Outsourcing Companies and Processes
Outsourcing companies and processes are here to stay, driven by rising fixed costs, rapid changes in the global economy and the need to do what your company does best in-house (core competency) and outsource everything else. We will review critical outsourcing companies in this article and also give you an overview of outsourcing processes and benchmarks.
As a business owner you are weighing the advantages and disadvantage of using outsourcing companies and processes. In fact, most outsourcing decisions start with the need for cost cutting – but don’t end there. Once outsourcing efficiencies and economies of scale are in place, most business will begin to appreciate and nurture the outsourcing relationships to save more money.
1) Reduce Your Fixed Costs: Outsourcing processes typically are used to lower sales and marketing costs, generate leads and/or provide improved customer service – enabling your company to receive equivalent services at lower direct costs than doing it in-house with your own staff. Also, outsourcing partners are specialists in say web site design, lead generation, social media marketing and search engine marketing at a level that would be difficult for your business to match and most third party vendors know how to utilize cost-cutting measures that you would not be able to duplicate.
2) Reduce Indirect Costs: Doing all facets sales, marketing and creative services, operations, lead generation and customer service in-house can be challenging and not always cost-effective. Your employees need to be recruited, trained, managed and equipped (IT and HR costs) and once trained, may leave to take a better opportunity. Using an outsourcing companies can help you reduce your indirect costs and may enable you to get to market faster. And, the outsourcing company has to deal with the headaches of recruitment, training and managing their staff.
3) Turn Your Fixed Costs into Variables and Reduce Overhead: Let’s face it, our global economy is changing rapidly, markets rise and fall, opportunities grow and diminish quickly and your customers demand excellence in all that your company provides. Using outsourcing companies, enables you to grow your business with a virtual team and downsize the relationship quickly when/if the market goes through a downturn. Outsourcing processes give you tremendous staffing flexibility – there is a relationship cost on the front end (identifying, sifting through bids, training); but, it’s much cheaper than hiring and training a team in-house with associated HR and IT costs.
4) Leverage Third Party Expertise You Don’t Have In-house to save costs and drive efficiency: Let’s face it, most business are dealing with levels of complexity, driven in part by rapidly evolving technology demands, again global markets and customers, much more sophisticated distribution channels, 24/7/365 business cycles, compressed time to market, etc. In many cases your business and existing staff may not have the required skill that are consistent with demands in the marketplace – outsourcing companies are niche focused and have spent years developing levels of expertise in vertical markets or processes that you can leverage to save costs, reduce time to market and drive you overall competitive positioning.
1) Identify your Core Skills and Outsource Accordingly: Operational segmentation is a must on the front end of any outsourcing processes – identify your core competency within the company, these will usually cluster around your intellectual property, customer relationships and branding. Anything else is fair game for outsourcing processes and establishing relationships with third parties.
2) Identify your Desired Outcomes: Most businesses hit a wall with cost overruns, inability to get to a market, a demonstrable need for skills it doesn’t have in-house, margin erosions, feeling it is at a competitive disadvantage, etc.
What do you want specifically from an outsourcing company that meshes with your overall needs; i.e. lead sources, marketing campaign management, channel recruitment, web site traffic, business process outsourcing, etc.
Once you have a firm grasp of these needed skills then map a budget and ROI identification and start recruiting outsourcing companies that can fill a specific gap.
3) Select an Outsourcing Company or individual: It’s critical to select a outsourcing company that can add value to the strategic relationship (expertise and deep industry knowledge are important) – you are hiring more than “staffing” - you want a vendor that can also give you valuable input about your strategy, not just incremental headcount.
Once you’ve moved through the bidding process, set up a in-depth discussion with the outsourcing company to discuss and finalize goals and measurements, performance criteria and costs and timelines.
4) Manage the Relationship and Transitions: Be prepared to invest some quality time on the front end of the outsourcing relationship as every outsourcing company will have to get up to speed on some aspects of your business.
Expect some bumps in the road, celebrate small successes and recognize the importance of “marrying” your team/staff with the outsourcing company in a way that facilitates a productive relationship for all.
Setup performance benchmarks with the outsourcing company and be prepared to modify the processes with the vendor quickly if things aren’t moving in the right direction. Keep a close eye on the metrics (results, process, ROI variables, etc.) as you move forward. As the relationship scales up, you can pull back from day to day interaction; but, again, keep an eye on the metrics.
5) Mitigate and Minimize Risks: Identify contractual issues (what is to be delivered and when, with specific costs and milestones) and make sure the outsourcing company adheres to these. A word about contracts and NDAs (non disclosure agreements); if you are working globally or recruiting a vendor from outside the US and are a small business you may not have a lot of recourse if the outsourcing company makes mistakes - unless (as below) you are using an outsourcing platform that has built in reviews and feedbacks, which will afford you some protection.
The vendor will want to build an ongoing relationship to drive incremental revenue moving forward. So, keep this in mind and structure payment milestones so there is shared risk and reward with the vendor.
Also, set up “feedback” loops or use available review made available via the outsourcing platform for the vendor that is publicly viewable – these offer you some protection.
If you are using an integrated platform like Elance, Freelancer or Fiverr, these do have “review components” which help to motivate the outsourcing company to provide terms of services that are consistent for what was identified on the front end of the contract.
1) Hidden costs and Contract Malfeasance: Be aware, outsourcing companies are like venture capitalists when it comes to contracts. They’ve done hundred or thousands and they know the intricacies much better than most small businesses. And, if they are outside the US it can be virtually impossible to recover losses via litigation.
2) Loss of Management Control: Once you hire an outsourcing company you are to a certain extent ceding control of some facets of your business operations. And, the outsourcing company is not driven by the same standards as your company. In the end, they are focused on generating revenue and profits from the relationship.
3) Potential Loss of Intellectual Property and Security: Your in some case sharing core intellectual property with the outsourcing company – if they handle it improperly, are not locked down on their end (security, web access, etc.) then your company’s core intellectual property could be at risk.
4) Poor Quality Work and Late Delivery: Be aware, you can check references, samples, quotations, etc. and still get poor quality work from an outsourcing company. You’re bound to a contract and if business circumstance change or the quality of the work is not consistent with the contract and front end conditions, it can be difficult to have recourse with a contract.
To protect yourself, try to tie payment milestones to specific deliverables with clearly defined timelines. But, you are at risk in this area regardless. But, if you are using a popular outsourcing portal like Freelancer or Fiverr, you don’t pay until the job is completed; so, you have built in protection with these platforms.
5) Relationship Fragmentation: Many outsourcing contracts start off in the right direction; but, as time evolves (for many reasons) the outsourcing company may realize they aren’t going to realize significant revenue and profit generation with your relationship and they downsize their interaction and support as a result. It happens – the offset is monitoring the relationship closely and if you sense the vendor is not supporting you its time to sever the ties and move on.
6) Time and Communication Issues: One of the at times hidden challenges of outsourcing is the amount of time it can take for setting up a outsourcing listing and then dealing with the communication issues, especially if the responding company is outside the U.S.: Cultural and language barriers exist, time zone differences get in the way (your going to work odd hours just talking with vendors initially or they are), be prepared to use Skype if the vendor is outside the US and communications via this platform can be challenging for you and the outsourcing vendor.
Top tier outsourcing platforms and portals include: Elance, Fiverr, Freelance and Odesk. Each of these outsourcing platforms has its strength and weakness – we’ve used them all over the years and will give you some recommendations for each. In terms of front end costs, there are none if you are the hiring firm, other than a small transaction fee.
But, there are premium posting costs for most to advertise a job or skill that you need, which vary per platform; but in general, are under $100. and well worth the fee to drive higher visibility and responses for your outsourcing company recruitment. For specific reviews of outsourcing platforms please clickthrough to our reviews of Elance, Freelancer, Fiverr and Odesk for detailed outsourcing company reviews.