There’s a half-joke that trolls round my office: “You cannot do it? Outsource it to the guy next to you!” Well, I agree, this doesn’t quite mean outsourcing but rather passing the buck, yet it works like charm at times!
To state things straight, it’s a world of interaction we live in and businesses often need to outsource tasks that can be done cheaper and better by specialized third parties. How to know if outsourcing is a go for your business?
This is quite a delicate matter, even though almost every company or professional has experienced outsourcing at some point, especially when starting up. Some businesses choose to outsource narrow processes such as billing, while others externalize large sections (customer service is among the most common task here).
Most of the outsourcing pros affirm that it saves time and money, but in order to do it right and not achieve the opposite effect you should analyze some nuances.
First question for you: How wide is the task you want to outsource? A few parameters to take into account: number of people involved from your side, time and resources demanded. Before deciding to outsource, it’s always a good idea to create a formula to quantify your costs and benefits and to prove you that outsourcing has a long term benefit rather than short term – don’t hesitate to use your own variables to reach a conclusion. Obviously, saving costs should not be the sole purpose of outsourcing.
Types of Outsourcing
I like to refer two types of outsourcing:
– Micro-level outsourcing – this doesn’t involve people, but tools that are remotely hosted and paid for, that can automatize various processes and actions of the business. For example, you can set a WYSIWYG builder to create a portion of your website that needs to be done quickly, instead of deploying the feature on your own, which is likely to take time and shift focus of your developer from the real priorities.
Outsource platforms safeguard important functions for both the business and clients. If you are a NPO, you will certainly find a lot of companies that outsource services pro-bono.
– Macro-level outsourcing – this is where contracts and external specialists are implied. This also involves hiring freelancer professionals for various processes of the business. There are various types of outsourcing at this level, among which the most popular are: Business Process Outsourcing (BPO), Knowledge Process Outsourcing (KPO), Legal Process Outsourcing (LPO) and Recruitment Process Outsourcing (of course, RPO).
The most frequent processes that are outsourced with external specialists are finance and accounting as well as client service for the BPO, consultancy and research for the KPO, juridical services with LPO and human resources for the RPO. The nature of the services largely depends on the field of the outsourcing stakeholder – one may ask for a wide range of processes to be handled externally, or for a specialized matter.
Outsourcing usually brings important benefits:
– Cost savings – this involves offshoring (companies recruiting workforce from abroad mainly for the reason it’s cheaper). For some it’s a necessity, for others just a business decision to maximize profit. Many large companies were forced by the recession to cut down costs and chose outsourcing by necessity, which stirs lots of controversies nowadays.
– Focus to core business tasks – the company may fuel investment and people’s force onto main processes of the business, leaving aside the non-essential energy consumers. Outsourcing raises the predictability of variable costs, which is another benefit.
– Quality increase – outsourcing provides access to both technology (logistics that the company could not afford by itself) and knowledge (skills, intellectual property). This enhances the in-house ability for product innovation and boosts the image of the company from customers’ perspective.
– Contract and other legal advantages – externalized services imply having a legally binding contract that offers the possibility of applying penalties and special conditions. Also, tax incentives for hiring outsources in some countries can be remarkable.
– Scalability – you won’t have to worry about temporary decreases in productivity, the outsourced company will usually be able to manage such fluctuations and integrate positive deviations too. This is a main advantage of having an external workflow.
– Liability – companies developed on a lot of ramifications often transfer liability over some concerns that are outside their core competencies to outsourcers.
– A fair open schedule – you hear a lot of talk over the work-life balance and how to optimize it. Well, outsource some of your leg work and it’s achieved!
When to Outsource
There are various concerns regarding outsourcing, as it’s an important decision that will potentially shift your business processes. They are not decisive issues, but it’s important to anticipate the risk in order to minimize it. Main issues of outsourcers sound as following:
– “I won’t be able to supervise things as I do with my in-house workers.” Distance and time zones can be obstacles for exchanging feedback, so it may be less frequent than for internal processes. There are various software solutions for communication and employee management that will help you overcome this (VoIP, instant messaging, time tracking software such as Paymo, cost and schedule assessment tools).
– “I fear my outsourcers are not as qualified as I would like.” Get to know outsourcers’ skills, expertise and know-how, also be willing to spend some hours training them in matters of your company in order to achieve the best results. This way you won’t have surprises and you will share the responsibility in case something goes wrong. Why do that when it’s easier to cancel the contract and maybe ask for compensation? Well, maybe it’s just me, but it’s more ethical to share responsibility, plus you won’t waste time in finding another outsourcer each time, and another, and another…
– “I have doubts over the quality of the service.” This is legitimate. While it’s clear that in most cases outsourcing is cheaper than hiring in-house personnel, you should take into account the level of quality provided by the third party – if it’s poor, outsourcing will cost the company more than anticipated and won’t be a viable solution. You should perform frequent customer satisfactory surveys to monitor the quality level of the outcome.
– “My employees feel threatened by my decision to outsource.” In-house workers may feel insecure when hearing they have an outside “competitor”. The best approach is to keep your people positively motivated. Give incentives and explain them that you outsource the work that would have otherwise made their lives hard.
In conclusion, to be or not to be outsourcing? After presenting the pros and cons, I will come with a straight recommendation. You should definitely outsource the following:
– Repetitive jobs that take time and effort, for example paper work (reports and office documents).
– Tasks that are not part of your core competencies and that third party services could handle with proficiency. IT is one of the most popular fields for outsourcing. Coincidentally or not, this domain has some of the most numerous freelancers out there, so there’s a great chance to find someone competent if you sound off a gig.
– Jobs that a big company would manage with no problem, but being a small one you won’t be too good at, even if you decide on hiring. Employees should be coordinated properly, and if you can’t handle that it’s better to outsource. An example is search engine advertising for a small company with online presence.
– Tasks that are above your logistic capacities. Of course, you cannot put up a postal mailing service of your own, but who cares when FedEx exists?
Of course, not to outsource key business matters too. However, if you feel this need, finding a business associate may be more beneficial for you than outsourcing. Imagine a company that’s specialized in printing outdoor advertising to be just passing the printing jobs to another provider, adding an extra fee of their own to the finished product.
Big customers are not excited about working with intermediaries and usually search the market to find the last piece of the puzzle, the business that’s not intermediating. Guess who gains the contract?
Maybe the best approach to outsourcing would be a tailored one. The business owner is in control over the process to outsource and he should decide what to keep in-house – for example, a retail company may outsource its distribution management and keep around the sales promotion force.
In the end, you are the one to answer the main question: “To be or not to be outsourcing?”
Photo by Salvatore Vuono.
Popular search terms for this article:
Thanks for this post. As the owner of a virtual assistant business (http://worldwide101.com/) I can attest to the great benefits of outsourcing/delegating. The key is to be diligent about choosing the right provider – an established company that has a vetted and trusted team with client testimonials and an established reputation. It’s like everything out there — there is the good and the not so good!
In some countries, is very important to use this tool, in that form you can save not only money, also you can save a lot of time, and to avoid to do some mistakes unnecessary. It is important to analyze in which industry is our businesse according with this the outsourcing can be succeed. Companies are looking to apply outsourcing more strategically as a way or tool to increase the level of efficiency, reaching significant cost savings and drive growth.
In nowadays, one of the most important countries in South America is Brazil, it is a new player on the sourcing landscape. All the countries are descovering that Brazil economy’s is strong and growing so fast. Brazil has a robust IT infrastructure, proximity to hemispheric markets, and universities that graduate over 100,000 IT professionals each year, these facts are making Brazil a viable sourcing destination.
You have mentioned some really excellent points. Outsourcing is really important for small enterprises as they help them to grow as they can outsource the administrative work and focus more qualitative work. For larger organizations they help them to manage their work more accurately and efficiently.