I have been both sides of the outsourcing fence, as a supplier and a customer, in both the public and the private sector. I like to think I have more of a perspective on it.
In a way, there should be nothing too controversial about outsourcing. It is simply a decision to buy a product or service from a supplier that you used to do yourself. So when you start out you might do your accounts yourself. As you do more business you might decide to put all your receipts in a box and pay an accountant to do it.
A company I worked for in the early 90s made their own pcs. They had good reasons for doing it then (it was much, much cheaper). They'd be mad to do that now.
Questions to ask before you outsource
Before you make the decision to outsource, ask the following questions:
Why am I outsourcing?
There are good reasons for outsourcing and there are not so good reasons. The good reasons come down to three key reasons:
- Will I save money?
- Will I free up time (to make more money)?
- Will I get access to skills that I don't have in-house?
What are you outsourcing?
The third one requires a deal of thought. One of the big mistakes that businesses make is not understanding what is core (that is, what you do that is special and makes you, you) and what is non-core. For example, say you make and sell hand-crafted furniture from a studio in rural Yorkshire. Nobody will care if you outsource your payroll. They will care if you start selling furniture that's made in China.
In my opinion, you should hold onto the core as hard as you can - otherwise you could end up being a sales organisation for your supplier, which is probably not what you went into business for.
Do I have the skills to select and manage the supplier?
The kind of person that is good at managing the in-house team is probably not the kind of person that can write a good invitation to tender, see through all the supplier BS and negotiate a good but fair contract that leaves both sides feeling like winners. All too often however, the person who does or oversees the job currently is thought to be the best person to bring in a supplier. (There are obvious conflicts of interest here as well, which many businesses seem able to overlook). Of course you could buy in the skills to select and engage the supplier (from someone like me *slight plug*) but then you would have to be sure you had the skills to engage a consultant ;-) At any rate you would still need to make sure you had the skills to manage the supplier once the contract was under way.
What is my Best Alternative to a Negotiated Agreement?
Take the time to figure out at what point you should be walking away from negotiations with a supplier. Is it when the price is too high? Maybe they want you to guarantee a certain amount of business? Maybe they want to own the IP that is created? Too many companies do not work this out beforehand and end up giving too much away during the negotiations. This also happens a lot in public sector procurements where the process is so long drawn out and painful that any deal is seen as preferable to no deal at all. It is also very common in large businesses that have separate buying or procurement departments - the people negotiating the deal are not the ones who have to live with the consequences.
Bad reasons to outsource
There are lots of bad reasons to outsource. Here are some that I have come across at one time or another:
- Outsourcing to get rid of a problem employee or team. Don't do this. Man up and deal with the problem
- Outsourcing to transfer risk to a supplier. This happens in Government all the time. It is usually done to reduce the risk to the individual (they can blame the supplier if it doesn't work out). At the end of the day, however, the business will still suffer if the product or service is not delivered and on top of that, you've added the risk of supplier failure. G4S is a classic case in point
- Outsourcing for 'flexibility'. A lot of outsourcing specialists will sell their ability to scale up and down to fit the needs of your business. In practice, it will probably be just as hard for them to provide you with the staff with the experience in your business as it would be to do it yourself (G4S again). Also, companies that specialise in this tend to move their staff around a lot, so you will be paying for the privilege of their staff gaining valuable experience in your industry.
Need help?
If you need any help deciding whether to outsource, selecting the right supplier, and making sure you have the right contract in place to make sure you get value for money, why not get in touch with Stonivale for an initial chat
*This is a geek reference to the famous article by Dijkstra: "Go To statement considered harmful", published in 1968
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