Outsourcing is a popular organization management strategy for many fast-growing firms. It equips you to focus on your core competencies, free up time and resources, and scale your business faster. Not to mention, gaining cost savings and increasing operational productivity. Read on to find out why you shouldn’t be afraid of outsourcing.
But, it’s got a bad rep—and for good reason.
Traditional outsourcing companies are obsessed with cost reduction for their clients. They believed that the value of outsourcing was to lower operating costs. In practice, however, reducing operating costs came with its own costs. By focusing on short-term benefits, they neglect to invest in the people who are actually doing the work. Unsurprisingly, attrition rates in the industry are atrocious. As a result, they aren’t able to provide services sustainably, and those short-term cost savings don’t translate to longer-term sustained savings.
This has a direct impact on your business. Consider the horror stories you’ve heard about outsourcing. (Here’s a Reddit thread on the topic. Highly entertaining in a macabre way. Read at your own risk.) When you work with outsourcing companies whose sole existence is profit maximisation, you’ll probably find yourself in one of these scenarios:
- Paying double for work that takes ages to complete due to miscommunication or inaccuracies in implementation arising from a skill gap
- Giving your internal team more work by making them train and retrain outsourced team members who quit within the first 120 days of hire
- Spending twice an employee’s salary to find and retain a replacement for each outsourced team member that churns
You shouldn’t be afraid of outsourcing
Scary, right? We get it.
The promise of short-term benefits doesn’t seem so attractive when faced with the long-term impact on your business. But is it an inherent problem of outsourcing? Or does the problem lie with cost-focused traditional outsourcing companies? If the former, you might as well give up on the notion of outsourcing altogether. If the latter, is there an alternative?
Yes, it’s Outsourcing 2.0
There’s nothing wrong with outsourcing per se. The problem lies with the people running outsourcing companies. At Boldr, we believe that the next phase of the industry is human-centric and mission-driven. Modern outsourcing companies are focused on balancing profit with purpose. We raised the bar on what outsourcing can help your company achieve. By leading with our values and raising the bar on what outsourced employees come to expect from their jobs (i.e. career paths, etc.), we are better equipped to address the concerns many people have with the industry.
Moreover, modern companies understand that successful outsourcing is more than a cost-management decision. It’s a strategic decision to partner with an organisation who can help your company find immediate cost-savings. At the same time, achieve scale and long-term growth in new markets around the world.
You shouldn’t be afraid of Outsourcing 2.0 because it’s people-focused, not cost-focused. This means that the outsourcing organisation is committed to retaining, developing, motivating, and satisfying employees. It creates an environment where people can really grow and thrive. With Outsourcing 2.0, you can be confident that as your business grows, your outsourced team grows with you.
If you’re considering outsourcing for the first time, here are a few best practices in starting your outsourcing project without fear.
7 Best Practices for Outsourcing Project Work
A 2003 study of nearly a hundred outsourcing efforts by European and North American firms found that there are seven underlying reasons why outsourcing efforts fail. The author, Jérôme Barthélemy, professor of management at ESSEC Business School in France, called these the “Seven Deadly Sins of Outsourcing.” Although the article is 17 years old now, it still holds true today.
Here, we’ve updated the concepts to match our current times and feedback we’ve heard from prospect and client conversations.
Best Practice #1: Outsource activities that are NOT key to your core competency
When deciding to hire in-house or outsource, the one critical factor you should consider is the strategic importance of the task you are looking to outsource. If the task is NOT key to your company’s core competency, then outsourcing is a viable solution.
For instance, say your core competency is technology and developing software your customers rave about. Is it strategic to outsource software development? Nope.
Keeping it in-house means you can build on your current capabilities and in-house talent to enhance your competitive advantage further. Everything else that takes your focus away from what you do best can be outsourced.
The Outsourcing Decision Matrix is a great tool to help in your decision-making process. Think of the activity you want to outsource. Then, ask yourself:
- Does this activity have a high or low value-add to your business?
- Does it have a high or low potential to enhance your competitive advantage?
|Activity’s Total Value-Added to Firm’s|
Products and Services
|Activity’s Potential for Competitive Advantage||High||Form a Strategic Alliance|
(In-House + Outsource)
|Low||Outsource Completely||Outsource Completely|
If you are still on the fence about whether outsourcing is right for you, take this quiz to find out.
Best Practice #2: Find the right outsourcing partner
We interviewed Cheryl Mack, the National Head of Community at Stone & Chalk. She’s heard all the stories about companies who’ve put their trust in an outsourcing company and experienced horror stories of operations getting out of hand or getting scammed. Her advice on finding an outsourcing partner you can trust:
“I think there are three main things to consider when looking for an outsourcing partner. (1) Deep knowledge and exposure to your local landscape; (2) Genuine interest to improve your business; and (3) The eagerness to guide you on your outsourcing journey. A reliable outsourcing partner will take you out of the fear zone by answering your whys and hows early on.”
Best Practice #3: Negotiate a Solid Contract
A good contract helps establish a balance of power between you and your outsourcing partner. It clearly outlines the expectations and goals of both parties. And, perhaps most importantly, it provides a safety net in case the relationship fails.
Best Practice #4: Get your internal team onboard
Outsourcing may make in-house employees lose their commitment to your company, and result in counterproductive anxiety or even mass exodus. Don’t keep it under wraps. Be honest with your team about why you’re pursuing this strategy. You may find that they are more open to it than you realise.
Many of our clients are in their early or mid-stage of growth, and they are at a tipping point. Often, they come to us because their in-house team is swamped and needs help.
When Cratejoy partnered with us to scale their customer support through automation, they immediately recognised that outsourcing could empower their team to do higher-value work.
“We realised the first step [to providing great customer support] would be creating space for our team to shift from reactive, firefighting, repetitive, and sometimes even transactional work to higher-value work.” – Nick Philippi, Former Senior Manager Customer Support at Cratejoy
Best Practice #5: Hire a manager to supervise your outsourced team
One of the biggest fears people have with outsourcing is losing control over the outsourced activity. This can happen when you go into outsourcing, thinking that once you’ve hired a reliable partner, you can simply “set it and forget it.” It’s crucial to retain qualified managers to supervise the outsourced activity and keep it in alignment with the overall business strategy.
32 Degrees took this lesson to heart when they partnered with us to re-design, document, and build a new customer support process. Brandon Fields, Director of Ecommerce at 32 Degrees, gave this advice for transitioning work to your outsourced team:
“If your role is Executive or Directional, I would recommend having someone who’s more in the weeds with customer service. It helps a lot to have someone manage the transition and the day-to-day aspect of managing your outsourced team. That’s the thing that helped us with the transition the most.”
Best Practice #6: Pay attention to the hidden costs of outsourcing
This ties back to our earlier discussion on the long-term costs of prioritising short-term benefits. There are hidden costs in searching, contracting, and managing your outsourcing partner. And it may overwhelm potential savings if you’re not mindful.
Best Practice #7: Plan an exit strategy
Although you may not want to think about breaking up with your outsourcing partner, planning an exit strategy is just good business. What happens if the relationship fails? An exit strategy can look something like a plan to switch to a different partner or a plan to reintegrate the outsourced activity in-house. Depending on the function, this can be really easy or really difficult to do. So be prepared: plan and build reversibility clauses into your contract.
The old way of outsourcing is broken. By prioritising cost reduction above everything else, traditional outsourcing companies forgot about their supply chain: people. They didn’t think about how to meet client needs more sustainably. As a result, they failed both their clients and people.
But outsourcing today is not just about immediate cost reductions. The right outsourcing partners will give you that, but they’ll also set up a structure that gets you sustained cost reductions and productivity over time. The right outsourcing partner isn’t about cutting your team and costs. It’s about elevating your team and improving the ROI of every $ you invest.
The best way to overcome your fear and gain confidence is to seek guidance, apply best practices, and explore opportunities. Opening your eyes to this new and more evolved approach to outsourcing can lead you to a strategic partner who can cost-effectively grow alongside your team—while also scaling quickly and achieving long-term growth.