Outsourcing

Outsourcing Overview

In today's business climate, companies are looking to other parts of the world to leverage talent, infrastructure, innovation, and agility – in addition to more attractive personnel costs. After all, technology has enabled this globalization, and further, technology has helped to erase any sense of geographic distance among both people and industry. In fact, the practice of outsourcing has infiltrated every facet of business, and some of the largest companies in the world rely on outsourced partners to deliver complex and critical services and products for customers and the companies themselves. While many businesses have been able to reap the rewards of outsourcing, other companies have experienced the heartache and disappointment of outsourced projects that have ended poorly.

While outsourcing may be the answer to many organizational challenges, outsourcing is not – by all means – a sure-fire solution. Outsourcing is a venture that cannot be taken lightly as it requires investigation, diligence, governance and refinement. Outsourcing involves a commitment, not only in the initial stages, but through the entire lifecycle. Thus, in order for outsourcing to succeed, a company must have a clear plan, select the right partner, and govern the relationship with very explicit documentation and communication. When executed properly, outsourcing can generate tremendous success on a number of levels, and it can most certainly allow businesses to extend capabilities and profit.

That said, at a high level, outsourcing poses a challenging predicament. Outsourcing requires an organization to select a company from a sea of many unfamiliar vendors, and to entrust the chosen company with processes or products that may be critical to that particular business. The outsource partner may be continents away, may never be seen face to face, and may not even share a common language with your organization. Also, to complicate matters, your outsource partner may know nothing of your business or of the clients the outsourcing company is proposing to help serve. As a whole, this situation can make for a very tenuous arrangement that can be steeped in anxiety and uncertainty. The key to success with outsourcing then is to overcome these gaps and build a foundation of understanding and explicit expectation. Establishing a clear objective that outsourcing will serve for your business is a great beginning to this process.

The Drivers of Outsourcing

Since the reasons vary greatly from company to company, it is extremely important to understand the factors that may motivate a company to consider outsourcing. Identifying why your particular organization should outsource will also help to bring a focus to the endeavor, and it may also help to develop an underlying corporate objective that your organization can work towards.

Agility and Efficiency

Working with outsource partners means that your organization will gain access to specialized skills when these skills are most needed. This on-demand labour model can give companies increased agility and speed to market, without the persistent overhead costs of often underutilized internal employees. Moreover, reducing the under-allocation of salaried staff directly increases the efficiency and profit margin of a business. Additionally, outsourcing allows the internal resources of an organization to focus on other pressing business needs – in turn potentially allowing multiple critical projects to be executed concurrently.

A lack of internal skills or infrastructure

Most companies are continuously seeking new sources of business and revenue, which means new opportunities are very rarely ignored, even if these opportunities may fall outside the core competencies of the organization. After all, if a business cannot meet a need in the market, a competitor will identify a way to meet this need, and leave the pack behind. In order to keep up with the competition, businesses must continuously evolve through ongoing research, development, learning and growth. This cycle can be very expensive, and when the skills and infrastructure a company requires exist within another organization, a case for outsourcing exists. Leveraging the experience and skills of an external company without having to invest in learning or the development of new infrastructure is a major driver of outsourcing.

Costs

The overhead associated in keeping a business running can often make providing specific services and products cost-prohibitive. This situation can be particularly true in unstable and changing markets that push prices beyond what the market is able to bear. Reduced labour or material costs in other geographic locations, however, can allow a company to continue to provide the same services and products – more effectively – at a competitive rate. Note: Outsourced projects typically require an increased allocation of internal Project Management time. Therefore, you should factor these costs into the budget of any outsourced project.

Business development opportunities

Forging relationships with companies that can support your business can also result in opportunities to reciprocate referred business. If your outsource partner is located in a different part of the world, that company may be able to introduce you to an entirely new market – along with a complete new set of clients. Explore the possibilities that exist and talk to your partner about how you can help each other grow your respective businesses.

Thus, there are many compelling reasons why outsourcing may be the right solution for an organization. However, your organization should not pursue outsourcing blindly. Understanding why outsourcing can be the right choice for your company will help to reinforce your outsourcing decision when challenges may arise. That said, you should have conviction in your outsource model – and remember that commitment is paramount to long-term gains.