As the founder of NewGen Sourcing, a company that specialises in work efficiency, I will explain in five questions what outsourcing is, who can outsource, when and which products and services are particularly suitable.

1.   What is outsourcing?  

Outsourcing is the business practice of hiring a party outside a company to perform services and create goods that traditionally were performed in-house by the company’s own employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. As such, it can affect a wide range of jobs, ranging from customer support to manufacturing to the back office.

2.   Can your organization outsource?  

Any company can outsource part of its activities, regardless of its size. However, to avoid any problems, only outsource when you have full internal control over all the goods and/or services processes that you wish to outsource to a company.

 Generally speaking, companies do not all have the same level of maturity for outsourcing. The most mature are those that decide to outsource to boost their innovation, not to reduce their costs.

3.   Why outsourcing?

Companies usually outsource their activities to reduce their production and/or management costs. However, today, many organizations use this practice to find specific skills that are not available internally, or not enough. A typical example is technology. They require specific skills that organizations do not always possess internally. They may turn to another company to fill the gap. That company will provide the skills that are needed to make the organization that needs them work.

 Secondly, outsourcing allows you to use your company’s internal resources more efficiently. By outsourcing part of your activities, you will be better focused on the core of your business. The most strategic activities for your company will receive a boost. Indeed, thanks to outsourcing you can more easily focus on research and development of goods and/or services for your customers. As a result, you will become more competitive on the market.

In short, 20 years ago, organisations delegated part of the production of goods and services to others, in order to save money. Today, companies are also outsourcing to stimulate creativity and innovation, in order to be more competitive. Today, service providers are more than just suppliers. Organizations are increasingly trusting them. They sometimes integrate them in strategic decision-making for their business. It is therefore highly recommended to maintain good relations with them.  

4.   What can you outsource?

You can easily outsource activities that are common to different types of industry, such as after-sales services, accounting, human resources management, ICT, etc. However, before you decide, think carefully about what you can delegate to an external company. As seen above, it is best to outsource what you already know how to do very well.

Indeed, the more an activity is mastered by your company, the easier it will be to outsource it. It is the same if it is common in the industry. Conversely, the more specific an activity is to your business and the less it is recommended to outsource. It will be more difficult to find partners who can properly perform this activity for your company. In order to easily find outsourcing providers, the goods and/or services you entrust must be sufficiently performed worldwide.

5.    At what point in time can your company outsource?

It can never be repeated often enough; preferably outsource when you have a good command of the processes. In my career, I have observed organizations that have chosen to outsource some of the activities that they did not fully master internally. They hoped (sometimes secretly) to solve existing problems by outsourcing. This technique, also known as “ship and fix”, usually requires a great deal of effort to stabilize the situation. This is because the underlying problems have been passed on to the external company. This leads to tensions between the partners, which can take years to resolve.

Finally, move to outsourcing when you feel ready for culture shock. Indeed, if you outsource part of your activities to companies located on other continents, you will be confronted with people who do not always think like you, who do not have the same communication codes or even very different accents that make day-to-day communication difficult. A culture shock can often be felt. It will have to be overcome in order for your outsourcing to go smoothly. Techniques exist. But this is for a future article.