Selecting An Outsource Company

Selecting an organization to which to outsource parts of ones business is an important endeavor. Making
correct decision will ensure future enterprise prosperity and growth; while, a mistake could spell out
huge troubles, including collapse of the business operations. There are numerous examples of both
successful and failed outsourcing attempts. Learning from these examples and following
industry-adopted standards will help organizations avoid costly mistakes. This paper discusses the
process of selecting an outsourcing supplier in terms of a detailed example of outsourcing at RSA.

Humans are prone to making mistakes; however, learning from the mistakes made by someone else,
instead of experiencing them in first person is a better way. This section presents two examples one
failed outsourcing attempt by the UK Passport Agency in 1999 and another successful outsourcing by
Blue Shields of California.
According to the 63-page report compiled by the Comptroller and Auditor General (1999), the UK
Passport Agency outsourced 2/3 of its passport processing activities to Siemens and Security Printing &
Systems, Ltd. in 1998 in order to replace its aging passport system and cut costs. The system, created by
Siemens, was first rolled out in 1999 at the Liverpool office where the processing passports dropped from
12,000 to 8,000 instead of increasing to 15,000 due to scanning errors, which required more user data
entry. Instead of halting the rollout and resolving the issue, the Agency pressed on and converted
Newport office to the new system. As a result, a backlog of 565,000 passports was created during the
summer of 1999 that cost taxpayers 12.6 million. Among other causes for failure, the report noted lack
of performance measurement. The report (Comptroller and Auditor General, 1999) also provides ten
lessons to be learned from the failure, namely:

1.

Contingency planning in case project does not go as planned;

2.

Implement forecasting techniques to continue to manage the business efficiently;

3.

Create business plan with financial implication analysis in order to make sound judgment;

4.

Perform formal risk analysis;

5.

Plan for adequate testing of parallel operations;

6.

Limit the initial roll out scale;

7.

Monitor user interaction with the new process;

8.

Seek early resolution if problem arise;

9.

Keep everyone involved well informed;

10. Make sure compensations are described within SLA for failed deliverables.
As a successful example of outsourcing, let us consider the case of Blue Shields of California. The
company outsourced its midrange server conversion to EDS and Sun Micro Systems. Within three months,
EDS and Sun Micro Systems installed and configured new servers and brought up to date all third-party
software applications, such as Oracle, SAS, and BEA (EDS, 2005). As a result, Blue Shield of California was
able to reduce system administration and maintenance costs by fifty percent. In addition, because
software applications were also upgraded during the process, software support calls and data conversion
costs were also reduced.
The first step in deciding to outsource a portion of business operations, involves creation of a business
plan which details what is being outsourced and why. This document should serve as a guide in creating
future requests for proposals (RFP) and requests for quotes (RFQ), and later as a benchmark against
which the success of the outsourcing can be measured. In selecting an outsourcing supplier or an
outsourcing partner, it is important to be able to quantify the decision criteria on various parameters.
Multi Criteria Scoring Method (MCSM) presented by Schniederjans, M. J., Schniederjans, A. M., and
Schniederjans, D. G. (2005) allows to compare multiple choices based on the set criteria with the scale
rating from 1-10, or 1-100, depending on the accuracy precision requirements. The MCSM can further be
fine-tuned to include weight in order to accommodate the importance factor.
In 2006 RSA, a UK-based insurance company with branch offices in Michigan, US decided to outsource its
commercial mortgage asset management software upgrade to a third-party provider. Eight possible
suppliers were initially evaluated and three suppliers were invited to provide an RFP. Supplier A was a
Boulder, CO-based company; Supplier B New Jersey company; and Supplier C Hyderabad, India-based
company. Members of the projects stirring committee each completed the 11-point questionnaire. Table

1 presents the results of the criteria used for the supplier selection process. Weight Factor was used to
indicate the importance the group felt was necessary for a particular item. Table 1 also contains both
straight and weighted scale for each supplier based on the criteria selected. Weighted scale uses the
following formula:
From the results, it was evident that Supplier B, a New Jersey-based company, had the lowest total score
as well as the lowest weighted score and was eliminated. The choice was now between the Colorado and
India-based companies. Their results were very close; however, individual criterion measures varied.
Supplier C had the lowest price, which the group indicated as a very important parameter. This supplier
was also very flexible, had reasonable capacity, was trustworthy and had an ok track record. Supplier A
on the other had the highest price tag for the project, but had the greatest possibility for partnership and
the highest skill level and culture match. Axelrod (2004) highlights that it is important for the supplier to
be able to understand clients needs as they evolve and meet these needs with expertise. The RSA stirring
committee felt that because of the highest experience and competency, Supplier A was more suitable for
the project, though the price was not the lowest one. The MCMS allowed RSA to compare suppliers
objectively and decide on the best candidate for their project.
Two examples failed and successful outsourcing projects were presented with derived lessons. In
addition, the process of selecting an outsourcing supplier has been discussed in terms of a detailed
example of outsourcing at the RSA. Eleven-point criterion was used by the RSA; however, other factors
such as the capability and willingness to collaborate, share knowledge and understanding of the market
can be important to other enterprises. The MCSM can be adjusted to accommodate each enterprises
specific criteria and importance.

References
Axelrod, W. C. (2004). Outsourcing Information Security. Norwood, MA: Artech House, Inc.
Comptroller and Auditor General. (1999). The passport delays of Summer 1999. London, United Kingdom:
National Audit Office.
EDS. (2005). A team effort reduces costs and increases efficiencies. Plano, TX: EDS Agility Alliance.
Schniederjans, M. J., Schniederjans, A. M., & Schniederjans, D. G. (2005). Outsourcing and Insourcing in
an International Context. Armonk, New York: M.E. Sharpe, Inc.

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