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Outsourcing – the devil is in the detail
Outsourcing – the devil is in the detail

Without any doubt, start-up entrepreneurs must outsource selected functions to specialists in those fields.

As an example, your company’s accounting should be conducted by external accountants until the start-up has the financial and human resources to manage this function internally. Unless, of course, the start-up is an accounting firm…

Most start-ups already use outsourcing, for example, when backing up their files to a cloud-computing service provider such as Microsoft’s OneDrive facility. In this case, the start-up has effectively outsourced technology without having to invest in large capital outlays to actually own the technology. The so-called shared economy is based on outsourcing everything from car ownership (Uber) to bedrooms (Airbnb).

So, what is outsourcing exactly?

Outsourcing is an allocation of specific business processes to a specialist external service provider. Most of the times an organisation cannot handle all aspects of a business process internally. Additionally, some processes or projects are temporary and the organisation does not intend to hire in-house professionals to perform the tasks.

Sometimes also referred to as "contracting out" it is a business practice used by companies to reduce costs or improve efficiency by shifting tasks, operations, jobs or processes to an external contracted third party for a significant period.

When one thinks of the massive consulting companies globally, such as McKinsey, Deloitte and KPMG, you realise the size of this industry as these companies provide specialist skills to corporates that they do not possess themselves. At a huge cost, of course.

So, how do we apply these principles to the start-up environment? 

Outsourcing as a Strategy for Start-Ups

From product development, software development, to sales and marketing, there are a variety of benefits of taking this approach. The list of tasks that can be outsourced is almost endless and, with a global freelance economy growing exponentially, flexible talent is also available to cash-starved start-ups. When used properly, outsourcing is an effective strategy to reduce expenses, and can even provide a small business with a competitive advantage over rivals.

Companies outsource primarily to cut costs. However, it is not only about cutting cost but also about reaping the benefits of strategic outsourcing such as accessing skilled expertise, reducing capital overheads, flexible staffing, increasing efficiency, reducing turnaround time and eventually generating more profit.

There are many benefits for the start-up to outsource:

  • Flexibility so that can upscale/downscale according to your business needs and cash flow.
  • You can select the best of breed service providers. It may take some time to source those partners that deliver according to your requirements. Engage with experts in their respective fields by using a centralised pool of experts.
  • Control capital costs. Cost-cutting may not be the only reason to outsource, but it's certainly a major factor. New projects can be started quickly, and if necessary, allowing you to focus on your core business.
  • You get to manage by output only, with none of the attendant hassles from in-house employees. This should improve efficiencies and reduce risk. Outsourcing is a great leveller so that small companies can compete against unwieldy corporates.

     

    Caveat Emptor – let the buyer beware.
    That’s you as the business owner!

     

    With outsourcing expected to grow enormously in the years to come, there may never be a better time to learn more about this topic. Before you move forward, it’s imperative to compare the numerous advantages with the disadvantages of outsourcing.

     

    The Disadvantages of Outsourcing

    The practice of outsourcing is subject to considerable controversy in many countries. Those opposed argue it has caused the loss of domestic jobs, particularly in the manufacturing sector. An outsourcing strategy can thus lead to possible bad publicity and ill-will to your company, especially once it becomes a large business in your community.

     

  • Building a competent team

    As the start-up owner, you never get to “own” the outsourced resources. The result is that you may be building a competent team external to the business, instead of building an experienced inhouse team. This means that there is the potential threat to security and confidentiality. It is also very important to understand the effect outsourcing can have on your company culture.

     

  • Risk!

    This also means that you are at risk with intellectual property residing external to the business. These risks can be mitigated to a certain extent, such as splitting large projects between multiple service providers. However, this makes the process more clumsy and unwieldy to manage and integrate all the moving parts. It is all about timing – once you have the cash resources available you should consider bringing certain outsourced functions inhouse.

     

  • Management Control

    Outsourcing does not imply that you abdicate your responsibility for the project. The outsource partner requires tight and extensive management and this process should be managed on a project basis, with regular check-ins, follow-ups and quality control systems included so that you do not lose management control.

     

  • Hidden Costs

As with most projects, there are generally always hidden costs lurking beneath the lid. Your first forays into the world of outsourcing will probably be very steep learning curves in this respect. However, as with most things, experience teaches us to look for the hidden dangers such as costs and risk to your reputation. By outsourcing to another company, you are inherently tied to the financial and operational well-being of that other company.

 

Outsource partners should be viewed and managed as you would manage an internally funded resource in the company. This would include a proper, tight brief on your requirements and regular status updates to check on progress and to catch any missteps timeously. Proper, constructive feedback to your outsourced talent should be an integral part of the process, whether you intend to use them again or not. This will assist the freelancer in knowing where they may have fallen short of the brief so that they can improve for the next project, or even the next client. This feedback mechanism is also important for you to establish how well you briefed your outsourced partner, especially if the work delivered was not up to your required standards.

 

Try it for yourself…

If you have not used outsourcing yet, there are many resources available with the advent of that wonderful tool called the Internet. Try dipping your toe in the water by outsourcing smaller tasks first, before moving on to more substantial projects, then perhaps entire business functions. Websites such as Upwork, eLance, Flexy, and The Freelancer Club are just a few examples of the myriad solutions available to entrepreneurs. This industry is becoming firmly established across the globe, with obvious benefits, but also with the possible risks as described above.

 

Caveat Emptor indeed!

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