What are the pros and cons of outsourcing? What are you going to look for?
In this first blog of three I look at why companies outsource technology. In future blogs, I will cover other areas such as human, financial and strategic outsourcing, but technology is a great place to start. Before I do, I would like to cope with the marmite-like image outsourcing has in business today.
Outsourcing is not new, and all businesses, to a certain extent, do it. Ford owned the supply chain in the 1920s. Motivated by a shortage of raw materials Henry Ford bought steelworks, glassworks, timberland and iron and coal mines. In the 1960s, Ford was dependent on other businesses for raw materials and most of the component production. Today, many automakers are outsourcing design and marketing and selling through franchise stores.
But outsourcing is an emotional topic
In spite of history, and how widespread it is, outsourcing is still an emotional topic that shares opinions. Some see it as progress, improve services and save money, while some see it as job cuts, offshoring and bad results. Both views have their advantages, and both views have many examples to back up.
Outsourcing has improved services in a number of areas and has achieved significant cost savings in both the public and private sectors. It has also had some major disasters with new IT systems that never get alive and performance so bad the client has had to go in and take over to save the day.
The answer, as is almost always the case, is somewhere between the two views. I think that outsourcing is fundamentally good for businesses by giving them access to specialist skills and systems, giving them the benefits of scale they could not realize on their own, giving them the opportunity to concentrate on core competencies. But I also believe that if it is not done correctly, it may have the opposite effect with bad systems, higher costs and lead time absorbed in fixing the problems instead of continuing the business. If you do it right and can work really well, but if you make mistakes, it can really bite you.
The first area where outsourcing can go wrong is around the first decision about what to outsource and how. When making that decision, it is useful to recognize the pluses and minuses of outsourcing and the areas in which they affect. For convenience, I divide the factors into four areas, technology, human, strategic and economical. In this article, I will cover the decision to outsource technology. I will continue with the other areas of future blogs.
Why outsource technology?
What are the areas where outsourcing can benefit you through technology?
The first gives access to new technology. This is often higher than the cost in the outsourcer's priorities, and it's not hard to see why it's an advantage. Outsourcers are usually specialists in a particular area and you therefore expect them to be more ahead of technology than non-specialists. Small businesses can see this in terms of accounting software.
Would you like to code your own accounting software?
You would not expect a small business (or for that matter a big one) to write your own accounting software. Whether large companies using SAP or small ones using KashFlow, companies prefer to buy the shelf software, and especially at this time, with rapid changes in accounting and tax rules, they keep up to date.
This means that the Software is not specific to your business, but there are plenty of choices so you can choose the one that is closest to your requirements. You can even have some custom work done to meet specific requirements that are not out of the shelf.
You can buy specific market experience
Another good example of access to new technology is app development.
If you find an app developer who has developed programs in your room, you are already far down the track for a successful project. You can enter a new area for your business, but using a tested and tested provider may risk the entire project.
Outsourcing Technology Helps You With Future Security
Next in line is the advantage of avoiding obsolescence. Technology is moving fast and obsolescence is a constant risk. However, special outsourcing retailers are better able to cope with this risk as they can finance development through a number of customers. The increasing use of Cloud hosting and SaaS (software as a service) means that you as a customer can change systems very quickly without being bound by long-term contracts or investments. Office 365 is a good example of SaaS where you pay a monthly fee for the service, and the provider offers hosting and keeps the software up to date.
Take advantage of outsourcing's economies of scale
For security, large outsourcing can offer industrial scale disaster recovery and business continuity solutions. Customers benefit from this scale without having to invest themselves. Of course, this payment must be paid, but the outsourcer can spread the cost over a number of customers, so no client carries the full cost.
Access Special Expertise Without Increasing Employees
Specialist vendors can also attract specialist skills. If you are an IT specialist looking for a career in IT, you can not be attracted to a manufacturing business, but you can be attracted to an IT company that supplies the industry sector. Specialist suppliers can offer the career path that the customer can not, but the client still has access to the same expertise, albeit on part-time loans.
Change and Project Management
Then there is the expertise that specialist vendors can offer in implementation and transition. This is one of the most risky areas of technology, but outsourcing providers handle it all the time and want the systems, processes and people in place to limit the risk.
This list provides some of the technological factors you may want to consider when you decide to outsource or not, but you must remember that the service is outsourced and which limits your flexibility. For example, outsourcer may offer disaster recovery and industry-level accessibility, but you do not run the service, so the ability to enter service level is limited. Very often in hosting situations, especially for small customers, there will be one, take it or leave it, availability level of accessibility.
In future blogs, I will cover the human, strategic and economic factors surrounding outsourcing, but I hope this brief overview will help your thinking.