When Is An Outsourcing Strategy Right For My Business?

When to Outsource? 8 Questions To Ask Yourself if You Are Thinking About Outsourcing

To many business leaders, outsourcing may seem like a great solution to just about any problem.  Indeed, leveraging outside resources and expertise can certainly enable you to fix issues and to keep your business thriving.  However, outsourcing and offshoring typically require a lot of up-front planning, coordination and analysis on your part to ensure it is the right thing for you.  So when is sending work outside a viable option?  When should you outsource something and when should you not?  Let’s take a closer look at when outsourcing is a good strategic move by asking ourselves 8 simple questions.

When to Outsource… And When To Not

Whether you own a local pet supply shop or you are running a multinational corporation, outsourcing plays an important role in running a smooth business these days.  After all, there are a number of challenges that can be solved by outsourcing and offshoring.  In addition to the usual cost savings opportunities, here are five other reasons why outsourcing can be a good strategic decision:

Strategic Benefits Gained By Outsourcing Part of Your Operation:

1. To focus your resources on what you do best
2. To fill gaps in internal capacity
3. To insert expertise into your business
4. To save time by working activities in parallel
5. To remove administrative waste

All of these potential benefits are certainly possible following a calculated and strategic analysis.  But, sending work outside your organization is not a guaranteed win for you. It takes a thorough evaluation on your part to ensure you will actually realize the benefits that outsourcing can offer.

Typically, when you have time to plan, prepare and carefully consider alternatives, externalizing activities can provide benefits.  This is particularly the case when you can anticipate a temporary, cyclic or specialized need.  Conversely, if you find yourself in a situation where you need immediate help for the short-term, it’s probably too late to benefit from sending work outside, or it will be extremely expensive to do so.

Before jumping into an outsourcing arrangement headfirst, take a careful look at the situation. Here are 8 thought-provoking questions to ask yourself that will help you determine where, how and if outsourcing is a viable option for you.

1. Are Employees Constrained by Administrative Overload?

When you look at your business and how you might be able to benefit from outsourcing, look first at administrative burdens.  If critical skill holders are bogged down by tasks or activities that take time away from their prime responsibilities, outsourcing can be a great way to pump efficiency back to your organization. Consolidating administrative tasks and offloading them can eliminate wasting the time of your highly skilled people.  A few examples can include things like filing expense reports, large scanning and printing activities and data entry.

2. Is Significant Effort Required to Get the Other Company ‘Up to Speed’ Or To Ensure the Work is Done Correctly?

Another key question to ask yourself when considering an outsourcing arrangement is what will it take to get someone else to do this work?  If considerable effort is required on your part to get the job done right, outsourcing may not be the best option for you.  For example, do you have to send lengthy list of instructions to the outside firm, or do you need to maintain a lot of oversight to get the other company up and running?  An outsourcing strategy is unlikely to yield benefits if you have to explain the details every step of the way.

RELATED: The Pros and Cons of Outsourcing

3. If Continuous Monitoring and Oversight is Required, Is It Worth The Effort?

Consider a different aspect of time.  Every successful outsourcing strategy must be rooted in efficiency gains – in time, focusing internal resources, or costs.  When your goal is to leverage outside resources as a way of increasing your overall speed, make sure this is truly how the model will work.  If the situation is such that your internal workers will just switch from doing the work themselves to spending that time coordinating information, checking work and answering questions of the outside staff, outsourcing may not be worth the communication headache.  Even if the outside firm will cost you less on paper, you will pay a lot in the hidden efficiency losses when significant oversight is required.

4. Will Logistics Alter The Benefits of Outsourcing?

Despite how it might appear on the surface, outsourcing can actually be a major logistical challenge in some instances.  Is shipping partially finished goods halfway around the world to take advantage of lower cost labor really cost-effective?  What transactional fees will you incur?  Are there any legal or shipping fees that should be factored into the financial analysis?  What will happen if product is damaged in transit? While outsourcing may still deliver favorable cost gains, logistics need to be part of your financial evaluation.

5. How Will Outsourcing This Work Affect Schedules and Lead Times?

Everyone operation needs time to plan, start, and execute.  Always consider as part of an outsourcing strategy the aspect of time and schedules.  In some cases, lead time may not be important for you; whether it takes you two weeks to do it internally or an outside firm 4 weeks to turnaround may be inconsequential.  However, there are instances when time is an extremely important variable.  Introducing an outside resourcing approach may prove risky in time-critical situations.

6. By Outsourcing the Activity, Am I Losing an Opportunity To Gain Valuable Knowledge?

When you outsource work, you run the risk of missing out on learning opportunities.  For example, by outsourcing payroll activities you may miss identifying key trends with staff compensation that you might otherwise observe if you did the work yourself.  Or, if you outsource some IT work to make up for lack of resources, you may bypass an important development opportunity for members of your staff.  That said, if there really is no benefit to doing the work yourself (if resources and skills were not an issue), outsourcing is often a viable option to save time or money.

7. Does the Outsourced Activity Fall Within My Core Competencies?

Be cautious when looking to outsource activities or processes where you have expertise, and instead, consider outsourcing those activities where you do not.  In many cases, non-core activities are actually an extra draw on your organization because they represent areas of inefficiency or skill gaps.  Thus, non-core functions are excellent areas where outsourcing is effective since you’re no longer being bogged down by something you don’t do well.

8. Is This Task Critical to Product Quality or My Company’s Integrity?

Outsourcing critical activities that can affect your customer or product quality need to be monitored closely.  If this is the case, be sure to establish an auditing system or apply process controls to the arrangement that allow you to verify the work is being done to an acceptable standard.  These types of procedural checks serve as a means of retaining some of the control that is lost when you outsource.

Outsourcing: An Effective Strategy When Done Correctly

Make no mistake about it.  Outsourcing is an effective business strategy that can offer cost and efficiency gains in a number of way.  Yet, it is important to analyze each situation carefully to ensure that those gains will become reality.  The last thing you want to do is waste time and energy on an outsourcing strategy that ends up costing you more than if you did the work yourself!

Looking For More Way to Drive Efficiency In Your Business? You Might Like…

7 Ways to Cut Cost in Your Business

How to Effectively Plan For Resources

How to Justify Hiring a Specialist