Examine How New Processes Can Eliminate Expensive Outsourcing

Much outsourcing is based on comparing what you do now to what another organization would charge and promises to achieve. That's too narrow a way to consider your alternatives.

By outsourcing, you may simply be turning a bad process into a permanent feature of your organization's operations. Instead, consider if you should switch to another process to replace some or all of the outsourcing. This evaluation is helpful both before and after an outsourcing decision, but offers the greatest payoff if you find a better alternative to outsourcing in the first place.

Here's an example: Many companies have moved from having large internal legal staffs that do everything to hiring specialist law firms as needed for unusual litigation. Done properly, you may have more experienced lawyers on your side, and the total cost can be less because these lawyers don't have to get up to speed like the staff lawyers would have to do.

But assuming that litigation is the only process you can use in cases involving harm is a mistake. Two primary alternatives can slash your costs and be more beneficial to those who were harmed by your organization.

The first alternative is to create and act on a reasonably predictive model of what's likely to happen to a given case if you pursue litigation. Let's assume that the answer is that both sides will incur $65,000 in legal fees and your company will pay $100,000 in damages 62 percent of the time. The total expenditure before looking at nonlegal staff time and other expenses for you and the litigant is $230,000.

If the litigation succeeds, the litigant clears $35,000 before any value for their own time. If you prevail, you still spend $65,000 before nonlegal staff time and expenses. If you lose, you pay $165,000 in total while incurring your other expenses.

Under these circumstances, some will settle all such cases where legitimate harm seems to have occurred for $50,000. In all cases, both the harmed party and your organization are better off. Only the external lawyers lose some potential revenue.

And such a procedure could be handled efficiently through some simple investigatory process. Verify that someone is injured, make a reasonable offer, and pay those who agree. If such legal matters are pursued through a good process, you won't need those specialty litigators nearly as often.

If the other party won't settle, you still have a second alternative. You can propose using alternative dispute resolution methods. These processes are faster and cheaper than litigation, and you may not need specialty litigators.

Companies are most likely to pick a poorly designed process to outsource when faced with a new challenge. When such issues arise, take a little extra time to consider what the best practices might be for addressing that new challenge.

Chances are that your first reaction to get the best help you can isn't the right one. Once outsourced, you will have created great inertia to keep the process as is through the outsourcing provider's vested interest in keeping the process going that provides the most profits for itself.