Outsourcing is an increasingly popular business practice, whereby organisations cede certain aspects of their operations to third party service providers. Perhaps, the most obvious and prominent reason why companies adopt this measure is the consideration of cost. Outsourcing is essentially a cost-saving measure that helps organisations reduce overheads. However, beyond this, it also creates opportunities for improved operational efficiencies. With non-core operations outsourced, organisations are able to better focus their resources on more critical aspects of their businesses.
Functions typically outsourced by businesses include security, fleet management, facilities management and the front-desk/ reception, to name a few. Certain aspects of Human Resources such as recruitment, payroll administration and background checks are also quite frequently outsourced. While the norm is to outsource non-core or support functions, organisations in the financial services space (especially banking) have gone further to outsource frontline functions such as business development (or marketing), tellering and customer care. At least, one or two Nigerian Banks have their contact centers run by 3rd parties offshore.
Irrespective of the business size, cost reduction and operational efficiencies are incentives any business owner would want to take advantage of. Outsourcing offers both, but like all business decisions, it has to be weighed carefully. What then should you consider before taking the plunge?
- Analyse your Business Processes: This should be the starting point of any outsourcing decision. As a business owner with good understanding of your business, outlining the end-to-end processes shouldn't be onerous. Being able to dissect the business into processes, input and output will reveal what aspects can be run by a 3rd party, and which ones cannot. Some of these peripheral functions, will be clear, while others may not be clear-cut and could demand consultations and more thorough analyses based on the peculiarities of the business.
- Run the Numbers (Do they make sense?): After identifying which aspects of the business can be outsourced, it is very important to quantify the potential advantages of outsourcing, particularly the bottom-line impact. While consulting for a start-up organisation some years ago, we were convinced it wasn't necessary to hire drivers in-house. However, at the time, the company had just two drivers. After taking proposals from a number of service providers and running the numbers, it was evident that the cost of keeping both drivers in-house was less than the cost of outsourcing. Often times, outsourcing is a game of numbers. The service providers profit more from higher volumes. Consequently, the company had to delay the decision to outsource that function for another two years till the numbers made sense.
- Identify Competent Providers: Once you outsource a function, the consumer or client often has no idea what is going on behind the scene. What the client sees is the face of your company. Even when it is known that the service is outsourced, the consumer cares less about the identity of the 3rd party provider. He or she is procuring the service from your company and any service failure or otherwise rubs off directly on your company's image. Hence, the pedigree of the service provider should be thoroughly scrutinized. Find out and talk to their existing or past customers; do your independent checks on the company and where possible, the staff they intend to assign to your business.
- Draft a Service Level Agreement (SLA): Get your lawyers or legal advisers to draft a water-tight agreement that clearly outlines the scope and quality of service you expect to be delivered. The Agreement should also seek to protect you and your clients as much as it is practically possible.
- Define Monitoring and Evaluation Mechanisms: As stated earlier, outsourcing does not absolve your business of all responsibilities. While it saves time, human and financial resources that would have been committed to running the process in-house, it still requires the dedication of some time and manpower to manage the relationship with the service provider. Don't take your eyes off the ball. Create a feedback mechanism to feel the pulse of your clients. Do spot checks, conduct mystery-shopping, and document your observations. Don't hesitate to pull the plugs when consistent service failure is observed.
In conclusion, outsourcing no doubt offers significant benefits which can save your business money, expand your reach, increase your client base and reduce turnaround time. But it is by no means a silver bullet. Understand your business dynamics and identify what you can afford to entrust to a 3rd party. Choose the service provider diligently and keep your eyes open. In the final analysis, you are the one the client knows. Be sure the service represents your values!