The great insource vs. outsource debate – it swings like a pendulum.
Profits take a squeeze, and companies rush to outsource functions such as IT and payroll to a lower-cost provider. Then, it all swings back the other way when issues of flexibility, quality and control rear up, and the rush begins to bring it all back in-house.
To be sure, it makes sense to retain control of core business functions under your own roof. These are the things that you do – and do well. Then again, companies focused on containing costs through the recession and into the recovery can certainly benefit from having someone with specific expertise outside of the company take care of non-core functions such as website development, bookkeeping and even janitorial services.
Especially in a down economy, shedding non-core functions can help reduce expenses. In particular, some functions require only part-time work. If you only need bookkeeping four days a week, outsourcing will allow you to move the burden of “fixed” costs (a full-time salary) to the “variable” side (an outsourced vendor).
More than Money
Savings are certainly the main draw of outsourcing, but research shows that companies also have other reasons. For instance, more than 40 percent of respondents to a recent PriceWaterhouseCoopers outsourcing study said they would outsource to improve customer relationships. Another 37 percent said outsourcing could help them develop new products or services, and about one-third said outsourcing would be important in helping companies expand into geographies they couldn’t otherwise enter.
Outsourcing Pros (and Cons)
Like any strategic business, the decision to outsource involves a cost-benefit analysis. On the plus side, it is often more cost-effective. Outsourcing routine business functions allows staff to focus on core business. For compliance-critical activities such as payroll and HR, outsourcing to experienced professionals makes complying with complex tax laws and ever-changing legislation much easier. Outsourcing can also improve business processes and workflow.
Of course, there are some disadvantages. You will certainly lose some degree of control once a business function moves out from under your roof to an offsite service provider. Likewise, you may have less flexibility (e.g., if your payroll processor needs the payroll at noon on Thursdays without exception, you’ll need to get it there!). Another common concern is misunderstood requirements (outsourcer doesn’t deliver project as specified), cost overruns and, in the case of offshore providers, cultural and language issues.
How Smart Companies Decide
Fortunately, a few disadvantages shouldn’t lead you to avoid outsourcing altogether. Smart companies evaluate outsourcing the same way they evaluate any other business decision.
Analyze your expertise.
Take a look at the value you offer your customers, and where your efforts and expertise are best utilized. Focus on doing what you are good at, leveraging other people’s specialized skills.
Do your due diligence.
Ask for referrals to outsource providers from similar-sized companies in your industry. Then research those vendors, and ask them for price quotes on their services. Many outsource vendors (payroll, IT, billing, etc.) maintain websites with online calculators that will help you evaluate the bottom-line benefits of outsourcing.
Keep your eye on the ball.
Outsourced shouldn’t mean out of mind. It’s important to keep your eye on the quality and timeliness of outsourced work, and arrange for regular reporting and accountability.
Outsource to gain access to specialized skills or to take advantage of emerging opportunities (especially when you don’t have the internal talent to quickly respond).
Keep It in Perspective
If you find yourself spending too much time on areas that are outside of your expertise, consider outsourcing. By focusing your energy on the things that are of core value to your business, you’ll gain the efficiency you need to succeed.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of ZB, N.A.