Business Performance Improvement Technologies - an Introduction



Outsourcing, subcontracting and offshoring tend to be used interchangeably but there are distinct differences.

We consistently see companies moving to outsourcing only to fail to achieve the business objectives that were laid out at the beginning of the whole process.

Some of the analysis and planning would benefit enormously from application of the Theory of Constraints Thinking Processes, in terms of formally defining the problems to be resolved, the outcomes to be achieved in order for the exercise to be considered a success, and all the elements needed to move from a "good idea" to a good solution.

Factors to Consider Before Outsourcing

By Phyllis Recca

Taking liberty with Shakespeare's famous quote: 'to outsource or not to outsource - that is the question'. The answer depends on a several items such as project duration, required expertise, confidentiality and future needs. Review your situation against our guidelines to help answer that famous question for your business.

Just a quick definition for those who ask what is the difference between outsourcing and subcontracting? Typically, outsourcing is done offsite at the outsourcer's facility under their management control while subcontracting is done on your site under your management control. Some of the same issues and questions apply to both when deciding whether to go outside or stay in-house. Outsourcing tends to be a longer term decision with the largest loss of control.

To help in your evaluation, start by reviewing the following questions. Your answers will help to determine which direction best suits the circumstances.

1. Is this activity/project a core process (what your company does as a business)? 2. Are specialized skills needed? 3. What is the duration? 4. Will confidential/proprietary information be disclosed? 5. Will the project result in new skills necessary for the ongoing business? 6. Could the project terminate early due to budgets/ other priorities? 7. Do I have the staff now or would I need to hire them? 8. Do I want close management of day-to-day activities?

There are some general guidelines relating to the decision to outsource or keep the activity 'in-house'. Review these guidelines against the answers to the above questions to help with your decision.

Guideline 1: If the activity is a core process to your business, do not outsource. Consider the business of building cars. The assembly-line is core and you would not want to outsource this process, while computer training is not core and you would be able to outsource this without impacting your business integrity.

Guideline 2: If the activity requires highly specialized skills you do not have and would only need for a short duration, do outsource. An example might be if you want to write an employee handbook ensuring all your policies are represented clearly and in legally correct terms. You would be better to outsource this to an experienced HR consulting firm. On the other-hand, if you just installed a new database technology requiring specialized technicians, you would be better to hire the skilled individuals since you will need them for an extended/ multi-year period to work on undetermined/multiple projects.

Guideline 3: If highly sensitive and confidential information will be revealed during the execution of the project, do not outsource. Example: if the project requires access to customer lists and future orders, do not outsource. Whereas revealing office locations or other public information would not compromise your business and could be outsourced.

Guideline 4: If you need the staff once the project is complete, do not outsource. This covers situations such as additional projects to work on or newly learned skills that are needed. However, projects that end with no ongoing need of the staff would require you to terminate employees, creating Human Resource issues, possible severance costs and legal issues. These short-term staff needs would best be outsourced since you can give termination notice (based on contractual agreements) and not have to deal with the outsourcer's personnel.

Guideline 5: If the activity will last several years, do not outsource. The primary reason is price. Outsourcing typically costs more than if the work was done in-house since you are paying some 'fixed costs and profit' dollars as part of the cost to do the work. There will always be a need for accounting personnel and although this is not a core skill, the need is ongoing and should be kept in-house, as an example.

Guideline 6: If you require strict management control, do not outsource. Although you could have general oversight of the project deliverables, the day-to-day management is done by the outsourcer. This would impact project approach, employee moral, customer interaction (if any) and feedback. An example of recent outsourcing which may not have been a good idea is customer support for computer equipment sales by Dell. Dell could not control the interaction with their customers and there were numerous complaints about communication skills, product knowledge and general attitude of the outsourced technician. Many companies that outsourced support have taken back control.

As with most things in life, the decision is not always cut and dry. The project might be core or require revealing confidential information, but you do not have the management or staff available. Is the project critical enough to override these factors? If yes, outsourcing may be the correct solution. By weighing those factors most important to you, the answer 'outsource or in-house' may be just a little clearer.

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