How to Make Outsourcing Work in Your Favor, and NOT for Your Competitors
Without a business plan, you won’t know the first step to take to achieve success as an entrepreneur. Without a career plan, you won’t know how to map your journey from a rank-and-file employee to a top-level manager. All these examples show that Antoine de Saint-Exupéry was right. A goal without a plan is just a wish.
And, if you’re thinking of outsourcing, then a strategic plan is essential. A plan will help you figure out how you’ll recruit the right people, delegate and schedule the work, measure the performance of your staff, and find ways to get the job done and save costs at the same time.
Figure Out Which Tasks to Outsource
At this point, you already know you need to outsource. There’s no question about that. So, now you’ll be asking yourself: what kind of tasks can I outsource and which ones do I retain for my current employees? To be sure, an outsourcing matrix can help you with your decision-making process.
The matrix is made up of four quadrants based on the different types of work or tasks that your organization does.
Tasks that belong to the first quadrant are those that you can hire people to do but you’d rather not keep in-house because you lack the needed resources. But, these tasks can help you form long-term mutually beneficial partnerships with other businesses. These tasks can be outsourced either onshore, nearshore, or offshore.
Tasks in the second quadrant consist of your company’s core competencies, which you should retain. These tasks require industry-specific knowledge and experience. They’re usually the kind of work that only your employees and top managers can do. For example, meeting up with potential clients or giving customers a live demo of your product.
Do a Core Competency Check
Ask yourself the following questions:
- Does activity need highly specialized design and manufacturing skills?
- Does the activity have a high impact on what customers perceive as the most important product attributes?
- Does the activity provide potential access to a wide variety of possible future markets?
- Is activity difficult for competitors to imitate?
Tasks in the third quadrant have become obsolete, redundant, or unnecessary to your operations. Some of these tasks are probably done now by machines or AI. Other kinds of work, such as caregivers watching over your employee’s kids while their parents work, can be eliminated by raising the salaries of your people, so they’ll have the money to pay for a babysitter or for a daycare center. Many of these tasks don’t contribute to the bottom line of your business.
Tasks in the fourth quadrant are the most obvious choices for outsourcing. They usually require large teams doing low-level work or supplementary groups of people who can provide technical or creative support for your current staff. These tasks are better off outsourced because you’ll be saving money in the long run.
When Should You Outsource?
One way of knowing what’s the right time to outsource is to perform a cost-benefit analysis (CBA). In your computation, you take into consideration all of the costs associated with outsourcing, including unexpected costs and opportunity costs. Then, take into account all the anticipated benefits of outsourcing, and assign monetary values to them. You’ll understand more clearly how to do this analysis after reading the following resources:
- Writing a Cost-Benefit Analysis by Bright Hub Project Management
- Cost-Benefit Analysis by MindTools
- Performing a Cost-Benefit Analysis for Dummies
- Introduction to Cost-Benefit Analysis by San Jose University Dept. of Economics
Your CBA should include the present values of your costs and benefits, and the rate of return on investment for your outsourcing activities. A cost-benefit analysis reduces the positive and negative impacts of outsourcing on your business to their equivalent monetary values. By comparing these values, you’ll be able to gauge how worthwhile your decision to outsource will be. Perhaps, it’s too risky for you to undertake.
Factors to Successful Outsourcing
Low labor costs are a thing of the past. Businesses outsource today not just because they want to pay less for labor, they want to increase the value of production by hiring skilled and experienced workers, and moving their production centers nearer to their target markets. So, time-to-market is reduced as well as production and labor costs. And, most importantly, businesses can sell their products and/or services at lower prices compared to their competitors.
According to The Balance, the following are critical areas that you should focus on managing efficiently and improving to have a successful outsourcing strategy:
- Clear company goals and objectives
- A strategic vision and plan
- Vendor selection
- Relationship management
- Properly structured subcontract and vendor agreements
- Open communication that affects stakeholders
- Senior leadership support and involvement
- Careful attention to employee issues
- Short-term financial justification
Outsourcing initiatives should come from top management. Without their support, your outsourcing strategy may not work out the way you planned it to and you’ll likely fail in your endeavor. It’s also important that everyone is on the same page. A service level agreement is not enough; a contract should be signed by both parties to formalize your relationship with your outsourcing partner.
The Role of Senior Management in Outsourcing
Your organization’s senior management must be involved in the implementation of the outsourcing plan from start to finish. Your managers should clearly define the workflows and systems that you have in place, the procedures for escalation that you follow, and the ways you can scale up to accommodate changes in the market and when your business grows.
You and your managers should meet with the outsourcing provider regularly to discuss how to work out your strategy, and whether the staff has been hitting the performance and quality metrics you’ve agreed upon. Regular meetings also help in identifying issues as early as possible, and resolving them before they escalated from bad to worse. This proactive approach to managing your outsourcing will ensure you get what you wanted out of your business strategy.