Thinking about outsourcing?

Why Outsource?

You have probably heard of, or perhaps you are even evaluating outsourcing firms to provide you with the required service. But, is outsourcing really beneficial to your business? In this article, we will discuss how your business can achieve competitive advantages through proper outsourcing.

What is Outsourcing?

Outsourcing can be defined as “the assignment of specific work to a third party for a specific length of time at an agreed price and service level.” and is typically about how well the vendor (someone who provides you with the outsourcing services) can tailor his/her services to meet the client’s specific operational requirements. Their ability to work with you is important, after all what you really want is a hassle-free service.

Some of the outsourcing services include:

  • Payroll and employee claims processing
  • Accounting and book-keeping
  • Computer and network maintenance
  • Marketing Activities

Companies are reminded fervently to stay lean so as to keep up with the fluctuations in the marketplace and important for businesses to stay focused and align their business development strategy with their core competencies in areas where the business can derive its competitive advantage.

You may ask: if a business focuses on her core expertise, what happens to the ancillary functions such as accounting, payroll, information technology (IT), and credit management that are equally important?

Traditionally, these functions are managed internally for better control. However, with the shortage of labor and the human resistance to change fast becoming a real problem encountered by many businesses today, companies may want to consider outsourcing their non-strategic functions, while directing all scarce resources to the core functions of the businesses.

What are the non-strategic functions to outsource?

We can divide the non-strategic functions of a company into two categories:

Secondary activities

These are tasks that must be performed conscientiously to ensure the smooth running of the business. They include your accounting, payroll and/or data processing functions.

Non-critical tasks

These are tasks of a lower priority, but they must be accomplished still. For instance, your company needs to be cleaned regularly. For such non-critical tasks, outsourcing is most suitable – with minimal risk.

Why should you consider outsourcing in your business?

Optimal utilization of your scarce resources

Management should commit their scarce resources to the highest value-adding areas of the business. For example, if you have limited funds to invest, you should commit your funds to the core areas of your business, rather than investing them in a non-core function.

Effective delegation of manpower

The labor shortage is prevalent in almost every industry these days. Recruiting, training, and retaining good staff is no easy undertaking. What if you recruit the wrong candidate for the job? What if your staff fails to accomplish the assigned tasks competently? And what if they leave the company without due notice? If you are short of manpower, you should seriously consider engaging professional help to take care of your non-core business functions. You staff can then be freed to handle the core business activities. Usually, these outsourcing vendors can do a better job because they have the infrastructure, experience and skills to provide you with the required support.

Tapping into the expertise of your vendor

Because these vendors are trained specialists with rich industrial experience, they are able to understand your requirements and provide you with innovative ideas to help you improve your existing management functions. These vendors may be better streamlined in terms of business processes or operations. They may have invested in new technologies, or proven methodology to back their outsourcing services. Learn from your vendors – they can be your rich source of information and ideas!

Sharpening your business focus

With outsourcing, you need not have to worry about the execution of non-core operational functions. You can simply divert your attention and resources to grooming your business, reacting quickly to market changes, and making profits. Especially with the advent of technology and keen market competition, we need to constantly remind ourselves to stay focused on our business objectives.

Business Outsourcing – Where should you begin?

Start with your company’s goal and objectives. You may first develop a clear understanding of what your company wants to achieve, and then translate these objectives into a policy for outsourcing. Your management’s support and commitment to outsourcing are equally important. Understand the objectives of outsourcing and think through the processes carefully. If you don’t know where you are heading, then don’t jump into it!

Conduct a quick review of your current business functions and determine which are the core and non-core activities. From the list of non-core activities, you may then decide which are the ones to outsource. Make sure there are ready vendors whom you can engage to assist you.

Be selective with your choice of vendors. Make sure the chosen vendor is compliant with the quality service standards set by your company. For example, you may expect your vendors to complete all processing by the 10th of every month, etc.

Appoint a coordinator to oversee this “vendor-company” relationship. Always strive to keep the channels of communication open between the company and the vendor to avoid any misunderstanding. You need to keep your staff informed, especially those who will be directly affected by outsourcing. Think of how you can better deploy your staff’s services within the company. Retrenchment is NEVER the easier way out.

Here are some practical pointers to help you in your vendor selection:

  • Identify only vendors who share your company’s values or philosophy.
  • Remember – the cheapest may not offer you the best service! Instead, try to understand what the vendors can deliver. You may be paying more for their services, but you are getting in return better customer service, quick response time, and commitment.
  • Check if the vendor’s proposed system and processes complement yours.
  • Access how flexible the vendor is. Does he insist on doing things his way all the time, or is he willing to listen to your requirements first?
  • Finally, choose only vendors who are capable of helping your company innovate and improve on your current workflow and/or processes.
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