign a qualified person or team to assess the quality and efficiency of the candidateís technology and services. Donít accept any excuses here. State-of-the-art technology such as blade server and storage area network capacity and 24/7 worldwide accessibility will be critical.

    Global Capability. Can the candidate meet all of your global needs either by itself or through existing alliances? Be careful on this one. Itís not enough to be able to locate China on the map!

    Commitment to continuous improvement. Is the provider committed to ongoing performance enhancement? Does it have a formal procedure for continuous improvement?

    Growth potential. If, like most companies, you anticipate growth in sales volumes, product lines or markets, you need a partner who will be able to keep up. Make sure the service provider is in a position to support your growth.

    Security. The events of Sept. 11, 2001, awoke Americans to the realization that security is more than a theoretical threat. Today, itís essential to secure your technology against not only compromise or interruption, but also against infiltration by strangers. Make sure the candidate has backup systems and the latest security protection methods.

    Chemistry and compatibility. Chemistry isnít just a factor in picking a spouse. Itís also something to consider when choosing a software partner. Follow your instincts and heed your intuition. If you have concerns about personal chemistry and compatibility at the outset, think twice about going ahead with the deal. The situation is unlikely to improve over time.

    Ethics. If weíve learned one thing from Enron and Bernie Madoff, itís this: You need to be extremely careful about whom you deal with. Ask candidates about their codes of ethics. Though only the larger providers are likely to have formal ethics policies, even the smaller players should at least have some kind of code of ethics for their employees. But keep in mind that a written policy is no guarantee of ethical conduct. In the words of Mason Cooley, "Reading about ethics is about as likely to improve oneís behavior as reading about sports is to make one into an athlete."

    Cost. Though price need not necessarily be the least important of your selection criteria, neither should it be the foremost consideration. The manager who selects a provider based solely on cost has committed to a technology strategy that has little chance of success. Ideally, cost should be a factor only in deciding among candidates that meet all the other criteria.

 

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