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Outsourcing: Search for ways to reduce overheads

journal-sm-recessionOutsourcing product management: perish the thought! We’re convinced it would be ridiculous to outsource a role of such strategic importance, especially in times of uncertainty. However, if you’re under pressure and don’t have the resources or skills in-house there may be value in outsourcing some of the activities that are commonly undertaken by product managers and product marketing.

Outsourcing can be particularly relevant in a downturn when you are given a broader range of products to manage and need more resources to help you deliver on those additional responsibilities.

It is worth clarifying what we mean by outsourcing. The term is commonly used in IT and customer service areas where complete departments are outsourced to a business partner, usually for a period of years, with performance measured through tight Service Level Agreements (SLAs). According to the National Outsourcing Association (NOA) and their research partner Nelson Hall, Business Process Outsourcing is set to grow globally and in the UK will grow with a Compound Annual Growth Rate (CAGR) of 10% up to 2011.

In our industry, the biggest example of outsourcing is IT development. In a recent Financial Times article, India, who have the world’s biggest IT outsourcing industry with 51% global share, were said to be feeling the effects of the credit crunch. They expected outsourcing to continue to expand but slow from recent growth rates of 30%. Longer-term they expected increasing competition from China.

Whilst we believe the full scope of product management should not be outsourced, there is no reason that favoured partnerships cannot take long-term responsibility for some of the product management tasks currently handled in-house. The term outsourcing is also used in a shorter-term context, notably when specific activities normally done in-house are hived off to an outside supplier on a case by case basis.

Outsourcing best practice

“Product management outsourcing usually involves outsourcing discrete business activities such as pricing, reviews or competitor analyses. However, it can also involve knowledge process outsourcing (KPO) or product development outsourcing (PDO). Outsourcing high end functions such as these can help companies achieve results at a much faster rate, whilst still being cost effective. To add to this, utilising expert knowledge within these areas will benefit organisations by increasing the quality of work carried out.

“But outsourcing high end functions is not without its downfalls. With the majority of KPO/PDO providers offering services to a number of companies, this limits organisations’ chances of achieving a competitive edge. A car manufacturer, for example, may outsource the design of its gear stick only to find the same design on a competitor’s model. It’s difficult to control these types of contracts; and as with any contract, guidelines and processes have to be set, not only with SLAs, but also for intellectual property rights.”

Martyn Hart, Chairman of the National Outsourcing Association (NOA), which champions outsourcing best practice in the UK year

Which activities

The first challenge is determining which tasks are suitable for outsourcing. Whilst it’s important you retain the key decision-making elements of the role, there will be areas that you might consider delegating to someone else.

We recommend you keep those tasks which are strategically important and direction setting in-house, and outsource activities that are well bounded with clearly defined deliverables. For example, activities such as information gathering and analysis use widely understood methods and processes, and produce a clear deliverable at the end. We would exclude tasks such as roadmapping, finalising and presenting business cases, and portfolio planning from any outsource discussion.

outsourcing

In determining whether a particular task can be outsourced you need to consider the risks of failure as well as the upside. Your partner should be willing to let you ‘dip a toe in the water’ by outsourcing a small piece of the product management activity and as trust builds you may choose to delegate more responsibility.

Product Focus has recently done some work for an overseas operator who is rolling out a broadband network. This is a brand new area for them and their approach is to outsource as much as possible including getting their network vendor to deploy and run the network. In the marketing and produce management area, outsourced tasks have included proposition development, competitive and vendor analysis, and benchmarking against similar services in other countries.

Choosing tasks to outsource

Getting insight

  • Product requirements gathering
  • Market and competitive research

Analysis and planning

  • Proposition review and analysis
  • Product and market analysis

Delivering the product

  • In-life project management
  • Product launches

Selling the product

  • Pricing review and development
  • Collateral review and development
  • Sales training and sales tools development

Choosing a partner

There are many books and articles available on the process of outsourcing and the attributes to look for in an outsource partner. Aside from the commercial aspects of the agreement we recommend you seek a partner that:

  • Is experienced in the specific product management tasks you need outsourced.
  • Has the necessary technical and market skills, in your product area. This avoids the need for a long learning curve before the partner starts to deliver results.
  • Introduces the people that will actually do the work. This could be a long-term relationship and you want to see people committed to working with you and with whom you can get on.

Managing outsourcing

  • Define the deliverable. A well-worn tool for scoping any project that provides a useful starting point is BOSCARD (see Fig. 5 below). Re-read your brief and any communication to ensure a single interpretation of what’s being requested.
  • Set interim milestones. As with any project you must have checkpoints where you can review document drafts and any other progress checks.
  • Keep in touch. This will keep your project top of mind and improve confidence. Pick up the phone rather than relying on email: an interactive 15-minute discussion will resolve any problems far more quickly than extensive email exchanges.
  • Provide one Single Point of Contact (SPOC) to avoid misunderstandings and track issues.
  • Have some flexibility. As with any project, problems may occur on your side or on that of your supplier. Make sure you don’t get caught out when the scope changes by building some flexibility into your contracts and projects.

boscard

Using your customers

One interesting example we came across was of Dell outsourcing product innovation to their customers. Dell have historically left product innovation to their suppliers whilst they focused on operational and component cost reduction. As the power of Far Eastern suppliers and commodity box shifters has increased, they recognised the need to differentiate outside of just pricing and service. This led to their Dell 2.0 strategy which included IdeaStorm. IdeaStorm provides a forum for customers to provide product improvement ideas and for these to be ranked by readers.

Dell use this approach to gather and filter feedback on what to develop next. At the time of writing just under 11,000 ideas had been submitted and 640,000 votes received.

This approach clearly provides a great mechanism for getting direct input from customers,  but a number of risks have been noted. Many of the ideas don’t make commercial sense for Dell and so don’t get developed. The forum, led by innovative customers may actually disappoint those same thought leaders. Also this type of internet forum can move very quickly. Something that is flavour of the month today might take 9 months to develop, by which time another preference has long since taken its place. However, idea forums and blogs are a great source of ideas and a great way to find out what your customers really think of your product.

Conclusion

There is no substitute for the insights and direction setting of in-house product management. Supporting these internal roles with tasks delivered by carefully selected outsource partners can help you overcome resource and expertise gaps, whilst keeping control of costs. Outsourcing is certainly an option worth considering in uncertain times.

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