Outsourcing Your Business

Posted on December 19, 2011 by Leo Sun

Outsourcing is a business model that has been around for ages. Ever since humans settled down from their nomadic ways and began domesticating animals and planting crops, the need for specialized services arose, and these contracted services became the first forms of outsourcing. Even in an everyday household in America, you can find forms of outsourcing – for example, the gardening service that trims your hedges, mows your lawn and maintains your flowers is an outsourced service. The gardening service owns specialized equipment that you do not have, works to improve your property, and then leaves with all its bulky equipment, saving you lots of valuable storage space. Another example would be a janitorial service that provides a full cleaning service with its staff and equipment on a contractual basis. They are both remotely assigned work which saves valuable space and time for the employer. On a larger scale, outsourcing can be used for a huge variety of tasks, most commonly for information technology and business processing.

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Information technology outsourcing is commonly defined as outsourced work which requires technical expertise. These outsourced employees are hired remotely due to their specialized skills and ability to deliver the product quickly through electronic means. These include:

Business processing outsourcing is defined as outsourced work which requires little technical expertise, but requires clerical skills. They are often hired in bulk and are used as a viable alternative for medium to large companies who wish to relocate entire departments of their operations. These are often huge, multi-year contracts that encompass the following:

Large tech companies such as IBM (IBM: Charts, News, Offers) and Hewlett Packard (HPQ: Charts, News, Offers) employ a large mix of both kinds of outsourcing in order to cut costs and preserve margins. It is now a common practice for large companies to employ outsourced employees in foreign countries, especially India, to take advantage of the stronger American dollar, in large centers where huge bulk operations are completed by specialized, contracted companies. It has proved to be a mutually beneficial relationship, as these Indian companies boost their local employment rate with skilled jobs, and American companies save valuable real estate and money. They are a far improvement over their socio-economic predecessor, the sweatshop, in which a developed country takes advantage of the exchange rate to hire low-paid, low-skill workers in a poorer nation to mass produce cheap products sold at a high margin in their home countries.

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Even though many companies have resorted to using offshore outsourced contractors, there are some key variables to concern before entering this kind of agreement:

Cultural differences and etiquette
Time zone differences
Size of the operation
Skill of the employees
Possibility of assigning local staff to travel overseas to oversee outsourced operations

Of course, your company may not be a huge blue-chip like IBM. Maybe all you need is a few extra outsourced helpers, readily available in your home country, to pitch in during a product launch. In that case, multisourcing – using a mix of internal and service provider staff – to assign tasks to as many different slots as possible, may be what you need. For example, if you are a small software company with a limited amount of employees at your office, it will be impossible to complete all the necessary tasks between your physically present workers. In this case, you would hire specialized staff such as:

Product designers
Software coders
Software testers
Sales and Marketing Staff
Localization Staff

Then you would need to use your existing staff to weave the web together to make sure that each outsourced division is on the same page at all times. Of course, the risk of these multisourced employees falling off that page and having their lines of communication break down is highly likely without strict, shrewd micro-management. Cloud-based services such as Google Docs make it easier to collaborate on projects directly on the Internet with multiple users. Multisourcing requires the use of existing technologies to your full advantage to insure speedy product development.

If you plan to outsource, consider the size and breadth of your operations. If you are ready to try, here are the steps companies generally follow:

Evaluation of the role of outsourcing in your company
Selecting appropriate outsourcing projects and potential service providers
Developing a contract for the service provider, to reach a Service Level Agreement(SLA) on prices, hours and contract length.
Selecting staff to travel to the outsourced service provider to provide proper guidance on the company’s expectations, and to oversee operations.

As you can see, there are many factors to consider when outsourcing. If you intend to build a long-lasting, successful relationship with an outsourced service provider, whether domestic or , there are three key points to remember that can make or break your operation:

Executive support for the outsourcing missions
Proper, frequent communication with the outsourced team
The company’s ability to manage its outsourced team

In short, you need to put your most capable, most flexible team members out there to make sure your outsourced operations go smoothly. If they do, and you succeed in building a strong, lasting relationship, the rewards can be immense for your company.