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Top 5 Outsourcing Best Practices for Organizations [2024]

It was predicted that IT outsourcing market will grow by $98 billion between 2020-2024 and 40% of small businesses outsource a business process. However, 20-25% of outsourced projects fail within two years, and 50% of them fail within five year. Here are some of the best practices to follow when outsourcing a project to guarantee your organization’s success:

1. Define your outsourcing objectives clearly

Define your project requirements and reasons to get outsourcing services clearly. A well-crafted plan from start to finish would help any project, but it is especially important when outsourcing. It would give accurate and concrete information to the service provider about your expectations and help them propose realistic timelines and price deals. A plan should include these in detail:

  • Description and objectives of the project
  • Deadlines
  • Budget
  • Necessary skills

2. Select a compatible outsourcing vendor

Choosing the right outsourcing vendor can be challenging. However, there are things to look for to make an informed decision:

  • Domain and technical expertise: The vendor should have experience in projects relevant to your business’ industry or business objective and has expertise in relevant technologies.
  • References: The vendor should be able to provide case studies from previous projects. Companies that previously worked with the vendor could provide valuable information.
  • Team: Check individual team members’ backgrounds. Knowledge of a diverse set of tools and technologies can be a sign of high-quality work.
  • Support and maintenance model: The vendor should be available for support for a specified amount of time after the project is finished.

3. Select the right engagement plan

The engagement model is the type of relationship between the outsourcing company and the client. Vendors can offer different types of engagement models, and you should choose a plan that fits your project’s requirements and scope. Some engagement plans include:

  • Dedicated teams: The vendor sets up a team that would concentrate their efforts entirely to the project. These teams usually work on site. The dedicated teams model is suited for long-term projects.
  • Staff augmentation: In this model, you hire professionals from the vendor with a specific skillset for a specified amount of time. It is a more flexible plan than a dedicated team because external personnel are hired for a short amount of time, such as during spike in demand periods.

There are also different pricing models:

  • Fixed price: It involves determining a fixed budget at the start of the project with well-defined goals, scope, and duration.
  • Time and material: This is a more flexible model that involves a specified billing rate and takes into account the time spent and resources used on the project.
  • Dynamic pricing: Some service providers leverage dynamic pricing models which have a pay-as-you-go payment method. Dynamic pricing models have different types depending on industry and applications.

4. Establish communication

Lack of communication between parties is one of the greatest issues in outsourcing. Regular communication about priorities, progress, and issues would keep both parties on the same page and prevent delays or other unexpected problems. Some ways to stay in regular communication includes:

  • Establishing channels for communication
  • Determining a project management tool
  • Setting KPIs
  • Planning regular sprints

5. Pay attention to security

Project outsourcing inevitably involves sharing company data with third parties. You should assess and classify data according to its sensitivity and develop a data usage policy to determine who can access which data. You can leverage privacy-enhancing technologies (PETs) to minimize the risk associated with data security.

For more on data security, check our article on data security best practices.

You can also check our related articles:

If you have other questions about outsourcing, we would like to help:

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Access Cem's 2 decades of B2B tech experience as a tech consultant, enterprise leader, startup entrepreneur & industry analyst. Leverage insights informing top Fortune 500 every month.
Cem Dilmegani
Principal Analyst
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Cem Dilmegani
Principal Analyst

Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.

Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.

Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.

He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.

Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.

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