The concept of outsourcing business functions is not a new one. Companies have been leaning on other vendors and businesses to help pick up the difference on various operations and functions for decades now. Today’s services range from entire businesses processes to social media marketing management. The services available can be so extensive, it can be hard for an outsider to know where an original company stops and the outsource service provider begins. That said, there is no set standard for when outsourcing should be used.
Core Functions vs Non-Core
Every business has a key set of values and activities that are its focus, its bread and butter and its revenue sources. These are considered core functions because the company depends on them to survive and grow. Built around these functions are secondary or non-core functions. Many of them may seem necessary, such as shipping or personnel administration, but they are not what make the company tick. So when considering outsourcing, a business needs to first identify what can be outsourced as a secondary service while still retaining what is important in-house. Not everyone will agree on definitions, so management needs to be thoroughly comfortable turning over the reins of area to a third party before doing so. Otherwise, internal conflicts will emerge quickly.
There’s no point in outsourcing if the service is going to end up costing a company more than what it spends already to perform a function internally. This matters in both up-front numerical cost as well as back-end operational flow. If an outsourced function is simply going to create more headaches or potentially lose customers, it’s not worth using. Many corporations learned this the hard way in the 2000s as they outsourced customer service overseas. Customers became angry dealing with a dis-attached voice clearly based in another country, later getting revenge by moving their purchasing dollars elsewhere. Therefore, potential costs need to be measured in every aspect before diving into an outsourcing relationship.
Strategic Weaknesses and Strengths
Next, management needs to evaluate if outsourcing a function creates a fundamental company weakness or strength. One of the big trends in the 2000s is to outsource IT support, licensing and management to cloud-based Internet platforms. However, going whole hog into this direction has pros and cons for a company. While it does remove the need for dedicated IT staff and hardware to maintain an internal network structure, thereby reducing company administration costs, a cloud-based system also creates vulnerabilities in data security and reliance. When a company moves its files over to a third party, those virtual assets could end up on servers in an entirely different country without any assurance who has them. Reliance a third party can also leave a company hostage to arbitrary rate increases without much choice in the matter. It’s hard to go back to an IT system that doesn’t exist internally anymore. So permanent outsourcing changes does have implications on a company’s health overall.
Outsourcing can be extremely beneficial, freeing up staff and resources to commit back to core revenue-generating activities, but planning is key in making that benefit actually work.
This guest post was provided on behalf of Town of Ajax – First For Business, they offer business resources to help you locate, establish and grow your business within Ajax, Ontario. For more information about their services, visit http://www.ajaxfirstforbusiness.ca/en/ajax/welcometoajax.asp