In today’s fast-paced business world, driving efficiency is often at the heart of growth plans. When thoroughly planned, outsourcing plays a vital role in ensuring productivity is high; enabling managers to focus on business growth. However, some organisations fall foul of outsourcing too eagerly, which can decrease efficiency and cause irreparable damage to a business. To avoid these pitfalls, it’s vital to understand which business processes should be outsourced and which are most efficient when kept in-house.
To offshore, or not to offshore?
Offshoring is the relocation of business processes to another country, usually by established organisations aiming to cut costs in areas removed from their core activities. For example, unless a firm has in-house accountants or a finance team, offshoring well defined maintenance tasks such as payroll management to a third party is often a cost-effective option. However, offshoring the wrong type of business processes can have disastrous effects. Offshoring core business and innovation should be avoided at all costs – the constant communication and collaboration required to ensure the best possible results become strained when working across unmanageable time zones and cultural boundaries, to the detriment of the final product.
Investing wisely in offshoring day-to-day business practices will enable companies of all sizes to cut costs, while the freed-up capital should be reinvested into business growth. However, to take advantage of these extra finances, firms must understand when outsourcing is beneficial.
Outsourcing disruptive innovation
Outsourcing onshore is another available option which can be a perfect fit for disruptive innovation, depending on the type of business and the expertise available internally. Many businesses aim to transform their offerings and innovate like a ‘start-up’. However, internal constraints and practices can stifle this. Established businesses investing capital in disruptive innovation should be the cornerstone of their development plans. Outsourcing innovative processes such as software development often breeds the best results, as internal team members may be too close to the business’s existing processes to “think outside the box”. Unlike offshoring, communication isn’t strained by time zone difficulties, and cultural differences are minimised, so daily iterations are possible to ensure projects remain on track. Large companies can benefit greatly from onshore outsourcing when relevant. They can invest in rapid and low cost innovation using an external team without jeopardising their day-to-day operations.
Core activities belong in-house
It may seem an obvious point, but placing core business activities in the hands of a third party can be disastrous. The expertise required to ensure the best possible results are found in-house and to remove this would almost certainly lead to disparate systems producing substandard products. If Google outsourced its search algorithm to a third party, it is likely to result in the loss of their competitive advantage. To rely on third parties for such key processes would be akin to outsourcing your brain, and no business can afford to go down this route – the results will likely be impossible to recover from.
John Cooke is a founder and the managing director at Black Pepper Software