3600 Evaluation Matrix for Selecting the Right Outsourcing Partner

TABLE OF CONTENTS
1. Executive Summary …………………………………………………………………………………………………...1
2. Introduction………………………………………………………………………………………………………………..2
3. Consequences of Selecting the Wrong Outsourcing Partner..........................................3
4. Key Parameters for Evaluating Outsourcing Partners ....................................................4
5. The Outsourcing Partner Evaluation Matrix…………………………………………………………………9
6. Conclusion………………………………………………………………………………………………………………...10
EXECUTIVE SUMMARY
The outsourcing industry has come a long way. However, despite its maturity, the outsourcing
industry continues to register higher failure rates. Research indicates that on an average,
organizations realize only 72% of value from an outsourcing contract. This failure is primarily
experienced by those organizations that are unable to develop and manage effective outsourcing
relationships with their partners.
A fundamental first-step for organizations willing to realize the right outsourcing partner is to
undertake a comprehensive 360-degree evaluation. This white paper seeks to help organizations
address this outsourcing conundrum through a time-tested and workable outsourcing partner
evaluation matrix. This matrix outlines a set of criteria that can be addressed to jump start the
evaluation process.
Copyright © 2013 R Systems International Limited. All Rights Reserved. www.rsystems.com
1
3600 Evaluation Matrix for Selecting
the Right Outsourcing Partner
Avirag Jain

INTRODUCTION
The outsourcing industry has transformed radically over the last two decades. What was seen as an
emerging phenomenon having tremendous potential few years back, has now culminated into a
common course where organizations are trying to efficiently and cost-effectively meet their
business goals. Today, global organizations see outsourcing as an integral part of their growth story.
Successful outsourcing arrangements depend upon the effective relationship between two parties.
To ensure an abiding and win-win relationship, selecting the right outsourcing partner (also called
as a service provider or vendor) is a pre-requisite. It is the essential first-step towards establishing a
strong foundation for a successful outsourcing relationship and mutually beneficial outcomes.
However, it is also equally true that the selection of a wrong partner can turn down an
organization’s all expectations from this arrangement and result in wastage of time, efforts, and
other valuable resources.
Findings of the Deloitte Consulting Survey (2008) reveal that 35 percent of respondents are willing
to spend more time on selecting the right service provider if they could go back to the beginning of
their initiative. Recent research suggests that more and more organizations are now considering or
willing to terminate their outsourcing relationships, although this could bring about a great loss to
an organization’s resources and shareholder value.
Thus, to avoid future repentance, organizations need to carefully work through a rigorous and well-
structured evaluation process while selecting the outsourcing partner. Time and efforts invested at
the initial stage of partner selection is sure to pay off later in terms of a strong and win-win
relationship.
Outsourcing promises a number of significant benefits, such as reduced costs, an ability to focus
more on core capabilities, an access to specialized skills, a movement of fixed costs to variable, and
a chance to enhance productivity and quality. However, organizations can realize these benefits
only if they are able to select the right outsourcing partner through a 360-degree evaluation.
The evaluation process requires effective comparison of service providers on certain criteria. The
traditional process of simply sending an RFP and selecting partners on the basis of the lowest price
quote will have to be discarded for a more thorough evaluation. The evaluation should be holistic
and focus on every major goal of outsourcing including the partner’s capability to fulfill each of
them. A methodical evaluation matrix can be instrumental in determining the right outsourcing
partner and thus realizing productivity gains, cost savings, and quality enhancements.
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This transformation in the outsourcing landscape has been captured by global research bodies.
Gartner (2008-2009), in its Fifth Annual Publication on Outsourcing, underlined that organizations
that understand and avoid downsides of cost-focused outsourcing and apply business-outcome-
focused outsourcing will be successful. It highlighted the fact that RFPs, which will focus on price
comparisons will eventually make buyers compromise with quality.
The Deloitte Consulting report (2008) observes that service providers of 44 percent of organizations
did not have the capability required to deliver expected quality levels and cost savings. Although,
many organizations had realized their financial objectives but they failed to derive the value that
they were expecting from the arrangement. They were disappointed with service providers overall
ability to generate business value and improve processes and technology.
Findings of global research bodies confirm that organizations are now moving away from looking at
cost alone. They want to derive value from outsourcing beyond just cost savings. Organizations are
now emphasizing on how well their outsourcing partners can help them stem innovation, improve
quality, achieve flexibility, mitigate risks, and gain a competitive advantage.
CONSEQUENCES OF SELECTING THE WRONG OUTSOURCING PARTNER
Selection of the wrong outsourcing partner can considerably impact the business case and lead to
unexpected fallouts. Following could be some of these consequences:
 Repetition of the whole process to
select the right one
 Wastage of time on resolving conflict
and revisiting decisions
 Increased costs and failure to meet
saving targets
 Data breach involving the loss or theft
of the organization’s information
 On-time delivery performance and end-
user satisfaction level may decline due
to delays at the outsourcing partner’s
side
 The quality of products or services may deteriorate causing serious damage to organizations’
relationship with customers, employees, and other stakeholders
 Due to financial instability of outsourcing partners, organizations may be exposed to service or
product delivery interruption risk or related problems
REPETITION OF THE WHOLE PROCESS
WASTAGE OF TIME
INCREASED COSTS & MISSED SAVING TARGETS
DATA BREACH RISK
DECLINE IN ON-TIME DELIVERY PERFORMANCE
DETERIORATION IN PRODUCTS/SERVICES QUALITY
PRODUCTS/SERVICES DELIVERY INTERRUPTION
CONSEQUENCESOFSELECTINGTHE
WRONGOUTSOURCINGPARTNER
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KEY PARAMETERS FOR EVALUATING OUTSOURCING PARTNERS
Evaluation of an outsourcing partner should be based on three broad parameters – Corporate, Delivery,
and Contracting. Each of these parameters is further sub-divided into several granular parameters that
need to be evaluated. The broad parameters and their granular elements are as follows:
 CORPORATE PERFORMANCE: Organizations should look for a reputed and a financial
stable partner with sufficient experience in the targeted processes and standards. The
partner should be compatible with their culture and equipped with a competent and skilled
workforce, and a management team that understands their outsourcing goals.
Following are the granular elements within corporate performance that organizations need
to evaluate:
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 MANAGEMENT TEAM: Search for a partner who has a strong management team with
appropriate change management skills. An experienced and competent management team
promises robust project management, effective communication, and quick resolution of
issues. An experienced team will ensure smooth sharing of knowledge and insights between
both parties. Ask the following questions:
 What is the composition of the management team?
 What is the role of each member?
 What are the escalation processes?
 What experience and skill sets does the management team have?
 To what level senior management will participate in planning, development, and other
aspects of the project?
 FINANCIAL STABILITY: Look for a partner who is financially stable. Only a stable partner can
provide a robust backup through onshore, offshore, and near shore centers and withstand
crisis situation. Financial stability of service providers can be best assessed by reviewing
their latest financial statements.
 CULTURAL MATCH: Cultural differences are considered to be one of the biggest reasons
why outsourcing deals face difficulties and fail. A study in 2009, by Vantage partners,
acknowledged, that “Culture” is the biggest issue, causing challenges in outsourcing
arrangements. Try to find out the following:
 Does the partner’s culture match with your organization’s culture?
 Does the partner encourage constructive and confident working relationships?
 How will the partner address the cultural barriers to manage the performance?
 EXECUTIVE COMMITMENT: Evaluate whether the partner demonstrates executive
commitment to strong relationship management. The executive commitment must place
importance on trust, proactive communication and effective resolution of issues.
 HR PRACTICES & ATTRITION: Efficient HR practices fulfill staffing needs relative to sourcing
needs and ensure availability of an optimal level of skills and resources. Low attrition rate
and employee-friendly policies are the signs of a stable organization. On the other hand,
massive layoffs, attrition, and resigning announcements reflect the instability of an
organization. Try to find out the following:
 Are the outsourcing partner’s employing, training, compensation, and termination
practices effectively controlled and compliant with local laws?
 Are they aligned with your own organization’s practices?
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 DELIVERY CAPABILITIES: The outsourcing partner must have a well-established
infrastructure, adequate resources, and required domain and technical expertise to handle
the project. Organizations should learn about the processes and methodologies that are
followed by the outsourcing partner. Following elements need to be evaluated to ensure
the robust delivery capability of the outsourcing partner:
 DOMAIN EXPERTISE: The partner must have domain expertise in the specific area. It’s
always beneficial to do business with a partner that has rich domain expertise because
outsourcing involves fulfilling tough regulatory and compliance norms.
 RELEVANT TECHNICAL COMPETENCIES: The partner may have an extensive list of the
technologies that they expertise in but organizations should find out whether they have
competency in the technologies and tools that the project requires. Undertake the
following:
 Ask for work samples and if possible a pilot to assess the technical expertise of the
outsourcing partner
 Find out whether the partner has partnership with industry leaders, such as Microsoft,
Oracle, IBM, etc.
 Discover what tools and technologies are used by the partner throughout the product
life cycle
 Find out whether these tools and technologies are compatible with what is available
in the market and with your own systems
 INFRASTRUCTURE: Checking the outsourcing partner on infrastructure is crucial. This is
because infrastructure can have a great influence on organizations productivity and
continuity. So, try to find out the following:
 Does the partner have an established and secure infrastructure?
 Does the technology infrastructure of the partner ensure that there are multiple levels
of redundancy, automated data back-up and no single point of failure?
 Does the partner have the right communication channel in place?
 Does the partner have a reliable power system including a back-up plan?
 Does the partner have availability and capacity of private/public network
infrastructure?
 Can the outsourcing partner offer constant IT support?
 QUALITY CERTIFICATION: Checking the quality certification is essential to ensure quality
outcomes. This will assure that the work processes of the outsourcing partner are standard
and well-determined. So, try to find out the following :
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 What relevant industry certifications the partner has achieved: CMMi, ISO, Six Sigma,
etc.?
 Does the partner have a defined project management tool?
 What are the reporting guidelines for deliverables and performance?
 What industry standards are used by the partner to ensure quality and client
satisfaction?
 How does the partner ensure that they are building the expected solution?
 What quality metrics are used by the partner during the software development?
 OPEN COMMUNICATIONS: Make sure that the outsourcing partner practices open
communication. Find out how the prospective partner will manage knowledge transfer and
communication to and from your organization. A step-wise procedure may include the
following:
 The partner’s team members have adequate communication and language skills
 The partner provides language and communication skills to staff to manage cultural
barriers
 The partner’s process approach suits your operations
 AVAILABILITY OF KEY TEAM MEMBERS: Find out whether the outsourcing partner has a
team of experts with adequate experience in the field. The partner’s team members must
have the experience of executing the projects of similar size and complexity. Aspects like
educational qualification, employee attrition rate, and communication & language skills are
of high importance in an outsourcing deal. So, weigh these seriously.
 CONTRACTING TERMS & CONDITIONS: The outsourcing partner should be able to offer
sufficient flexibility, value added capabilities, references, and IP security. Assess the
following elements of contracting:
 REFERENCES: Checking references is a crucial part of the evaluation process. Issues like
schedule adherence, trustworthiness, and responsibility, which cannot be judged by work
samples alone, can be best assessed by references check. Ensure that the partner has a
proven track record and can provide you with sufficient references and testimonials. For
this, you will need to undertake the following:
 Visit or talk to other clients. If possible, assess their contracts and status reports.
 Check references from previous clients to get an idea of the capabilities of the partner
 Find out the experience of other clients with the same partner
 Check whether the partner had matched up with the previous client expectations
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 RECENT CASE STUDIES: Review the case studies of recent projects executed by the
prospective outsourcing partner. Find out what tools were used and how the challenges
were resolved. Try to also find out how innovative the partner has been in developing
business solutions.
 FLEXIBLE CONTRACT TERMS: Ensure that the contract terms are flexible. According to
Gartner (2009), outsourcing contracts often are not structured to provide the flexibility
needed to enable the contract to adapt quickly to changes in the market and organization.
Due to lack of the required flexibility, changes may result in business disruption including
the inability of organizations to compete effectively. Besides, find out the following:
 Does the contract contain comprehensive operational conditions that could be better
managed in the SLA?
 Does the contract include sufficient termination and exit clauses?
 ADDITIONAL VALUE-ADDED CAPABILITY: The partner should be innovative and creative.
They should be competent enough to add value to your business by offering value-added
services.
 IP PROTECTION: Find out whether the outsourcing partner follows industry-standard
security practices to ensure the confidentiality of information. The partner must have
established, documented and implemented Information Security Management Systems
(ISMS). Try to find out the following:
 Does the partner practice a documented set of security procedures to guarantee the
confidentiality of data?
 Does the partner have sufficient business policies in place to protect key corporate
assets and meet regulations?
 Does the partner have a secure facility to protect against the unauthorized access of
confidential data?
 PRICE: Ensure that the partner is offering you a flexible pricing option to better
accommodate your needs. However, price should not govern your outsourcing relationship.
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THE OUTSOURCING PARTNER EVALUATION MATRIX
The outsourcing partner evaluation matrix is given below. This matrix is functional and it can
provide organizations real-time feedback on their outsourcing decision. This matrix has been
developed after a thorough analysis, which included primary and secondary research. Once
organizations have evaluated their prospective partners on parameters listed here, they can assign
grades to each. Grades include Poor, Average, Good, Very Good, and Excellent.
Outsourcing Partner Evaluation Matrix
Importance Partner 1 Partner 2
Corporate
Management Team
Financial Stability
Cultural match
Executive Commitment
HR Practices & Attrition
Corporate Performance Score
Delivery
Domain Expertise
Relevant Technical Competence
Infrastructure
Quality Certifications
Open Communication
Availability of Key Team members
Delivery Capabilities Score
Contracting
Reference
Recent Case Studies
Flexible contract terms
Additional value-added capability
IP Protection
Price
Contracting Score
Overall Performance Score
Once all individual items are ranked for each prospective partner’s proposal, the evaluation matrix
gives scores to each item. Scores are calculated in this matrix on the basis of rankings given by
organizations. Based on this evaluation matrix, organizations can confidently make their final
recommendation for the outsourcing partner.
9
8 Excellent Excellent
9 Very Good Excellent
8 Very Good Very Good
180 199
216 236
7 Good Very Good
8 Average Very Good
8 Average Very Good
157 206
553 641

CONCLUSION
In today’s highly competitive and dynamic business environment, outsourcing is such an option that
businesses just can’t do without, if they intend to improve performance and enhance quality while
maintaining costs. However, before jumping on the outsourcing bandwagon there are some
aspects to consider in determining whether this is the right choice. After all, outsourcing is not a
matter of chance but choice. So, organizations should meticulously choose their outsourcing
partner to derive a win-win relationship and generate optimal value from the outsourcing
arrangement.
Prospective outsourcing partners must be weighed on different criteria beyond the single goal of
cost saving. A thorough evaluation of potential outsourcing partners by organizations on criteria,
such as corporate performance, delivery capabilities, and contracting terms and conditions, will
improve the chances that the initiative will deliver on all their expectations, efficiently and
abidingly, over the years to come.
ABOUT R SYSTEMS
R Systems is a leading OPD and IT Services company, which caters to Fortune 1000, Government, and Mid-sized organizations,
worldwide. The company is hailed as an industry leader in the outsourcing space with some of the world’s highest quality
standards, including SEI CMMI Level 5, PCMM Level 5, ISO 9001:2008, and ISO 27001:2005 certifications.
CONTACT
rsi.marketing@rsystems.com | Phone: (+91) 120-4303500 | Fax: (+91) 120-2587123
ABOUT THE AUTHOR:
Avirag Jain has 25+ years of rich experience in the IT industry including managing large on-site,
off-site and offshore projects. He currently heads the Offshore Development Center of R Systems
International Ltd. as CTO and EVP. Avirag is a science graduate with PGD in Cyber Law. He also
holds an MBA degree with specialization in Finance and International business.
Email: avirag.jain@rsystems.com / jain.avirag@gmail.com
To receive the Outsourcing Partner Evaluation Matrix (Excel Sheet), write to Mr. Avirag Jain at his above-mentioned
Email IDs.

3600 Evaluation Matrix for Selecting the Right Outsourcing Partner

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3600 Evaluation Matrix for Selecting the Right Outsourcing Partner