Outsourcing certain business functions
September 9th, 2010
Copyright © 2010 Integrated Profitability TM
The way in which companies staff themselves has changed dramatically in the past couple of decades. Many of the changes have been made possible by the advent of the internet and by huge advances in technology. At one point, seems like ages ago, companies internally staffed most functions needed to produce and deliver their products and services. For example, Ford owned Philco for more than a decade to supply radios for their automobiles.
As mentioned in “What to Do, Delegate, Outsource,” companies can take advantage of other companies whose business models focus on providing core services, especially in support and administrative areas, e.g.,:
● Payroll
● Financial bookkeeping
Outsourcing has expanded into infrastructure and operational areas:
● Customer Service
And there are what I would call hybrid-outsourcing arrangements:
● Commission-only sales
● Business process applications
e.g., car financing software packages or senior management MIS dashboards
Several areas are beyond the scope of this short article:
● The rapidly expanding SaaS (Software as a Service) market
● Equally rapidly expanding “cloud computing” applications
● A complete answer to the question: just because you can, should you?
The last question is essentially how to decide whether a company should outsource a particular function. That decision, which is not a trivial one, needs to consider two primary facets:
1. Cost/Benefit
should include both a financial quantification as well as a qualified review of impacts on your brand, quality, customer satisfaction, and long-term strategy
2. Risk
e.g., once outsourced, what could go wrong? What mitigation steps are necessary?
As with most business decisions, an “All-in” analysis, encompassing every aspect of your business that may be affected, provides the best answer.
Bill
William A. Stong
Email: william.a.stong@gmail.com
SBF&P # 79
Telephone: 925-202-6244
Copyright © 2010 Integrated Profitability TM
What to: Do, Delegate, Outsource
May 20th, 2010
Copyright © 2010 Integrated Profitability TM
The owner/manager of a small business only has so much time in a day to do everything that is needed for the company to survive and, hopefully, thrive.
As hinted at last week, nobody can do everything. To paraphrase Abraham Lincoln:
● You can do everything some of the time
● You can do some things all the time
● But you can’t do everything all the time
Owner/managers who try to do everything all the time eventually:
● Burn themselves out
● Do everything less well than possible or even desirable
● Restrict the growth of the company to their own, self-imposed, time and quality constraints
Owner/managers need to put all the activities required * to run their companies into three categories:
1. Do
These are strategic activities; the ones that suit your knowledge, skill, and experience. Allows you to keep focus on the big picture, to keep your finger on the health of the business.
2. Delegate
These are more tactical; frequently those that are process related or procedural in nature. They can also be those activities that require knowledge, skill, and experience that you don’t have in sufficient quantity or quality: activities that others do better than you.
3. Outsource
These tasks have similar characteristics to those that you delegate, with the added feature that an outside company has built their business model on performing exactly those activities and they can do them more effectively and cost-efficiently than you or your staff, at the same or better quality and same or less risk.
The more efficiently and effectively work is done, the better opportunity for growing profitability.
Bill
William A. Stong
Email: william.a.stong@gmail.com
SBF&P # 65
Telephone: 925-202-6244
Copyright © 2010 Integrated Profitability TM
Footnote:
*: There is a fourth category: activities that DON’T need to be done. These can be hard to spot. Basically, though, if regulations don’t require an activity, it doesn’t do anything for profitability, and/or it isn’t something you should morally be doing; then it’s probably not necessary.
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