MyProjectTracker – The Blog

I really don't agree with your statements about saving money or “pain”
In fact I'd have a completely opposite view.
We outsource several things because it is more cost-effective to do it that way. For us to do them inhouse would not be economically viable and I strongly suspect that a lot of businesses outsource functions due to the outsourcing being more cost-effective AND removing pain.
Of course you get the expertise etc., of a focussed professional by outsourcing and I would agree with you on that point, but I simply cannot agree with your views on cost or pain.

Thanks for the comment Michele.

In the context of the “pain and costs” points – this is based on the pretext that you are already doing these functions in-house, rather than from day 1 of operations.

If, for example , you are having serious difficulties in delivering your IT function and it is in chaos – simply pushing this out to someone else will not necessarily work. Why? Because 1. – how can you possible create a robust sourcing model when you don't understand the function properly in the first place, 2- you will incur considerable expense in the form of change requests as you try and figure what you actually want out, 3 – the cost savings that you would like to enjoy as the outsource deal starts to bed in will take alot longer to achieve (if at all) within the framework of the agreement (usually 5-7 years) and 4 – any outsource provider worth their salt will not be keen to take it on for these very reasons i.e. they will believe that the outsourcing will fail reflecting badly on themselves.

In regards to costs, again, if you have been engaged in an outsource detail since the beginning of operations, then I agree – you will of course keep your costs down. However, the decision to outsource something that is operationally running should not be based on trying to make an immediate cost saving – this should be a secondary requirement in my view. It's about taking the decision to increase capacity, increase knowledge or removing secondary functions from your organisation so that you can focus on your core business. Cost saving should come over time. I say should, because if it's done badly, it can end up costing you more than it saves you.

Regards
Barney

Barney

I still disagree.
A lot of companies outsource IT, or parts of it, to companies such as ourselves, simply because it doesn't work inhouse or doesn't work as well as it should.
As for cost savings – again I disagree. If you have an unlimited budget then you can start getting philosophical about these sorts of things, but I honestly don't think that many businesses have that option. You have to keep control of costs.
Michele

Michele

I think that we are possibly missing each others points through the semantics of the written word and are not 100% apart in our thinking!

Outsourcing when a function is broken is not the same as outsourcing if it's not working as well as it could. The latter indicates that the company has some idea of what it wants to achieve, but the implementation is not effective in-house. I was referring to situations where something was not working correctly at all and this has been driven by poor decision making or no decision making at the time of implementation. This makes it almost impossible to construct a decent out-source agreement.
On costs – could not agree more, of course you have to keep them under control. But I would dispute still that this should be your primary driver for the outsource.

This is a massive topic area though and depending on the situation a particular business has – neither of us are either fully correct/incorrect. Just my view of course.
Best
Barney

I used to struggle a lot with the idea of outsourcing. Mostly because I felt that I didn't want to relinquish control over something (my business). But today, that perspective has totally changed. There's things that I'm very good at and others where I'm just “ok.” I outsource the stuff that I can and want to delegate and I focus on my skill-sets. Ultimately, I think it provides for more efficiency and execution in my work.

Hi Ricardo. Thanks for reading and for your comment. You have exactly the right approach to your decision to outsource. You know what you can do, you know what you can't do and base it on that. This will only help your business to grow in my view.

[...] project was a loss leader and could have considered other options e.g. hiring in a contractor or outsourcing to another company. Obviously not always an option, but at least the management team would have been [...]

Thank you for your thoughts; you bring up an interesting point. I believe outsourcing is necessary in today’s business environment to save on cost. It has become necessary to cut the corner every where to remain competitive. Outsourcing can help your organization gain a competitive edge in the market. You can also get access to specialized services for different business processes and thereby provide your customers with best-of breed services. Such strategic outsourcing can give your business a competitive edge among your peers. The benefits of outsourcing can give your organization a cutting-edge in the worldwide market. Outsource and take advantage of the benefits of outsourcing.

Julienne

Thanks for your comment Julienne.

Your article is informative and provides food for thought. There is a lot of talk about outsourcing these days. It has become an extremely important part of most industries, allowing workers from around the world to collaborate on projects that might have, at one point, taken months or years to complete. Almost anything can be outsourced now, from payroll and accounting to sales and computer programming. Offshore or domestic third parties can offer less expensive and more efficient services than salaried employees and have proven themselves to be a very useful tool for essentially any major business. Outsourcing is a product of our instant communication and a global economy. Companies without the resources or the desire to acquire those resources can now outsource almost any task they need to a third party firm almost anywhere in the world. The result is a finely tuned, well oiled machine that passes projects and ideas around the globe at light speed on a daily basis. -Tina

Thanks for the comment Cristina.

Thanks for the post. It is interesting to see the correlation between what you are saying and what Gary Shanley blogged about. Outsourcing must be seen strategically as a way of utilizing a company’s core competencies to better your organization. I do wonder if your point about not outsourcing to save money is valid. Many companies outsource work instead of employing someone and this can be a money saver. What do you think?

http://webkit.o2online.ie/ideasroom/?p=1680

Thanks again,
Elaine @ O2 ideas room

Hi Elaine.

Just to clarify my point on the money side, I am not disputing that a successful outsource program will save money and this can be a driver. It is more that the company should not be making that its primary focus when making the decision.

The example I gave of the accountant in the post – for us, the decision was made to use an external accountant because we did not have the expertise, consideration to the cost was secondary i.e. after we'd made the decision to gain the external skills, we then looked for the best deal that we could get.

I think that the mistake some businesses can make when looking at outsourcing is to use it as a “fix all” when they are having problems in a certain area that is costing them a lot to run but is also run badly. In the near to medium term, if you outsource a problem area – it is more likely to cost you more before reducing the cost. On the other hand, if you have an effectively run department with repeatable processes then it can be considered for outsourcing to try and save costs – but again, this is likely to be coupled with “what other expertise can the partner bring to the table”.

Thanks for adding to the discussion, this one does not have an easy answer.

There is a growing demand in the business sector to outsource business processes. Since the start of the economic downturn, most businesses resorted to control their costs. For example, instead of employing a team to organize company information, some companies opted for outsourcing payroll providers. These are companies that has the expertise and the technology needed to effectively compute employee compensation and tax remittances.

Also, aside from costs payroll (Colorado and other states) firms and accounting companies can help businesses by saving them time that can be used to improve the company's core competencies. Instead of worrying about deadlines and penalties for federal taxes, they can already focus in more pressing issues involving company growth like critical business deals.