Strategic Outsourcing Can Lift the ROI of a Small Business

— August 1, 2019

Globalization is causing many entrepreneurs and managers to rethink traditional business models. This trend has coincided with a greater demand for outsourcing services. The global outsourcing market is expected to grow to $ 343 billion by 2025.

There are actually very compelling reasons to outsource certain functions of your business. However, companies that don’t plan their outsourcing selection and vendor management models carefully may encounter a variety of new problems, including a degradation in product quality, problems with customer perception and cost overruns.

You can benefit immensely from outsourcing. The trick is to outline your objectives carefully and pursue the best outsourcing options.

We have reviewed outsourcing guidelines by Deloitte, here are some guidelines that will help your company get the most from your outsourcing.

Understand the metrics that are most positively shaped by effective outsourcing

Before you start crafting and outsourcing strategy, it is important to understand the areas where outsourcing helps the most. Surveys from leading executives help shed some light on these questions.

The most common reason that companies use outsourcing is to cut costs. One survey by Raconteur showed that around 55% of executives were either satisfied or very satisfied with the cost cutting benefits of outsourcing. Only 22% said they were either dissatisfied or very dissatisfied.

The same survey showed that the compliance benefits were even more important. Respondents were overwhelmingly satisfied with using outsourcing as an approach to meet compliance targets.

Unfortunately, outsourcing is not as practical of a solution for meeting all organizational objectives. Respondents were equally dissatisfied as they were satisfied with the following:

  • Using outsourcing to boost innovation
  • Using outsourcing to improve analytical capabilities
  • Using outsourcing to improve automation

This indicates that it is a good idea to keep your priorities in mind before outsourcing. You will need to decide which functions to outsource in order to align with your objectives. If your goal is to improve compliance, then outsourcing could be your best route. On the other hand, your company may not want to consider outsourcing if your objective is to improve innovation.

Choose outsourcing partners carefully

I have utilized a variety of outsourcing services myself over the years. I have tried using low-cost micro-gig platforms like Fiverr. I have also worked directly with independent contractors.

My experience has been that the quality of work varies tremendously between outsourcing providers. You can’t always know ahead of time which services are going to be most ideal. The old rule of thumb is that you get what you pay for. However, some exceptional workers have offered their services at much lower cost than their subpar counterparts.

The only way that you can choose the right company to outsource to is by reviewing them carefully. You need to check reviews and request samples of their work.

Don’t take an autocratic approach to vendor selection

Deloitte has a great white paper on the best practices for outsourcing. The fourth step in the process is to make a commitment. Deloitte recommends holding a stakeholder meeting before signing a contract with the vendor. The goal is to make sure that all relevant stakeholders are on board and agreed that the pricing is ideal.

This suggestion is made for larger organizations with highly bureaucratic decision-making models. As a small business owner, you are not confined to this approach. Unfortunately, this can occasionally be a downside.

One of the problems with being a small business owner is that you may often be oblivious to your own tunnel vision. If you make a habit of making significant decisions such as selecting vendors without any external input, then you might be more likely to make the wrong choice.

Since you are not forced to adopt the same bureaucratic decision-making model, you should try to get input from others. If you have employees or investors, consider reaching out to them. If there are not any other major stakeholders in your company, then you might want to consult with colleagues and other business owners to see whether they agree with the terms the vendor has proposed.

Make assessments an ongoing process

You may be satisfied with the vendor after first making your selection, but that doesn’t mean that they will consistently deliver the results you expect. You are going to need to constantly review their performance and make periodic adjustments as needed. Don’t be afraid to terminate the relationship with them if the results aren’t what you are expecting.

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Author: Chris Pentago

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