Out Sourcing

Why Outsourcing

As the owner of a small company, you have probably entertained the thought of outsourcing some aspect of your business. The benefits of outsourcing seem obvious, touted by experts across numerous industries as the answer to cutting costs for business functions ranging from information technology to accounting, marketing and human resources; it seems possible that you could run an entire company without ever hiring a single employee.

But is there more to outsourcing than the bottom line? What are the other reasons companies choose this route? What about ramifications for aspects of your business that are not so easily quantified?

In this article, we'll discuss the 3 R's of outsourcing: Reasons, Risks and Rewards, specifically as they relate to information technology (IT). And, as a bonus, we'll provide some tips to help you manage successful relationships with your IT service providers (whether they are full-time staff, or outsourced).


The Reasons

According to the Outsourcing Institute's Outsourcing Index 2000, there are many reasons why companies outsource. Here are some of the top reasons:

  1. Reduce and control operating costs.
    When you outsource, you eliminate the costs associated with hiring an employee, such as management oversight, training, health insurance, employment taxes, retirement plans etc.
  2. Improve company focus.
    It is neither practical, nor possible to be a jack of all trades. Outsourcing lets you focus on your core competencies while another company focuses on theirs.
  3. Gain access to exceptional capabilities.
    Your return on investment is so much greater when you outsource information technology to a firm that specializes in the areas you need. Instead of just the knowledge of one person, you benefit from the collective experience of a team of IT professionals. Outsourced IT companies usually require their IT staff to have proper industry training and certifications as well.
  4. Free internal resources for other purposes.
    You may have someone in your office that is pretty good with computers or accounting, but most likely these were not the jobs he or she was hired to do. If they are spending time taking care of these things, who is doing what they were hired to do? Outsourcing allows you to retain employees for their highest and best use, rather than wasting their time on things that may take them longer than someone who is trained in these specific areas.
  5. Resources are not available internally.
    On the flip side, maybe you don't have anyone in your company who can manage your IT needs, and hiring a new employee is not in the budget. Outsourcing can be a feasible alternative, both for the interim and for the long-term.
  6. Maximize restructuring benefits.
    When you are restructuring your company to improve costs, quality, service, or speed, your non-core business functions may get pushed aside. They still need to be handled, however, and outsourcing is an optimal way to do this. Don't sabotage your restructuring efforts by failing to keep up with non-core needs.
  7. Function difficult to manage or out of control.
    This is definitely a scenario when outsourcing to experts can make a big difference. But don't make the mistake of thinking you can forget about the problem now that it's being "handled." You still need to be involved even after control is regained.
  8. Make capital funds available.
    By outsourcing non-core business functions, you can spend your capital funds on items that are directly related to your product or your customers.
  9. Reduce Risk.
    Keeping up with technology required to run your business is expensive and time consuming. Because professional outsourced IT providers work with multiple clients and need to keep up on industry best practices, they typically know what is right and what is not. This kind of knowledge and experience dramatically reduces your risk of implementing a costly wrong decision.