From taking the decision to outsource to realizing the benefits of outsourcing, it is an arduous process. Outlined below are three key reasons.
1. In some global organizations, the decision to outsource is made by the top management when the business decides to focus on its core activities. This direction is either an outcome of recommendations of a business review or an initiative by top management. All ‘context’ or ‘non core’ activities are typically decided to be outsourced. Context activities are essential activities, but they rarely contribute towards the market differentiators of the business. For example, payroll and accounting for a car manufacturer or a telecom major are good cases of context processes. Taking this decision is not difficult in a global organization. We have recently met up with a large engineering global business where the strategic decision of outsourcing payroll across their operations in all countries has made them invite local vendors with proposals. We also think that small and medium business that have limitations on resources, can also consider the ‘core versus context’ criteria for making outsourcing decisions.
2. Resources are never unlimited. Even in India the situation is changing. No longer are qualified and trained human resources easily available. Finding a qualified person with the right skills who wishes to make a career with your organization is becoming difficult and this pinch is especially felt by small and medium sized businesses. In such a case where there is a resource crunch, the outsourcing decision always helps to reduce person dependency.
3. Post the 2008 economic meltdown, the compliance and regulatory framework is getting stricter. The auditors are asking for strict security measures, ISO, SAS 70 compliances and better controls. This means an upward investment in selecting and deploying right technology and processes, all of which come with a hefty price tag attached to it. When you decide to outsource, capital investment is not necessary. That means the implicit benefit to the business is to use the precious capital in the area where it will give maximum returns.You must have noted that I have not mentioned direct cost saving as one of the key benefits. One does not always outsource for cost. The other reasons are more compelling. Cost may be a tangible benefit of outsourcing. However in my mind the key reasons for outsourcing are far more long term and strategic. The strategic decisions of ‘Core versus context’, recognition of ‘resource crunch’ and ‘Capex versus Opex’ help any forward looking business to decide its outsourcing strategy.
If you are unsure as to whether outsource or not, we would be glad to engage with you in a consulting capacity. As part of our knowledge sharing initiative, we will be happy to present some case studies to you, which have helped us in recognizing the key reasons of why businesses adopt outsourcing as an alternative.