Introduction
"A man is rich in proportion to the number of things he can afford to let alone"
-Henry David Thoreau
What is Outsourcing?
Outsourcing refers to the process of subcontracting to a third-party.
There has been a lot of discussion about outsourcing in recent years. The flat world order let you outsource work to any part of the world, leading to offshore outsourcing.
In the late 20th century, enterprises explored offshore outsourcing to gain competitive and strategic advantage. In the early 21st century, Internet made the world smaller, hence reducing the complexity of cross-border business, thus bringing it within the reach of small and medium sized businesses.
On another thought,
We have been outsourcing for ages. We outsource our house maintenance work to plumbers, carpenters and electricians; food to the popular restaurant down the lane; parcel delivery to the postal service; etc.
Therefore Outsourcing is a fundamental business process, i.e. division of labor, leading to specialization.
Why Outsource?
Outsourcing is an important business decision. Therefore it is important that you properly evaluate your needs. Some reasons why
you may want to outsource are listed below:
- You have more work than you can do on your own.
- You do not have the skills or experience to do a specific task, and you do not want your existing client to talk to a competitor.
- You do not have an optimized process framework to do a particular task or project. The same can be done by an outsourcing partner more efficiently and effectively.
- You want to optimize your profits by reducing your costs.
- You want to bring agility to your dynamic business by converting fixed costs into variable costs.
- You want your team to focus on your core strengths and future strategy, while outsource tasks which are no longer key differentiators in your industry.
- You want to diversify as your business evolves, but also keep your existing business and revenue stream intact.
Here is when outsourcing does not work!
- Outsourcing may not work for everyone and in every situation. Some situations when outsourcing may not be a good solution are:
- The time and financial investment required to set up an outsourcing relationship is not feasible due to time constrains and the ROI that the relationship is expected to deliver
- The talent required to deliver your service is unique, and is not easily available outside your organization
- Your rates are not high enough to ensure profitability for you and your outsourcing partner
Before you outsource
Identify your outsourcing needs
Before you rush into outsourcing, take the time to think through some fundamental questions:
- What is your business strategy?
- What sets you apart from your competitors?
- What are your business processes?
- What is your core process?
- What resources do you have in house?
- What are the costs of doing these processes in house?
- Which processes can be outsourced?
- Where can the process be done the best and the cheapest?
- Who will manage the outsourcing relationship from your end?
- What are your expectations from your outsourcing partner?
- How will you measure and communicate results with your outsourcing partner?
The three levels of outsourcing
Outsourcing can happen at three different levels.
1) Outsourcing a task
When it is essential to have direct control of the project, you may outsource some or all the tasks, while managing the project in-house.
Here you may be looking to reduce the cost or bring in special capabilities to effectively and efficiently execute the project.
Example:
- Design to XHTML conversion
- Blogging, Article writing
- Link building
- Testing a website
- Resolving support tickets
- Telemarketing
2) Outsourcing a project
When you have a well defined project scope and an agreed upon process and deliverables, you may outsource the end-to-end project delivery.
Here, your outsourcing partner provides the project management services where you bring in consulting and customer relationship management capabilities.
Example:
- Web site design
- Ecommerce site development
- Web application development
- Search Engine Optimization (SEO)
3) Outsourcing a process
You can also outsource an entire process, i.e. a set of related tasks from every project. This enables a company to let go off an entire non-strategic activity.
It is important to decide the task, project or process you wish to outsource based on the above mentioned pointers.
