Surviving today’s business environment has become more challenging than ever. Unpredictable events and global competition combined with more educated and demanding clients make flexibility and adaptability paramount to success. If you are an entrepreneur or small to mid-sized business owner, it is highly unlikely that you possess all the skills necessary to build your company, grow your business and dominate your marketplace. Outsourcing is one way for companies to manage uncertainty and ground their business in any environment bull or bear.
Companies that use outside talent to perform certain job functions used to be associated with downsizing and financial difficulty. Today, the drivers are more strategic - associated with positive re-engineering, innovation and growth. Outsourcing is no longer about cutting costs and saving money it is about how to do things quicker, more efficiently, getting to the market faster than your competitors, maximizing workforce flexibility and gaining access to highly qualified employees. As a result, outsourcing is becoming one of the most significant business trends of this decade.
What is Outsourcing?
Outsourcing can be defined as the strategic use of outside resources to perform business functions or activities traditionally managed by internal staff. Companies that outsource seek to reduce costs and gain efficiencies by leveraging the talent, technology and expertise of third party vendors whose products or services compliment their own core competencies and become valued business partners.
Some of you might say, ˜companies have always hired outside contractors to level-off peaks and valleys in their workload. Although this is true, the difference between outsourcing and supplementing internal resources with sub-contractors, is that outsourcing usually involves internal restructuring and hiring a third party provider, usually a small company that fulfills all the requirements of the host company’s non-core functions.
What is the difference between a core vs. non-core function? A function that is core to a business distinguishes it from its competitors and contributes to its bottom line. A non-core function may be critical to a business but does not directly contribute to shareholder value or the company’s ability to compete in the marketplace. An investment firm’s core functions or capabilities for example, include its investment strategy, methodology and analytics software. Benefits administration, payroll and accounting may be critical to their business but do not add value to their bottom-line.
We may not realize it, but many of us outsource in our personal lives all the time. For example, maintaining one’s health is a high priority for many of us. However, how wise would it be for you or me to attend medical school, dental school veterinarian school (for those of us with pets) to meet all of our health needs? Thankfully - most of us rely on medical professionals. Likewise, you might know that your car needs servicing, and although you might be able to change the oil, how many of us would try to do a brake job or four-wheel alignment. We don’t hire a mechanic full-time, supply him with a full set of tools and set him up in our guest bedroom! The majority of us drop-off our car at a garage and let the experts do the tune-up. The same valuable principles that we practice in our personal lives should be extended to our businesses.
Some of the most commonly outsourced business functions include:
- Order fulfillment
- Accounting/billing
- Information Technology
- Marketing/advertising
- Web design/development/maintenance
- Sales/business development
- Human Resources/payroll/benefits
- Customer relationship management
Why Outsource?
As a marketing outsourcing company, I call upon small to mid-sized companies with limited or no marketing resources. The people that I come into contact with are primarily CEOs and Marketing Directors who by nature, are very smart, highly motivated and multi-talented individuals. Often times I am asked, ˜why should I outsource when I all ready have a marketing department, can hire a full-time employees, or sometimes, do it myself?” My answer is, “You can, but do you really want to? Would it be cost effective?”
Say for example, you have a great idea or product concept - but don’t have the necessary resources or expertise to make it happen right NOW. Should you wait? Add staff? Reprioritize your workload? Experience tells us that the earlier your concept hits the streets, the sooner you can begin generating revenue. The time required to hire and train staff may be out of the question in order to meet your time-to-market goals.
As Bob Dylan once wrote, “The times they are a changing.” Within a very short period of time, the internet has transformed the workforce. Companies that once benefited from collective years of proven experience and industry wisdom are now faced with the challenge of maintaining a highly specialized workforce and evolving technologies without the benefit of decades of experience. Consequently, the established brick-and-mortar businessperson may not necessarily have the skills to conquer e-commerce…the technology expert may be unfamiliar with e-business…and the advertising guru may be unknowledgeable about on-line marketing and email campaigns. Outsourcing to qualified, experienced professionals can be a short-term investment with long-term returns.
As a small business owner, I have often fired myself from work that was outside my area of expertise or was otherwise not well suited for. Although I have helped design and produce brochures and websites, I can’t draw any better than my 7 and 8 year-old nieces and have no desire to learn programming or web development beyond HTML. Instead, I have chosen to stick with my core competencies to grow my business by outsourcing non-essential tasks to the experts. This has allowed me to focus my time and resources on the revenue generating activities and relationship building aspects of my business while at the same time, leverage the talent, technology and expertise of others for the benefit of my company and my clients.
Outsourcing Benefits
Companies of all sizes struggle with escalating costs of full-time employees. Hidden behind paychecks are less visible costs - not often considered in the decision to outsource include: hiring, training, administration, benefits, absenteeism, workspace and equipment. By some estimates, employee expenses account for up to 70% of a company’s overall revenue. In addition to providing sizable financial advantages, outsourcing’s other advantages are:
Expertise Harness the talent technology and expertise of niche providers and leverage best practices. Expert sources who might carry too large a price tag to employ full-time can fit into nearly any budget on a project-by- project or as needed basis.
Management Focus on the core aspects of your business and leave the worries of non-core activities to someone else without having to commit additional managers or your time to manage a project. Outsourcing companies have their own management.
Personnel Flexibility Hire specialists without being obligated to keep them on when they are not needed. It is easier to terminate an outsourced relationship than to layoff off full-time personnel.
Capital Conservation Concentrate financial resources on core business activities vs. investing capital in overhead such as office space, computers, etc.
Time Savings Don’t reinvent the wheel. Someone, somewhere has done it before or developed an easy solution why not use it?
How to Choose a Partner
When you hire an outside service provider, you are essentially choosing a partner for your business. The vendor should work in harmony with your business and have the same type of work ethic and dedication to success.
- Don’t wait until you need help. Now would be a good time to find out about outsourcing resources and who has the kind of expertise your company requires.
- Be clear about what you want outsourcing to accomplish. Communicate projects, expectations, fees and timelines to your vendor.
- Use a company to help you find the talent you need. Check out several companies yourself.
- Look for flexible organizations capable of harnessing many talents.
- Identify people/organizations who have worked remotely before.
- Technology matters. In addition to email, high speed web access, etc - is their technology secure with built-in redundancy in case a file gets lost?
- Price isn’t everything. Ask for referrals and if possible, demo the product or service before buying.
