Many times in many situations outsourcing makes good business sense. As much as the individuals involved may not like that as the answer, or think they do not want to move to that business model, more and more companies (large, small and in-between) have to take a hard look to determine when the return exceeds investment.
As a leader, it’s not about emotions. It is about determining the right long-term business solution. Outsourcing is right for you when . . .
You have standardized your processes at scale
You may or may not have centralized the processing. However, when you truly have standardized processes in place (even across many locations) a single provider can likely handle the transaction load more efficiently than you can internally. When you have an ERP solution in place, it helps facilitate the standardization of processes.
You need to drive process improvement
You may need to get to process standardization or even transformation. Sometimes it takes an external party to help make that happen. They can show you best practices in place with their other clients. A service provider can flush out all of those “hidden costs” that organizations don’t realize come into play when services are provided in-house. You don’t realize how often your people “go the extra mile” until that “extra mile” costs extra dollars.
You don’t want to (or can’t) hire enough people yourself
Often the skills to support the hot ERP platforms (such as Workday right now) command a premium salary. Once your employees work on such a project, you may have difficulty retaining them. Then you have difficulty hiring more employees with those skills because they command such high salaries in the marketplace.
As you struggle to implement upgrades and enhancements, you can’t even think about additional functionality without adding headcount. This is a never-ending cycle. In the long run it makes far more business sense to partner with those who specialize in providing support for these platforms than to try to do it yourself.
You need partial resources, not FTEs
This is where providers come into play who support small and mid-market companies.
Let’s say you are a small business owner with multiple locations. You need some amount of HR support for recruiting, employee relations, benefits and compensation. Rather than hiring one HR person to wear multiple hats, it might be more cost-effective to work with a service provider to source those skills for you from multiple subject matter experts.
You need to invest elsewhere
At times certain types of work get outsourced simply because they are not strategic. For example, the testing function within IT might be outsourced – not because it isn’t important (it’s essential!). It is outsourced to lower the overall costs to the company so that the IT investment dollars can drive cloud-based solutions, which have been deemed the future of the enterprise.
Any time outsourcing is considered, look at the entire business case over several years. Think through the magnitude of change it will cause. An outsourcing relationship is unlike any other business partnership. It is not a vendor/customer relationship. It is a true partnership in every sense of the word.
Then invest wisely for the best benefit of the business over time.
Betsy Winkler is a Partner at PeopleResults and has worked on many outsourcing projects. She can be reached on Twitter @BetsyWinkler1 or on email at firstname.lastname@example.org. Sign up to receive her and her colleagues’ blog at Current