According to a survey of 800 executives in the United States, cost savings is the primary driver of contracting. No doubt about it. Contracting cuts costs and sometimes quite dramatically. But if that’s your only reason for contracting, you’re missing the boat. Contracting is also a powerful weapon that can transform your business. And if you’re not taking advantage of it, you’re costing your business revenue. To get the most out of it, you must take a strategic approach. Only then will you be able to reap all its benefits — whether it’s tech support, customer service, or any other process. Here are the 6 worst contracting mistakes to avoid.
Enjoy Full Benefits
Put simply, you need to do three things to enjoy the full benefits of contracting — take a broader, long-term approach, set pragmatic goals, and form a partnership with your provider.
More important, you need to avoid making key contracting mistakes.
Below are six of the top mistakes in contracting and tips on how to avoid them:
1. Counterproductive Incentives
Incentives spur superior performance. But they can backfire with contracting. If your incentives are too hard to achieve, they can demoralize both your people and your provider’s agents.
Instead, choose challenging but modest goals. Then, as time passes, increase goal levels bit by bit. Achieving these goals builds agent confidence, fosters a partnership attitude, and boosts morale.
Action Point: Create a list of goals for a contracting project. Break them down into more modest goals. Then assign incentives designed to drive these goals.
2. Measurement Overkill (**one of the common contracting mistakes)
Not measuring performance accurately is a major contracting mistake. So is its opposite— measurement overkill. While the intent is good, few companies have the manpower or means to measure everything effectively.
Instead, pick out a few key metrics, measure them accurately, and check them regularly. Also, send a report to everyone and act on the report’s findings.
3. Hands-off Management (**one of the common contracting mistakes)
Measuring performance and then not acting on the results leads to failure. If you don’t use your metrics to improve, you’re doomed to fail. And if you’re not acting on performance results, your customer service or tech support can only be mediocre.
4. Contracting High Touch Activities
Not every process is ideal for contracting. Understanding what processes to outsource and what not to outsource is critical to success. Invest time into deciding which processes should be outsourced and which should not.
One way to decide is to map processes against two variables: in-house effectiveness and business value. Outsource processes that have low business value and low in-house effectiveness or that have low in-house effectiveness but high business value.
5. Contracting Core Competencies
Contracting works well when it addresses processes not critical to your success. Involvement in these processes distracts you from what’s truly important—your core competencies.
First, determine your core competencies. Next, determine how well you do these activities. Then contract anything that doesn’t relate to your competencies or you don’t do well. Keep in-house anything that’s critical to those competencies, you do well, and has high business value.
Action Point: Determine your core competencies. Then create a list of key processes that drive these competencies. Decide which processes you do well and which you don’t.
6. Avoid the “Honeymoon Effect”
Many managers fall prey to the “Honeymoon Effect.” At first, the provider works hard to impress and everything goes well. Then after a while performance declines, but the provider fails to make changes.
Now you’re thinking about switching providers. But switching is time-consuming and costly. It’s also risky. Instead, address the issue with the provider. Work out a plan together to improve performance.
Contracting is more than just a chance to cut costs. It’s a powerful strategy that can transform your company, but only if you avoid making the mistakes discussed above.
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