In today’s competitive world, many companies are increasingly adopting outsourced solutions for various business processes with a view to maximize productivity and revenue while minimizing overhead costs. However, outsourcing partners must be chosen with great care. For instance, you may want to outsource your payroll but you may become consumed by doubts. You worry whether costs will increase, whether it will be time-consuming to hand over the job, and whether you can trust another company to handle your sensitive and confidential business data. When forging partnerships, there should be a level of trust with the service provider and you need to find business partners that can share your vision, and work towards achieving your goals. If you want outsourcing to be a smart decision you must do it correctly, outsource for the right reasons, to the right provider, at the right time.
So, here is a look at what to consider when outsourcing so that you do it correctly and succeed.
- Understand your competitors: When you are taking a global stance, you’re competing with the entire world. So understand your competitors and be conscious of what they are doing. If for example, you want to create a footwear brand, learn the outsourcing trends other companies have successfully used to do well. Sometimes the competitors may want to buy you out, so have a clear idea about the value of your company.
- If off-shoring, consider the regulations of the country you are outsourcing to: Each country will have its own sets of rules and regulations. So if you are outsourcing to a different country, then study their laws, exporting and labour costs, taxes, wages etc that could affect your business. Learn which demographics offer the best places to build your business, and which countries have maximum customer retention.
- Focus on things that can grow your business revenue: The power of outsourcing becomes noticeable only if it contributes to the growth of the businesses. Outsourcing should help you to scale at a rate you want instead of trying to keep up with clients or orders you need to complete.
- Know who to hire: There are many vendors available and choosing a vendor is a challenge. You need to know who to hire. Your outsourcing partner should know what they are undertaking to do and be able to meet all challenging requirements. With such a service provider you needn’t start from the beginning, telling them what to do.
- Outsource the right activities: Outsourcing shouldn’t make you give up control over aspects that define your business or that which make you unique. This will ensure that you retain your company’s competitive advantage. Increased demand doesn’t always mean that outsourcing is the solution. If you already have an outsourcing company handling some work for you, find out whether they can handle some more work. Some area of your business may have extra staff or time to take on a new project; then, it is better to entrust the task to them rather than outsource to a new provider. Try not to outsource those areas of your business that will directly impact your customers. Outsourcing customer service or sales may prove beneficial for large businesses, but it could prove risky for small businesses or companies in transitory stages. Outsourcing may be a good solution if demand in a certain area of your business is outgrowing your resources or staff. In this case, outsourcing can reduce stress and help you meet customer demand.
- Consider all outsourcing expenses: Remember that actual and projected savings may not match. In an outsourcing partnership, costs are involved that may not come to mind at first. For example, when searching for the right service provider, you are likely to lose time and also incur fees from networking websites or other sources. Legal fees may be involved in some instances when negotiating and drawing up a contract with an outsourcing vendor.
- Take into account reviews and feedback: Read all available reviews or feedback from former clients of the outsourcing contractor. A vendor with a substantial amount of positive feedback may be more expensive than a member with negative or no feedback, but it is worth choosing that vendor. You can also ask other business people or your acquaintances regarding outsourcing agencies they may be familiar with.
- Don’t go for the lowest bidders: Cost savings is an attractive prospect, no doubt. But remember that the lowest bidders may not have the required expertise or experience for the job. The pay a worker receives reflects his/her education, work quality, and experience.
- Don’t rush into a partnership: Make sure that you take your time signing the contract and handing over the responsibilities to your chosen vendor. Give the contractor some control and assign the rest based on their performance. This will enable you to make sure that everything is going well before entrusting them with larger responsibilities.
- Set clear goals and ensure open communication: Be clear about your goals and expectations and communicate this clearly to your outsourced team. Monitor quality of services consistently and pass your feedback to the team directly. Communication could be a problem when you don’t have frequent face-to-face contact with the team you employ. While telecommunication is a good option, a better way is to communicate via a memo or email. Important information should always be in written form including guidelines, feedback, procedure manuals, and expectations.
- Ensure transparency: It is necessary to put transparency practices in place. Arrange meetings at least once a week, or once a month to discuss key aspects of your business. These meetings can be in-person or via videoconferencing and will help avoid setbacks, delays and misunderstandings. After a meeting, send a memo highlighting the main points discussed.
- Manage your existing staff with great care: Outsourcing could upset your existing staff and make them feel insecure. It is best to be frank with all partners and staff and communicate any decisions as soon as they are made. This will help avoid fear and rumors in your business areas that are unaffected by outsourcing. Some of your staff may have to work for your new partner, and it is vital to communicate with those people, so they understand what to expect and also ensure their loyalty is maintained. Identify key employees in areas that will be outsourced and recruit them to other areas of your organization. In case in-house personnel are being replaced by outsourced staff, treat those employees with respect and let them know they are valued. You can consider transferring displaced employees to other departments, and if this cannot be done consider providing opportunities for training that will prove advantageous to them in their job search.
- Prepare a solid outsourcing contract: Your contract should establish expectations and serve as a record to refer to at all times. It should outline details about payment, expectations and roles, creative and other rights, and also describe an exit strategy. Have a lawyer review any contract you sign. The contract should allow you to terminate your agreement if the vendor doesn’t meet your established quality expectations during a specific time period. If this is not possible, you can set a date when the contract is due to be renewed so that you can consider whether to go ahead with the outsourcing partnership.
Now let us consider some outsourcing success stories.
Some Outsourcing Success Stories
Unilever’s expansion includes operations across 24 countries. It used multiple Enterprise Resource Planning (ERP) system but in 2005 the company’s leadership team decided to integrate these multiple ERPs into a single system that would be used across Europe. This initiative required experts and they outsourced the project to a professional vendor. As a result, Unilever saved 700 million euros annually in its operational activities.
Alibaba is China’s eBay and it started as a small Internet company called China Yellow pages. Today Alibaba is the world’s biggest global market place. According to the book Alibaba: The Inside Story Behind Jack Ma and Creation of the World’s Biggest Online Marketplace, in its initial days, the founder Jack Ma outsourced their website development to a US firm. At that time, China’s development talent was short in supply whereas developers in US had the skills that Alibaba was looking for. This helped Alibaba.com to grow and the company still depends on outsourcing partners for production,though they are mainly located in China.
Google is one of the companies that has been taking advantage of outsourced solutions for years. Whether IT specialists, developers or virtual assistant types of work, Google is a strong implementer of outsourced work to take care of the many projects they continuously work on. AdWords is one of the top grossing product and to have the biggest ROI possible they outsourced phone and email support for AdWords to around 1000 reps and succeeded.
Launched in 2009, WhatsApp was acquired by Facebook in 2013 for $19.3 billion, and they have credited their success to outsourced developers. The core development was outsourced in Russia, beginning with a contractor iPhone developer Igor Solomennikov who eventually joined the company as CIO.
Outsourcing, no doubt can have a positive impact on your business. Whether outsourcing data entry or some other business process, or part of your client work or product development, can benefit you because outsourcing is time-efficient, cost-effective, allows access to expert and specialized service providers and resources, and allows you to balance in-house staff and overhead expenses. When outsourcing, compare the time and cost of doing that particular process in-house to the cost and time involved when delegating that process to an outside provider. You should also take into consideration the time spent on hiring and training people in-house and compare it with the time you will have to spend explaining your vision, your company’s systems and routines, and project deadlines to the outsourcing partner. This will help you determine whether outsourcing is the better option. A key to successful outsourcing is documentation. Document your instructions clearly so that you can easily pass them on to multiple contractors in case you need to do so. Encourage your employees to document all their activities as they complete each assignment; alternately you can do this yourself and thereby have a ready blueprint of your business’ daily operations that can be provided to newly hired outsourcing contractors. Ensure that there is clear communication with your outsourcing partner to enjoy a successful relationship. Outsourcing at the right time, to the right partner, for the right reasons will help increase your business efficiency and bottom-line.