Is Outsourcing Right for Me?

A service such as managing your telephones might appear in the lower left hand corner. The organization performs these tasks poorly when compared to similar service providers, and they are generic to all industries. This means that managing telephone services should be considered an outsourcing target.

Is it any wonder that many organizations have in fact outsourced the management and administration of their telephone services?

In contrast, a customer loyalty program in the retail grocery industry is unique and not generally available (at least as of the writing of this document). If a company were to perfect such a program, become competent at delivery, and attain positive results it would be placed in the upper right of the matrix.

Outsourcing the application would probably decrease the amount of time that the company holds a unique competitive advantage which could easily offset any potential cost savings.

Finally, for example, collections for a hospital should probably be evaluated for outsourcing. Some of the factors that might play into a decision are the collection rate, cost of collection, and the hospital’s community service policy.

Just because a hospital has a very pro-patient write-off policy doesn’t mean the collections function can’t be outsourced. There are providers who specialize in helping patients obtain funding which actually increases hospital collections while developing a very positive patient relationship.

Reasons to Outsource

There are hundreds of reasons why companies outsource and most companies have multiple objectives they want to achieve. The most common reasons fall into three main categories: finance, operations, and labor.

By far the most common reason companies investigate outsourcing is the promise of financial reward. Some of the more common financial rewards are lower cost, reduced capital requirements, improved cash flow, investment avoidance and turning assets into cash.

I am not aware of any outsourcing deal that, in the final analysis, didn’t have some form of financial advantage. Executive management would be shirking their fiduciary responsibilities if they outsourced a function that simply cost more.

In the few cases where outsourcing appears to cost more, an in-depth analysis shows the cost to be less than the internal cost to obtain the same quality, functionality or growth ability that the provider is promising.

A word of caution: Focusing on lower cost alone is usually a recipe for disaster. This is because any function can be delivered at a lower cost, if quality, functionality and quantity of service are ignored. The best outsourcing strategies focus on the non-financial reasons to outsource and use financial rewards as the ultimate tie breaker.

The second category of reasons falls into the realm of operations. Some of the more common reasons include: improved quality and customer satisfaction, better utilization of technology, leverage of international time zones and operations, and to keep the company focused on the core business.

The final category of reasons is labor. Common reasons to outsource are access to difficult-source-skills, the need to scale labor, to reduce human resources overhead, and to gain additional points of view and industry experience.

Perhaps this last point is the most important for small, growing companies who are focused on their core business and lack the time or resources to take full advantage of advancement or technology in the common business processes.

Evaluating outsourcing nearly always leads to improved business processes, either through internal improvements or outsourcing. So while outsourcing is not for every company, nearly all companies will benefit from periodically asking the question “Is outsourcing right for me?”

Jeff Richards is a partner at Tatum, LLC, an executive services and consulting firm with over 700 partners and principals in 33 offices nationwide. With 25 years of experience, Richards leads Tatum’s national Sourcing Solutions practice. He can be contacted at [email protected].