To outsource, or not to outsource

I was asked recently by a CEDIA group of integrators for my input on their topic of the month which was outsourcing. This interest in the topic sparked my curiosity and I decided with the kind permission of my editor to put together a series on outsourcing. Initially, to give some insight into this topic I have documented the questions put to me and the responses I came up with.

The first question on outsourcing has to be what can you outsource?

If you currently have an accountant, web designer, or even just a cleaner you are already outsourcing. In this day and age, you can pretty much outsource every element of your business. In fact I know of a number of companies in the US who only deal with clients and sales in house, everything else is outsourced, including System design and proposals, design documentation, procurement and warehousing, project management, all phases of installation, rack building, all testing & commissioning, programming and last but not least servicing.

The next question is what are the things you should not outsource?

It’s important to keep your core business competencies that differentiate you in house, things like client liaison & sales for example. You should also avoid outsourcing things such as legal compliance and health & safety policy.

Now that we have established what you can and can’t outsource the next question has to be why outsource?

Well, the obvious reason is lower costs, assuming that outsourcers can do the work for less than you can do in house. There are also corporate tax benefits to be had when working with outsourcers

But the bigger benefit is the time that you free up, which you can invest in better customer experiences. This leads to higher customer retention and a greater number of referrals because you are more client focussed.

Outsourcing can also improve your scalability as there is no need to add staff and therefore costs to grow. The reverse is also true if you need to shrink to fit external economic forces.

Finally, there is the benefit of fixed costs. Most companies providing outsourced services will work on a fixed contract price, which makes it much easier to know your bottom line.

Having looked at why you should, we must also consider why you might prefer to avoid outsourcing:

It’s possible that your employees could feel less secure with lots of outsourcers invading their workplace.

Outsourcers also tend not to have the same ultimate responsibility to the company as your employees do.

It’s always good to know who you are working with: I have heard of cases where initially you speak to the business owner of the outsourcer only to end up working with one of the newest members of their team.

Finally, you may find that ownership of deadlines can be a hard thing to pass on to outsourcers.

Next, we should consider what the costs of outsourcing are?

Here is how one of my clients explained how he approaches the costs involved in outsourcing and the decisions on what to outsource:

Firstly you need to calculate how much an hour of your time is worth.

If you have a business and don’t know this, it’s very easy to work out. Take the money you make per annum and divide it by the number of hours you work a year. Then ask yourself, is what I need doing within my skill set, if it isn’t you are probably better off outsourcing it. If the task in question does fall within your skill set, try to work out the time that you need to complete it and then multiply this by your hourly rate. If the total for you to do it is cheaper than someone else doing it then there is no reason to outsource. If on the other hand, it works out more expensive for you to do the job, then consider outsourcing it.

This client went on to tell me that they actually pre-qualify their customers by whether they outsource or not. For example, if a potential customer doesn’t have a gardener, cleaner & someone who does their laundry they are probably not a good fit for them.

So that’s my introduction to the outsourcing column, next I’m going to look at some fascinating examples of modern outsourcing, some of which you probably didn’t even realise are outsourcing services, stay tuned!

Read on HiddenWires

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