For many entrepreneurs, knowing when to hire full time workers is a no brainer, but knowing when to get external help is where the problem lies.
So in this unusual article, Stephan is going to outline some vital questions you need to ask and answer to help you know when to outsource or not.
Take it away Stephan!
What Is Outsourcing?
Before we begin, let’s be clear on what exactly outsourcing means:
Outsourcing can essentially be defined as the transfer or contracting of a company’s internal business related processes out to a third party of some kind.
The processes mentioned could be of any kind and the third party could also consist of anything from telecommuting freelancers or specialized third party companies that offer specific outsourced services.
Also, outsourcing does not automatically mean hiring business processes to laborers or companies in the developing world; it could just as easily involve other domestic companies, often in the same state or city. The overseas component of outsourcing can in fact be specifically be called “offshoring” in order to distinguish slightly between the third parties hired.
When Should You Outsource?
So, back to the question: when should your company outsource its key business processes? As your company grows, you know you need to outsource a business process or task when the cost of getting it done in-house exceeds the cost of getting it done externally. The cost being referred to here is both in cash and in time.
For example, the work involved with setting up software, processes and trained employees to run something like a sales process or company accounting systems can become quite high and higher still with company growth.
Outsourcing can dramatically offset this cost factor because instead of doing any of your own process development work, you are just going to pay a fixed service fee for a third party specialist with an existing service infrastructure to handle all the details of the business process you’ve specifically outsourced to them.
This will not only cost you less immediately, it will also cost you less down the road in terms of reduced software or equipment maintenance costs and much cheaper as you scale your business.
In essence, there is a basic calculation you can perform in order to see when outsourcing might be a good idea:
- Simply analyze the per customer cost comparison between delivering a product or service yourself and delivering it by outsourcing sales from companies like Acquirent.com or other processes within your company;
- factor in things like equipment purchasing cost, training costs, implementation time (multiply your or your employees average hourly earnings by the time it would take them to fulfill a given process) and maintenance.
If your results indicate that doing something like outsourcing sales, IT or accounting would be cheaper through an outsourcing firm, then you should go for the cost savings.
Additional Factors to Consider
Moving beyond the above questions of simple cost and expense, you also need to consider some other important factors that should go into your decision making about when and what to outsource.
Ask the following strategic questions and run through their consequences carefully before any specific outsourcing decision is made:
Is the activity or task that you’re thinking of outsourcing a key process that directly affects the primary service or product that your company offers?
If it is, then you should absolutely keep it in-house in order to maintain a strong and knowledgeable competitive edge over others in terms of service/product quality. And if the task is not a key component of product or service development, then yes, you should outsource it, so you can focus more intensely on the core tasks of essential product and service development.
For example, outsourcing sales processes within your company is an excellent way to save time and money on repetitive mechanical tasks since sales is a secondary task that comes after your main product (service development and delivery).
Yet while sales might be outsourced, you should not try to outsource the development and design of something like a software package that you plan on selling, since it’s a core part of your Intellectual Property and product knowledge advantage.
Will keeping a process in-house give you a competitive advantage?
This question is somewhat similar to the previous one above; if keeping a certain auxiliary part of your operations in-house costs more than it gains you in terms of needed control and knowledge, then why do it?
A software development company probably doesn’t need to develop its own entirely internal accounting processes, and if your company sells something like consumer electronics or children’s toys, then you probably don’t need to develop your own internal sales management process.
Is one of your In-house processes a commodity?
By commodity we refer to a process that can easily be outsourced and served by comprehensive existing specialized providers or even software systems which are designed to handle exactly that sort of thing efficiently and quickly.
If any part of your business isn’t a key competitive advantage, then this fits the definition of a commodity, so just outsource it and save yourself a lot of headache.
Great examples of non-core commodity processes are;
- accounting and
- payroll systems maintenance.
All of these can usually be outsourced easily.
Is the Process likely to be done often?
If you occasionally need to handle certain tasks in your business that aren’t needed frequently enough to justify a whole internal training process or tools purchase, then you should also outsource these tasks to more specialized, professional people in order to guarantee a higher quality of work per task. Trying to do complex but not frequently occurring work yourself is more likely than not going to be a waste of resources and time.
You should only outsource when;
- The cost of getting it done in-house is MORE than the cost of getting it done externally.
- The task or business process is NOT directly linked to the product or service your company offers.
- The task or business process is NOT part of what gives your company a competitive advantage.
- The task or business process is NOT done frequently.
About The Author
Stephan Jukic is a freelance writer who generally covers a variety of subjects relating to the latest changes in white hat SEO, marketing, marketing tech and brand promotion. He also loves to read and write about subjects as varied as the idea of a location-free business, portable business management, and strategic marketing and advertising tactics. When he’s not busy writing or consulting, he spends his days enjoying life’s adventures either in Canada or Mexico. Connect with Stephan on Google+ and LinkedIn.