In July 2015, my 12-year-old SUV, with 220,000 miles, finally breathed
its last breath. It was time for me to buy a new car. But, instead, I decided
to try a little personal experiment with the “sharing economy.” Based on a
back-of-the-napkin calculation, I determined that it might actually be cheaper
to completely outsource my driving to Uber (or its competitor, Lyft).
Using a
source like Edmunds.com, it’s easy to find out the “true cost of ownership” of
any car you might have your eye on. Looking at comparable replacement vehicles,
my “true cost to own”– fees, fuel, insurance, maintenance and repairs – was
around $4,000 annual, not even counting the actual cost of the car. $4,000 is a
lot of Uber rides! I wondered: could I completely outsource my driving and come
out ahead? I decided to conduct an experiment for three months, chart it all
out on a spreadsheet, and test my theory.
That was almost 14 months ago, and I can report that,
as of today, I don’t own a car. But recent stories about
Uber’s $1.27 billion loss in
the first half of 2016 caused me to wonder whether my outsourcing provider will
be around for the long haul. And that got me thinking about some of the other
lessons I’ve learned about outsourcing, which may be helpful to pass along.
So, if you’re company is thinking about outsourcing
any of its basic functions, here are some things to think about when evaluating
your choices.
In
Calculating Your Cost Savings, Make Sure You Count All Your “Costs Avoided”
Some of my costs savings from outsourcing my driving
are obvious –fuel, insurance, maintenance and repairs. I work in the urban
core, and parking is not cheap, so I factored that in too. But I hadn’t
considered all of my avoided costs. It hadn’t
occurred to me that the money I would usually tip a valet to park my car at a
restaurant, or to feed the meter at my dentist’s office, was now going to stay
in my pocket. If a roundtrip to the dentist in Uber costs me $11, but it would
have cost me $5 to park, then my Uber trip actually cost me $6, not $11. These
little extra “avoided costs” might seem trivial at first, but they can add up
over time. In measuring the pure dollars and cents of a potential outsourcing
relationship, make sure you count everything you can count.
In
Measuring the Total Benefits, Remember that not Everything is Easily
Quantifiable
Some benefits of a great outsourcing relationship
cannot be easily measured. For instance, since outsourcing my driving, I get
immediately to work every day when I get into my car – answering e-mails,
checking and making adjustments to my calendar, or making phone calls. The same
is true for my trips home. My round trip to and from work every day is roughly
17-20 minutes. That’s 20 minutes every day that I am no longer spending at my
desk. It has become some of the most productive time in my day. It’s not an
easy thing to measure, but it’s a definite benefit to outsourcing my driving.
And there is another thing that I never considered –
which is that outsourcing my driving definitely makes me feel less stressed. I am much more relaxed
when I get to the office and when I get home than if I had fought even a little
rush hour traffic in either direction. This is a definite benefit of the
arrangement, even though it’s tough to measure. The point is to think about how
you might measure the intangibles of your outsourcing arrangement. Customer
satisfaction surveys to your users, for example, might be a way to capture data
that you can’t necessarily count.
Does Your
Vendor Provide a Way to Constantly Measure and Control Quality, of Even Better,
Allow You to Do It?
One worry in every outsourcing relationship is
quality. Will my vendor’s quality be as good as if I kept control of this
business function myself? One “must” in every outsourcing relationship is the
ability to measure your vendor’s quality constantly, report any quality issues
in real time, and seek redress immediately. As an example, Uber allows riders
to rate every ride (1 to 5 stars), immediately after the ride has ended. In
fact, it’s impossible to order another ride until you have rated the previous
ride. If you have a bad experience, and you rate a driver as “1 Star,” Uber
will ask you to provide additional detail.
Uber acknowledges every poor rating within minutes, provides
follow up with a personal customer support rep within the hour, and empowers
its customer support reps to offer ride credit to address any legitimate
customer gripes. In addition, Uber follows up with every driver regarding every
low rating and notifies the driver of the reason for the low rating, as
reported by the customer. Low ratings related to safety are cause for immediate
deactivation of the driver.
And an average driver rating of less than 4.6 will
also lead to deactivation. (The driver can be re-activated if he or she
completes additional customer service training.) This is “gold star” quality
assurance, and nearly every outsourcing vendor can put similar quality controls
in place.
In addition, you should encourage your vendor to
increase its quality assurance, and give you opportunities to “take back
control” of quality assurance. For instance, in some markets, Uber has rolled
out a service called “Uber VIP.” It is only available to Uber’s best customers
(riders who ride at least 10 times per month). The service provides for “VIP”
riders to solicit rides only from Uber’s highest-rated drivers. The rides are
slightly more expensive, but it is a way to put control over quality back into
the hands of the customer.
Maintain
Flexibility to Terminate Your Outsourcing Arrangement at Reasonable Intervals
Perhaps one of the best things about my relationship
with Uber is that, if at any time I decide I don’t want to outsource my driving
anymore, all I need to do is go buy a new car. No contract to terminate, no
hard feelings, no layoffs, nothing. Most commercial outsourcing arrangements
don’t have such a “no-strings-attached” characteristic, but you should still
consider and build into your contact the ability to get out of the contract –
at least at reasonable intervals – if you decide to go another direction.
Different arrangements are easier to get out of than others, depending on what
function you have outsourced.
If your vendor has made a significant investment
in taking over your IT function, it’s fair for the vendor to have some
guarantee that it will be able to recoup its investment and make a profit if it
does a good job. But you should go into every outsourcing arrangement with an
eye toward how you’re going to get out of it if it doesn’t work out, or if
changes to your business require it, and build reasonable exit opportunities
into your contract, even if it means that an early exit may cost you some
money. The freedom to get out of a relationship that isn’t working for you anymore
is something that you want to preserve, even if the only way to preserve it is
to agree on the front end that you have the right to buy your way out.
There are probably a hundred other “dos and don’ts” to
think about in regard to any outsourcing relationship. (Here’s a link to at least 15 more.) Outsourcing my driving has been
a fun experiment, but you don’t want your decision to outsource a major
function of your business to be experimental. Do your due diligence and explore
as many possible ramifications as you can, in advance. It’s always a good idea
to look before you leap.
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