When to outsource? The answer is different for different companies. A business may have in-house staff to handle daily activities, but may need outside help to undertake new projects without the expense of hiring a full time employee. When you and your current employees are unable to manage the day-to-day business of your company and build the business satisfactorily, it may be time to consider outsourcing.
Pretty much any task can be outsourced these days, but it doesn’t pay to outsource just because you can. Smaller business tasks like payroll, background checks for new employees etc are easily outsourced and are better off being performed by qualified third parties. However, there are other tasks, which perhaps you don’t want to do, but have to because they are part of your core competencies. Before you choose which functions or services to outsource, you need to take a look at your business and determine your core competencies and capabilities, and keep them in-house.
Before you decide to outsource, bear in mind that while there are a lot of benefits to doing so, there are also risks, which are inherent to any outsourcing business decisions. The way to minimize those risks is with clearly defined objectives and measurable goals. One of these objectives has to be establishing outsourcing targets. Most companies base their outsourcing decisions on one of two things – economic returns or savings vs cost. In any case, the underlying reason for any company to outsource is the need to focus management’s time and resources on their core competencies. A little research into organizational histories shows that performance deteriorates when a company’s management begins to focus on non core activities, leading to declining profits and lowered productivity.
So how do you go about establishing targets for outsourcing? Conducting an internal baseline analysis, as well as some market research will help. This process will help your company identify internal needs and functions that are right for outsourcing. Here are some tips on how to do that.
- Establish a baseline analysis team that will be responsible for collecting data, analyzing data and preparing summary documents for each function.
- Once the above is completed, then data requirements can be defined to understand the current functions and determine the company’s current requirements. When these have been identified, the management team has to sign off of them.
- A baseline model, which is an analytical tool, should be developed at this stage for each process considered a candidate for outsourcing. This involves collecting data about processes and projecting costs.
- Now that you know which functions can be outsourced, you need to evaluate the outsourcing companies, which are your service providers. This is done by basic market evaluation wherein potential service providers are identified, presented with requests for information (RFI), and evaluating their responses so you can conduct due diligence.
- Finally, the team can determine the feasibility of outsourcing the specific functions that have been signed off on, including identifying those which will meet the company’s financial returns or savings objectives. Your company is then ready to outsource.
There are multiple benefits and cost savings that come with a successful outsourcing strategy. Companies receive access to process improvements, expanded talent pools, improved focus on their core business, among other benefits, when they outsource to the correct partner.