Outsourcing: Is It the Right Choice for Your Business?

Outsourcing can be both good and bad for a company. So just how do you decide if you should outsource; and if you do decide to, how do you pick the right partner? This post attempts to answer these questions.

BY: ERIC GOLDMAN ON MONDAY, MAY 13, 2013
Outsourcing: Is It the Right Choice for Your Business?
According to Wiki, outsourcing often refers to the process of subcontracting to a third-party. Outsourcing can yield significant cost savings, dramatically improve performance all round; or, in some severe cases, the loss of a company’s core competencies which in turn caused the company to fail.

So just how do you decide if you should outsource; and if you do decide to, how do you pick the right partner? This post attempts to answer these questions.

The idea of outsourcing is not new – many companies, for example, routinely outsource website development, or accounting functions, or hire marketing or advertising agencies. In other words, for a long time we have been hiring task experts to do these specific activities or jobs for us.

In general, there are 4 reasons why a company outsources:

  1. Flexibility when there’s not enough work for a full time position. You can hire part-timers, of course, but often it’s easier to contract with a 3rd party as the number of hours can then be adjusted to fit the work needing to be done. Part-time employees are hired for specific amounts of time per week, and as they rely on their paycheck, they are not usually keen to have this reduced (and sometimes unwilling to increase their hours either, because of the impact on their lives).

  2. The skill level needed for the task is high or rare. Again, this doesn’t mean you can’t hire people with these skills, but it usually means you can’t afford their expertise for more than the length of time needed for this project. And sometimes these rare or highly-skilled people enjoy the varied work which consulting brings and won’t work for just one company because it’s too “boring”.

  3. Your company lacks the skills needed now, but recognizes that they should be a core competency. In these cases, you can hire experts to train your people and bring them up to speed quickly. For example, take something fairly simple like reception duty. If you’ve never hired a receptionist before, don’t know much about what they do or how they do it, you can hire a temp. And then perhaps another and another, until you can pin down what qualities you admire in a receptionist, or those which you don’t find attractive. Now you know enough to write a good job description and then interview and hire that perfect receptionist.

  4. Save money – this is tied to the first two points in one sense, but using a high level of skill often produces a better result more quickly. In other words, experts – the really good ones, deliver a high ROI.

And so to the reverse, when should you not outsource:

  1. If the task lies within an area of your core competencies. Not so easy to determine this, and doesn’t remain entirely static either, as your competencies change over time. But having said that, however, most companies know what they do to earn their bread and butter, right? And so any skill that relates to this essential core activity is not something you will outsource. If you build something, for example (be it airplanes, cars, houses or computer software), then you must ensure that your skills for doing just that are the best in the industry.

  2. In practice, there are some tasks which fall into a gray area. For example, imagine an ad agency which is beginning to do a fair amount of digital media work. Should they hire digital media experts, or should they contract with a digital media company to do the work? The best way to answer this question is by going back to the 1st principles concerning core competencies. If the agency intends to transform itself into a digital powerhouse, then the ability to work with digital media must be a core skill.

And now that we have some idea of when and when not to outsource, just how do you make sure you’re getting a good partner when or if you do? To some extent, the reason for choosing one supplier over another depends on the job in hand, but here’s my top 5:

  1. The company has the right people to do the job. Not just people with the right skills, or the right levels of those skills, but the right availability, too.

  2. Price. This may not be easy to calculate: some companies quote fixed prices for the job, others an hourly rate. And, of course, one person’s output of work in an hour is not often the same as another’s. But you do have some control here. As the client-to-be, you can ask for clarification. For hourly quotes it’s acceptable to ask for an estimate of the total job. Some companies will even provide an estimate with a ceiling. And it goes almost without saying that if the company can’t estimate the job to your satisfaction, they aren’t the experts they say they are.

  3. Reputation and or references. The company should be willing to provide references and/or valid case studies demonstrating its cost advantages to you.

  4. The company’s take on process. How will they take you on as a new client? For example, how do they find out about your needs, your objectives in setting up the contract and, perhaps most importantly, how do they establish the metrics you will use to determine success or failure?

  5. In what way will they do the job? On your site, on theirs, how will they report the results back to you, what kind of input will you have during the job? How much feedback will they accept on each deliverable, will they change anything if you’re not happy?

About the Author

Eric Goldman

Eric Goldman is the President and Founder of Gossamar, a business designed to help people grow their businesses profitably and with predictable, planned success.  He has been involved in B2B Marketing and Selling for more than 30 years and his business acumen covers 5 continents, spans many countries and has been derived in a variety of markets and industries.

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