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The Ins of Outsourcing
 

Making the move to outsource functions, such as IT, may be intimidating for businesses the first time around. But it may be cost effective in an economic downturn.
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As the dollar continues to decline and markets remain volatile, businesses throughout the U.S. are looking at ways in which they can save on expenditure and bring in more profits. For some businesses this may involve hiring less staff, restructuring the company or seeking capital, but for many, outsourcing can helps accomplish these goals.

Making the move to outsourcing for the first time can be downright scary. While the number of companies using outsourcing solutions is increasing, many avoid outsourcing because of a lack of understanding of how or when a smaller organization can benefit from this move. Gartner estimates that roughly 90 percent of all new businesses created in the United States are in the small-to-mid-sized sector. As these companies grow and gain momentum, they will realize that they can a) not do it all on their own and, b) achieve the same benefits as larger companies through outsourcing.

When you hear the term outsourcing you may instantly think of a customer service call that is routed to a far-off destination. Think again! Companies of all sizes outsource pieces of the business process, including lead generation, marketing, public relations, information technology (IT), human resources (HR), customer service and finance. Outsourcing involves utilizing third parties for any business process. Offshoring, which is the movement of a business function to another country, is just one type of outsourcing that is often practiced by very large businesses seeking lower cost solutions for large scale operations.

Ask not what your outsourcer can do for you…

One of the most common forms of outsourcing, especially for small-to-medium businesses is business process outsourcing (BPO), or the contracting of a specific task to a third-party service provider. This is often used for business functions like accounts payable and technical support that are necessary for company operations, but aren't the company's core competency or critical to positioning in the marketplace.

While the subject of outsourcing is often debated, it can help companies accomplish not only their critical goals, but keep non-critical tasks off their plate so employees can focus on business drivers. Ultimately, outsourcing is a way for businesses to fill needs externally that cannot, for one reason or another, be filled internally.

Benefits of outsourcing include:

Cost savings: Outsourcing is commonly used within IT departments to reduce costs. Purchasing, maintaining and upgrading technology hardware and software is costly to manage and timely to maintain. 'Hosted' technology – software or hardware that is located and maintained at the vendor's data center for a monthly fee – is a way to have top quality technology solutions, at a lower overall cost to the company. Hosted solutions enable businesses to save money by avoiding an up-front cash investment in the technology and labor time spent by the IT manager through installing and maintaining the technology.

Thought leadership: Outsourcing provides companies with access to knowledge and experience beyond their own walls. Unfortunately we can't be experts in everything, so when looking to enhance your business, specialized suppliers can provide information that helps you achieve business goals, especially if you are facing a daunting project for which you have no internal expertise.

For example, if you are planning to undertake a major system implementation and no one on your team has experience in a project of that magnitude, it may save you time, money and frustration to bring in a project manager who already knows the potential pitfalls. Think about the parallel of legal issues. No one expects the in-house legal counsel to handle litigation or patent applications personally; he or she brings in a specialist who will do a better job. The same logic applies to strategic technology projects: bringing in people with highly specialized experience increases the odds of success.

Increased capacity: Customer service and the IT helpdesk is one of the most commonly outsourced business functions. The ability to service customers 24/7 is critical to the success of any business. Access to additional resources improves a company's capacity to service clients and customers.

Improved competitiveness: Larger corporations typically have access to financial and human resources that smaller businesses do not. Through outsourcing, smaller businesses can access resources and expertise that were at one time only available for larger businesses, and thus better compete in the marketplace. The business world is incredibly competitive and lacking the right technology and resources can hurt a business. In addition to being able to stay abreast of the latest technologies and business trends, small to medium-sized businesses  will have more time to focus on specific initiatives that will enable company growth and prosp

Like with anything in life, there are advantages and disadvantages. Outsourcing provides numerous advantages to businesses that may not have the time or resources to do every business function efficiently in-house. Whatever the benefit, make sure that you carefully examine your company needs and be open to ways in which to fill them.

Ajay Sirsi, marketing professor at the Schulich School of Business at Toronto's York University said, 'Perhaps the biggest benefit outsourcing provides small and medium-sized companies is giving them the gift of time.' Isn't that the best gift of all?

erity.

Lisa Metcalfe is a Regional Practice Leader in the Technology Leadership Practice of Tatum LLC. Tatum is the nation's largest executive services firm, providing financial and technology leadership nationwide.

Last updated: Feb 1, 2008




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