Top 5 steps to evaluate BPO firms -- rediff

http://ia.rediff.com/money/2006/jan/17guest.htm?q=tp&file=.htm

I received quite a few responses to my recent article on 'How to hire a firm for outsourcing'. Some of the responses raised a few questions that I would like clarify in this article, sharing my experience and judgment.

The purpose is purely to indulge in a thought-provoking knowledge sharing and exchanging exercise.
Organisations looking to hire for sourcing as their management strategy would often go through the route of request for proposals (RFP). But at the end of the day, the small- and medium-sized companies are often overlooked due to the reasons unknown.
Evaluating companies for outsourcing is very challenging and some times expensive. Hence based on my experience working on a few project bids and experiences shared by my friends in the field, I have 5 steps or processes, through which organisations can select firms for outsourcing.
As a rule of nature, we have to create and nurture the ecosystem with a mixture of small, medium and largescale companies in any industry. There should be a level playing field for all players, be they small or big. Otherwise it beats the purpose of equilibrium and might have a negative consequence on the larger economy, where no individual is willing to spend effort, time and energy to build and nurture companies.
The rules of free trade and openness have to be applied to the business execution domain as well.
One reader commented that 75 per cent of outsourcing deals fail according to studies. Though I would argue the circumstances for the failures, I would completely agree with his judgment that organisations sponsoring for outsourcing should have streamlined process management in place.
Someone from the top management in the sponsoring organisation should be able to drive the adoption of changes and modifications of business process execution due to the engagement of third party companies.
Evaluating small- and medium-sized companies is tough. There is a lot of effort and tremendous economic factor involved in evaluating the companies for outsourcing. But nevertheless, it is worth going through the pain, just for the flexibilities that these companies offer in terms of cost and project deliverables.
I have tried to list five fundamental steps or process that can be followed to encourage small and medium businesses to compete in a level playing field in the era of globalisation and digitalisation.

1. Starting with a pilot
Pilot projects are a good way to start the evaluation process. The pilot project should have clear objective, expectations, benefits set and some of the rules could be very stringent with tight deadlines for milestone deliveries.
This is often followed in Silicon Valley companies to encourage small start-ups to demonstrate the abilities of new products and services. It often portrays the benchmark in service level agreements. This way, organisations have the options and flexibilities for innovation in business strategies and delivering services to their end customers.
Competition reduces the cost; hence organisations can negotiate deals relevant to project's costs and deliverables.

2. Talk to top 5 customers
Customer referrals are very important to provide credibility into the project bidding phases. The S-M (small and medium) companies bidding for project submit customer contact. With today's communication infrastructure, it should not take much time and effort to verify a company's experience in project delivery through a phone call or email.
This is not a new trend that I am proposing. But, to encourage small and medium existence, this advice needs to be followed strictly.
In US, there is a certification of 'Minority Business Enterprises.' Through this certification S-M companies, whose founders/presidents/CEOs can claim minority status, bid and win projects. But again, large organisations awarding projects are not often willing to spend additional resources to evaluate the minority organisation.
Often they are encouraged to do business through preferred vendors. Often in consulting terminology, it is a layer business, which does not make much sense to S-M company's bottomline.
The moral of the story is organisations awarding projects should follow the path of 'encouraging S-M companies.'
In more ways than one, I strongly like the Silicon Valley culture. Large companies, in fact, nurture smaller ones. Be they venture capitalists or CEOs or investment advisors. The quality of nurturing is one of the key aspects that has brought back the Valley today closer to the boom of the 1990s.

3. Talk to the employees working for the organization
Employees of the organisation could be an excellent referral of culture, ethics and philosophy of the company. Some times the feedback from the employees could be biased. But in small- and medium-sized companies, employees often reflect the firm's ethics, culture and philosophy.

4. S-M companies should be transparent in their dealings
Definitely the paperwork of cash flow, cash in hand and general financial health should be addressed during awarding the projects. Because, the health of S-M companies will have a major impact on the sponsoring organisation for project deliverables and timelines. The S-M companies, if they are serious about cracking some deals, should have all their paperwork in order.

5. Ongoing auditing from management office
The sponsoring organisations and the company engaged in outsourcing should evaluate the performance of the project. Weekly, monthly or quarterly meetings could be held, which outlines the key accomplishments and milestones achieved in the stipulated timeframes.
This way, lessons can be learnt from mistakes on both sides. This step should be followed strictly, since this step alone can slap project penalties if it is a viable proposition when signing the contract. I recommend that companies should have a penalty clause, though enforced moderately.

My experience is that S-M companies are fast learners and over a period of time can master the art of delivering the highest benefit to the project outcome.

Advantage S-M companies
In terms of cost benefits and project deliverables, it is advantageous to go with S-M companies. They would not have too many overheads, hierarchy, etc., Hence, it all trickles down to lower and lower costs. Among other benefits of outsourcing, nobody can deny the fact that cost does have an impact on an organisation's bottomline. Of course, cost alone should not be a factor for outsourcing or hiring third parties.
Once a project is outsourced to an S-M company, the S-M company often tries to stabilise over a period of time with the same team at the helm and at the project execution level. In large companies, sometimes the value is given to the dollars generated from the project. For an S-M company, all its customers are important, and there cannot be any discrepancy between the deals and brands of the projects.

Conclusion
In this article I have tried to summarise the top five steps/process that can be followed by large organisations to encourage start-ups, and nurture small- and medium-sized companies. Procurement management is a very broad knowledge area, but I have tried my best to develop, define and summarise at a high level.
Ground realities often differ; the steps/process mentioned above might require few tweaks along the way based on the situation. Although, the article does not offer a clear solution for S-M companies looking to transition from a pure-play staffing to solutions or project or product-based consulting, it does give an idea, as to what one should expect during the transformation.
S-M companies accordingly should align themselves with new goals, objectives, strategies, and a management team comprising sales, marketing, domain and technical expertise.
The biggest challenge for small- and medium-sized companies to move up the value chain is to transform themselves from a 'family like' environment into a more professional organisation. Often, lack of professionalism is a huge bottleneck in delivering solutions to customers efficiently. Emphasis needs to be given on performance and nothing else. At the end of the day, that is all that matters.

Acknowledgements: I would like to thank the readers and my friends, who commented with precious insights to my previous article.