When to outsource?

A number of criteria should be considered before embarking on outsourcing as an option.

Read time 3min 30sec

In the previous Industry Insight in this series, I looked at some companies that had succeeded with capability sourcing, and some companies that hadn't.

Now I will look at when to consider outsourcing a non-core function.

Outsourcing can be an important, even strategic, option to help make a business more productive, even profitable. But companies need to know when and where to apply it. There is no one-size-fits-all answer, so consider these criteria when looking at what should be outsourced:

The function is not pivotal in generating profit or ensuring competitive advantage. Two good examples here would be IT and the contact centre. Both are vital functions, and while doing them badly would hurt the company, doing them well cannot build either the company's competitive profile or help it earn more money. Unfortunately, many companies build internal empires, where managers become so attached to their role and the perks and power that go with it that they forget what their prime purpose is, and that is to serve their company as best possible.

* The job is rote, predictable and routine and consumes otherwise valuable time, effort and energy. Examples here would be the canteen, security services and office cleaning. These are services best outsourced to a specialist, which has assembled the critical mass of resources and skills to deliver the function to many customers.

* The task is seasonal, or temporary, or occurs in predictable cycles. Here, a company could be looking at scaling up a contact centre to deal with a new regulatory requirement, such as Fica, or an outbound contact centre campaign, or a hotline for 2010 World Cup booking. Outsourcing the increased staffing requirements, along with the necessary infrastructure to an outsource specialist, makes perfect sense.

* It costs less to have someone else do it than to do it in-house. A good example here would be a helpdesk, where the cost of rolling out and maintaining a company's own helpdesk is higher than handing the service over to someone who makes a living out of providing this service to many companies - this is their core business, while it would be context to the company looking to outsource.

* Key people could be freed up to focus their energy on the highest value tasks, rather than on low-value tasks, such as desktop break and fix.

Almost any function can be outsourced, from payroll to HR, from accounting to manufacturing.

Andrew Holden is MD of Bytes Outsource Services.

* The skill required to fulfil a function is so specialised that it is not possible or practical to retain a fulltime employee to deliver it. A good example here would be a high-level business intelligence consultant, a top-flight security specialist, or an enterprise performance management expert. These are people who make a living providing specialist services to a wide range of companies, each getting a slice of their time for a limited period of time. Each is a classic function to be outsourced.

* Nobody in the company enjoys the activity. There are not too many people, for instance, who are cut out for the job of handling inbound complaints, or outbound cold call telesales campaigns. These are jobs well left to specialists.

Almost any function can be outsourced, from payroll to HR, from accounting to manufacturing, from logistics to customer service, from IT to facilities management. A key benefit with outsourcing is that it allows management to focus its often scarce resources on truly critical functions.

A caveat, though: it might seem suitable to outsource a function, when in fact that function is best retained in-house, such as customer service in a small company that depends on a close working relationship with a small but loyal base of customers.

Once the decision has been made to outsource, a company must begin the difficult process of looking for a suitable outsource partner, and that will be the subject of the next Industry Insight in this series.

* Andrew Holden is MD of Bytes Outsource Services.

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