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Outsourcing Class

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For founders at Founder Institute

For founders at Founder Institute

Published in: Business, Economy & Finance

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  • http://www.founderinstitute.com/courses/827 Description: What should you outsource, and what do you need to do in-house? How to segment the vendors that you need? What vendors do you need right when you start, and what vendors will you need as you grow? How do you recruit and select the important vendors? What are tips and tricks to manage vendors in order to ensure a consistent level of quality? How do you fire and replace under-performing vendors? What are common mistakes made when dealing with vendors? Assignment: First, identify a list of at least seven key functions that you will need to launch and operate your offering in the first few months, such as engineering, project management, design, quality assurance, customer service, sales, payment processing, accounting, legal, public relations, hosting, etc. Second, rate each item on whether they should be outsourced on a 1 to 10 scale with 1 being "outsourced" and with 10 being "in-house," and also rate the importance of each item to the success of the business with 10 being "most important." Third, write a one to five page request for proposal ("RFP") to identify vendors for one of the most important key functions that you need to outsource over the next one to three months, such as accounting, design or testing. Fourth, send the RFP to at least three target vendors and post information from the RFP to appropriate online vendor markets and forums. Fifth, if the process leads to poor results, then repeat. Sixth, negotiate with each appropriate vendor for reduced startup pricing by offering barter, referrals, deferred payment, equity or any other vehicle. Seventh, write a paragraph on the lessons learned for the other outsourcing targets and update the original rating with new insights. ASSIGNMENT GOAL: Develop a recruiting process for key vendors and identify one key launch vendor.
  • 50% of outsourced projects fail outright, or fail to meet expectations 76% of companies said that vendor management effort and costs were much higher than expected 30% reported ongoing issues with outsourcer management processes (e.g., inadequate governance and conflict resolution procedures) 51% reported that outsourcer was not performing to expectations
  • PM: It may be unwise for an outsider to speak on your companyýs behalf at an industry conference or in front of sales prospects, but other tasks are less controversial. For example, gathering product requirements is sometimes best handled by an outsider. Be sure to use a consultant with product experience close to or at least on the same technical level as your product. Other product management functions that can be outsourced include project management during development, beta, or pre-release sales and marketing preparation. It may be a little hard at first for an outside person to coordinate multiple internal parties, but consider that outside people have less to lose by reporting actual project status to management. Competitive analysis and pricing are also often outsourced given their bounded, objective nature. However, other things to consider for outsourcing are: Conducting a release debriefing to understand what went well and not so well during a release so that the next one can be improved Win/loss reporting Positioning and marketing message validation Website review and alignment Sales tools development and review In-depth general qualitative quality checks with customers on the perceived effectiveness of the product and organization Planning and managing product launches Setting up and running a customer feedback council.
  • Consider the overhead and non-productive hours. The first layer of cost savings in outsourcing comes from payroll taxes, insurance and benefits paid to full-time employees.
  • 50% of outsourced projects fail outright, or fail to meet expectations 76% of companies said that vendor management effort and costs were much higher than expected 30% reported ongoing issues with outsourcer management processes (e.g., inadequate governance and conflict resolution procedures) 51% reported that outsourcer was not performing to expectations
  • “What you don’t know WILL COST YOU” I found that in many cases I had to pay to train my outsourced partner…..just as I would for an employee. Consider the overhead and non-productive hours. The first layer of cost savings in outsourcing comes from payroll taxes, insurance and benefits paid to full-time employees.
  • 50% of outsourced projects fail outright, or fail to meet expectations 76% of companies said that vendor management effort and costs were much higher than expected 30% reported ongoing issues with outsourcer management processes (e.g., inadequate governance and conflict resolution procedures) 51% reported that outsourcer was not performing to expectations
  • Consider the overhead and non-productive hours. The first layer of cost savings in outsourcing comes from payroll taxes, insurance and benefits paid to full-time employees.
  • http://www.alsbridge.com/ A study performed on over 300 companies focused primarily on nine of the prominent causes of outsourcing failures: The buyer’s unclear expectations up front as to its objectives The parties’ interests are aligned up front but become misaligned as the buyer’s business environment or needs change Poor governance structure for managing the ongoing relationship Poor communication; the parties do not proactively share necessary information with each other The parties do not consider each other’s interests to ensure their relationship is mutually beneficial The provider’s poor performance against service level agreements Poor cultural fit compatibility of the parties Challenges arising because of the buyer’s multi-supplier environment Other http://www.outsourcing-center.com/2011-04-ten-pitfalls-in-outsourcing-transitions-article-44253.html 1. What you don’t know will cost you The Center asked the surveyed buyers this question: “There is a well-known saying that what you don’t know will cost you. Please describe something your company didn’t know at the outset of the outsourcing relationship, which ended up costing you and led to a change in the outsourcing arrangement.” The situations they described covered the gamut from technology issues to human behavior to lack of knowledge as well as operational structures that were too tight or too loose. 2. Technology connectivity Challenges arose in the provider’s ability to establish timely connectivity to all of its customers’ necessary systems because they were not aware of the various groups and business processes that governed connectivity. Remedying this situation involved forming a dedicated connectivity team with both business and network members. The team then built relationships within the customer’s technology group, seeking to understand the ownership and flow of information and also to help work through the issues more quickly. 3. Aggressive go-live date Two different relationships faced the same challenge of having to extend their original planned go-live date, but the causes of the problems differed. In one, the service provider encountered difficulty in recruiting the right talent in a remote area in the short transition time frame. In the other case, the buyer was transitioning from an incumbent provider to a new provider, but the bureaucracy and contractual negotiations in ending the prior relationship delayed the planned transition time line. In both cases, the aggressive ramp-up was necessary to achieve the desired time to value. Both buyers also had to spend time with their management teams and other stakeholders to lessen the potential negative impression and increased costs from having to extend the go-live date. 4. Service level agreement In a relationship delivering IT services to the customer’s 25+ facilities, the customer made the mistake of including all the facilities in the metrics for downtime. The situations they encountered as a result of these problematic service level measurements led to a contract renegotiation. As the customer stated, “Even if the downtime SLA is 99.9, it leaves a lot of wiggle room when you take that across all the facilities.” The renegotiated arrangement now measures the downtime/uptime percentage per facility. 5. Total cost of ownership A customer shared that, shortly after the outsourcing relationship was established, her company launched an initiative to determine its total cost of ownership (TCO) of various business processes. But the company was unable to determine TCO for the processes in its outsourcing scope because it lacked transparency into the service provider’s underlying enabling IT costs that were variable rather than fixed costs. When they renewed the contract, they renegotiated the pricing arrangement to ensure cost component transparency. This ultimately also enabled the customer to understand whether it was getting the most value for the price at both a service line and transaction level. 6. Software licensing Unexpected software licensing costs during the transition phase hit a company outsourcing several IT components. The transition involved moving from a standard database to a real application clustering database model (a cluster of servers to eliminate hardware downtime). The licensing cost structured across the CPUs was different than the buyer anticipated. It also encountered another issue around the server license component of a security product. Root-cause analysis found that these added-cost issues were due to a lack of communication. In some cases, the buyer assumed costs rather than communicating with the provider to determine if its assumption was correct. In other cases, the provider’s communication to the buyer was inaccurate because of ineffective communication among the different divisions of the provider’s business. 7. Managing the relationship Several buyers reported they incurred extra costs because they entered into the outsourcing relationship with the wrong mindset. As one buyer stated to Outsourcing Center, “There’s a lot of difference between working with an outsourcer and working with a team of people who are subordinate to you.” Not understanding that change up front, the buyers had to go through a learning process – and often relationship struggles as well as delayed time to value – to understand how to manage the relationship and the outcomes. 8. Learning curve Multiple buyers stated their costs increased because the learning curve was more difficult and took longer than they had anticipated. In some cases, the learning curve was for the provider’s team to learn the buyer’s business and its IT systems; in other cases, it was for the buyer’s end users to learn new systems and procedures. In either case, both parties had to step in and “save” the other by making sure they operated the processes and technology correctly and fixed the errors. Both parties lost money because the time to value was extended significantly. 9. Offshore readiness It’s not uncommon for buyers and providers to find out – when in the midst of the transition phase – that a specific component of an entire process scope is not ready for offshoring or, in some cases, is prohibited from being sent offshore. One buyer shared with Outsourcing Center that it encountered issues with the security controls of certain applications that were in the outsourced scope, and those controls prevented managing those applications from offshore locations. The costs in this case included suspending the transition midway through it and working together to redeploy teams and applications. 10. Communication around quality The transition phase of an outsourcing relationship often erupts in “noise” from the customer’s end users around dissatisfaction with the quality of services. Often, an analysis finds that the source of the problem is the buyer’s lack of effective communication around quality expectations and needs. At other times, the buyer has no one in house with the in-depth knowledge to effectively oversee the quality of the provider’s work. There are also cases where the buyer begins the relationship with a light approach to governance and more of an ad hoc style of communication, which can lead to ineffective communication around specific needs and expectations. In one of the relationships Outsourcing Center studied, the buyer ended up with unexpected costs around not only resolving the quality issues but also investing in “a few experts” who would be liaisons between the buyer’s users and the provider’s service team. Heeding these insights shared by the surveyed buyers will help both customers and service providers avoid unbudgeted costs and delayed time to value. Additional tips on avoiding pitfalls in the transition phase are described in Outsourcing Center’s free white papers: Best Practices for Risk Mitigation in Outsourcing Transitions (2010) and Haste Makes Waste: How to Avoid Outsourcing Problems (2003).
  • Example - Too early: *Business founder outsources his engineering WITHOUT cofounder *Head of engineering has NO experience with outsourcing *Person in charge of managing NOT bought in or DOESN’T have the time to manage Example - Too late” *Customer says they need product integration in two months….and it takes a trained team two months
  • No different than recruiting a full-time employee: Referrals References Interview Accountable hiring manager
  • These buyers of outsourced services, who were deemed to have been successful in their sourcing strategies, all agreed that “their transition phase was the point that either threatened to derail their relationship or that allowed for long-term success.” Make sure full-time staff & outsourcing employees are properly introduced. Make sure the proper on-boarding period is established (i.e. have key members of outsourcer onsite upfront and periodically) Make sure systems are in place for communication and management
  • Upfront requirements documentation (market, product, technical specs) Daily, weekly, monthly, quarterly communications Clear objectives and performance metrics Regular trips to THEIR location A person who knows how to manage Use Agile for any type of project (engineering or otherwise)….forces collaboration Carve off discrete projects which require LESS interaction/dependencies
  • Incentivize to make milestones, just as you would for internal staff…a bonus is paid: On-time On-budget On-quality
  • http://www.founderinstitute.com/courses/827 Description: Your goal is to help the Founders in the class understand the topic from your perspective. 1. What does a new Founder need to know about law in order to run a successful startup? 2. When should a Founder use a lawyer, and when should you rely on your own work? 3. What are the key terms in contracts to understand and to avoid? 4. What are common legal mistakes? 5. How should a Founder handle their intellectual property, including confidentiality, copyrights, trademarks and patents? 6. What are common intellectual property problems, and how do you deal with them cost effectively? Your allotted speaking time is between 20 and 30 minutes. There will be a question and answer session with all of the Mentors, and a Founder Hotseat, where you critique the business and assignment of select participants. A good presentation provides actionable shortcuts, tips, resources and personal advice for Founders to complete topical assignments in a week. Negatives - To protect yourself from: Two founders split up and one says "I came up with much of the IP, so I'm leaving to start my own company” Investors want to take control by pulling committed funds, and later trying to pick up the IP for cents on dollar Big Fortune 100 company tries to file patents to essentially invalidate or "surround" you Founder has incredibly "brilliant" and "transformative" tech, but doesn't want to disclose to investors because he’s afraid of idea being stolen Company made public disclosure BEFORE protecting their IP Positives - To prepare for: Company was acquired for its patent portfolio Raised a large strategic round + manufacturing partner + channel partner + JV partner based on IP Have a company which could be as big as CISCO, Dolby, Qualcomm, RAMBUS...a franchise based on IP Myths around "Why to Protect "Myths around "Why I don't need to Protect"
  • Transcript

    • 1. Outsourcing, Partners & Suppliers “Who, Why, What?” Founder Institute Jim Kaskade 8/23/2011
    • 2. 50% of outsourced projects fail Source: Aberdeen Group
    • 3. Who Do We Outsource To?
      • Legal
      Finance HR IT Fulfillment Infrastructure Facilities Front Desk Biz Dev Direct Sales TeleSales LeadGen Marketing/PR Website SEO/SEM Engineering Cust Service/Support Project Mgmt Product Mgmt Social Manufacturing
    • 4. Who Do We Outsource To?
      • Legal
      Finance HR
    • 5. Who Do We Outsource To? IT Fulfillment Infrastructure Facilities Front Desk Manufacturing
    • 6. Who Do We Outsource To? Biz Dev Direct Sales TeleSales LeadGen
    • 7. Who Do We Outsource To? Marketing/PR Website SEO/SEM Product Mgmt Social
    • 8. Who Do We Outsource To? Engineering Cust Service/Support Prod/Project Mgmt
    • 9. Why Outsource?
    • 10. Saves Time?
    • 11. 76% of companies say that vendor management effort and costs are much higher than expected 30% have ongoing issues with outsourcer management 51% have outsourcers not performing to expectations Source: Aberdeen Group
    • 12. Saves Money?
    • 13. The average cost savings for outsourced projects is a mere 26%. Source: Aberdeen Group
    • 14.  
    • 15. 30% of companies fire at least one outsourced vendor within a year period InformationWeek Survey of 530 companies, 2010
    • 16. What To Look Out For? Source: Alsbridge, Inc.
    • 17. What To Look Out For?
      • Timing
      • Recruiting
      • Integration
      • Management
      • Compensation
    • 18. Timing…Readiness
    • 19. Recruiting…Hiring
    • 20. Integration…Transition
    • 21. Management
    • 22. Compensation
    • 23. Outsourcing, Partners & Suppliers “Who, Why, What?” Founder Institute Jim Kaskade 8/23/2011 [email_address] Google Voice: (415) 938-7891 AIM: jimhkaskade Twitter: jimkaskade Blog: www.jameskaskade.com