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Thinking about Outsourcing?

To help in your evaluation, start by reviewing the following questions. Your answers will help to determine which direction best suits the circumstances.

1. Is this activity/project a core process (what your company does as a business)?
2. Are specialized skills needed?
3. What is the duration?
4. Will confidential/proprietary information be disclosed?
5. Will the project result in new skills necessary for the ongoing business?
6. Could the project terminate early due to budgets/ other priorities?
7. Do I have the staff now or would I need to hire them?
8. Do I want close management of day-to-day activities?

There are some general guidelines relating to the decision to outsource or keep the activity ‘in-house’. Review these guidelines against the answers to the above questions to help with your decision.

Guideline 1: If the activity is a core process to your business, do not outsource. Consider the business of building cars. The assembly-line is core and you would not want to outsource this process, while computer training is not core and you would be able to outsource this without impacting your business integrity.

Guideline 2: If the activity requires highly specialized skills you do not have and would only need for a short duration, do outsource. An example might be if you want to write an employee handbook ensuring all your policies are represented clearly and in legally correct terms. You would be better to outsource this to an experienced HR consulting firm. On the other-hand, if you just installed a new database technology requiring specialized technicians, you would be better to hire the skilled individuals since you will need them for an extended/ multi-year period to work on undetermined/multiple projects.

Guideline 3: If highly sensitive and confidential information will be revealed during the execution of the project, do not outsource. Example: if the project requires access to customer lists and future orders, do not outsource. Whereas revealing office locations or other public information would not compromise your business and could be outsourced.

Guideline 4: If you need the staff once the project is complete, do not outsource. This covers situations such as additional projects to work on or newly learned skills that are needed. However, projects that end with no ongoing need of the staff would require you to terminate employees, creating Human Resource issues, possible severance costs and legal issues. These short-term staff needs would best be outsourced since you can give termination notice (based on contractual agreements) and not have to deal with the outsourcer’s personnel.

Guideline 5: If the activity will last several years, do not outsource. The primary reason is price. Outsourcing typically costs more than if the work was done in-house since you are paying some ‘fixed costs and profit’ dollars as part of the cost to do the work. There will always be a need for accounting personnel and although this is not a core skill, the need is ongoing and should be kept in-house, as an example.

Guideline 6: If you require strict management control, do not outsource. Although you could have general oversight of the project deliverables, the day-to-day management is done by the outsourcer. This would impact project approach, employee moral, customer interaction (if any) and feedback. An example of recent outsourcing which may not have been a good idea is customer support for computer equipment sales by Dell. Dell could not control the interaction with their customers and there were numerous complaints about communication skills, product knowledge and general attitude of the outsourced technician. Many companies that outsourced support have taken back control.

Categories: General
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