By John Cooke, a founder and managing director at Black Pepper Software
In today’s fast-paced business world, driving efficiency is often at the heart of growth plans. When thoroughly planned, outsourcing plays a vital role in ensuring productivity is high; enabling managers to focus on business development and disruptive innovation.
However, some organisations cause irreparable damage to their business by outsourcing too early, while others risk falling behind to more innovative competitors by ignoring the opportunities available; and some companies outsource the wrong mix of activities. It’s unclear whether this balancing act is why the outsourcing market in the UK declined in Q1 compared to the same period last year, although it could also imply a wariness to trust third parties with internal business processes.
If this is the case, business leaders are setting themselves up for a fall. Failing to outsource effectively can cause irreparable damage to an organisation. Put simply, business growth will be stunted.
To ensure SMEs are reaching their full potential, I will investigate the top five considerations every business should make before outsourcing.
Put simply, the majority of outsourcing takes place to increase profit margins, lowering expenditure on labour and operational costs, while improving the bottom line. However, the cost-efficiency of taking this approach comes into question if the wrong processes are left in the hands of a third party.
Offshoring well-defined maintenance tasks, such as payroll management, removes the need for businesses to hire in-house experts to manage accounts, freeing up capital which can be invested elsewhere. Core activities shouldn’t be outsourced though, as the necessary knowledge levels will inevitably be found in-house and should remain at the heart of the company. Google wouldn’t outsource search engine algorithm innovation to a third party for example – it would risk losing its competitive advantage. The same is true for all businesses, regardless of size.
2. Business reputation
Businesses live and die by their reputation and in the social media age, each product and service they offer is scrutinised under the microscope. It’s therefore vital that the highest possible standards are maintained continuously, especially for external facing processes. Failing to take your reputation into account before outsourcing may be the biggest mistake you ever make.
Take call centres for example. When outsourced efficiently consumers rarely realise they aren’t speaking to an in-house representative. However, if offshored poorly a disconnect between the business and its customer service becomes far too apparent, leading to a vocal and costly backlash. The same is true of all external processes. Offshoring may free capital, but if service levels drop the cost of rebuilding business reputation is much higher than any initial savings.
Many businesses aim to transform their offerings and innovate like a ‘start-up’. However, internal constraints and practices can stifle this. Established businesses investing capital in disruptive innovation should be the cornerstone of their development plans. Outsourcing innovative processes such as software development often breeds the best results, as internal team members may be too close to the business’ existing processes to ‘think outside the box’.
When successful, such innovation is highly lucrative. By researching and identifying a new market the disruptive business will immediately become the industry leader, leaving competitors in its wake. If companies fail to do so their competitors will, so outsourcing wisely in areas such as innovation is critical.
Businesses need to be wary though, pick the wrong partner and it can set back innovation and growth, resulting in missed opportunities. A partner must be agile, able to rapidly adapt to ever changing business needs, all while working very closely with the company.
4. Communication & collaboration
Agile development has continued growing in popularity, with continuous communication and collaboration at the heart of innovative projects. It’s therefore vital to keep this in mind before outsourcing project work to a third party, especially when considering offshoring. UK businesses which turn to Asian companies will likely find daily iterations are difficult to manage due to the vast time differences. In some circumstances, there may only be a few hours of overlap during the working day so time for communication is limited and can seem rushed. This will either impact product quality, or at least result in unnecessarily long lead times. Also cultural differences shouldn’t be underestimated, companies frequently need to work much harder to overcome these than is often considered up-front.
However, when outsourcing onshore, communication isn’t strained by time zone difficulties, cultural differences are minimised and daily iterations are also still possible to ensure projects remain on track. Large companies can benefit greatly from onshore outsourcing, taking advantage of rapid and low cost innovation using an external team without draining resource from their day-to-day operations.
5. Calculated risk
Outsourcing is often unfairly viewed as a risky option, and although there is risk involved this depends on the type of processes outsourced. If core business practices are offshored the risk is huge, as you have little control over what is a central element of your organisation, which can have disastrous results. On the other hand, outsourcing development projects should be viewed as well-calculated risk, offering businesses an opportunity to research their market and work closely with a third party to innovate and generate the highest quality results possible.
Time to reap the rewards
Outsourcing is a key element of business today and to write it off as unnecessary risk is short-sighted and leaves organisations at risk of being left behind by their competitors. Companies simply can’t be as efficient if they handle all tasks internally, while failing to look further afield than the office floor for expert advice when aiming to disrupt the market can be a mistake which is impossible to bounce back from.