Outsource for Efficiency

Outsource for Efficiency

Once upon a time, running a small business was relatively uncomplicated.

Not easy, but uncomplicated.

You were good at something.

You saved or borrowed some capital.

You set up procedures that focused on doing what you were good at, which was what drove the business, and then you hired people who could do the supporting functions like keeping the books.

As you progressed, you hired some contract specialists like tax accountants, or you hired contractors to do things you didn't want to do like clean the office every night.

Well, you can still progress that way as a very small business, but if you intend to grow in any way, the complexity of business today means that you not only need those one-off specialists like accountants and lawyers, you also need people working only a little less than full time on areas such as marketing, product development, IT support, distribution, and even sales management.

You should not be afraid of outsourcing these non-core services and think that you would prefer to hire a part-time employee or even a full-time employee to "grow into a full-time role".

The barrier to outsourcing is often the fear that you can't control their work because they may do most of that work outside your office. There are ways to ensure that "control" is effective.

And, most importantly, the difference in cost can be a significant advantage.

Apart from hourly rates (which may seem at first prohibitive when compared to salary rates), their effective rates can be much cheaper.

Their effective rate is what you actually pay for the result.

You pay an employee whether they are working on the task at hand or not. In other words, at the most basic level, you pay for their time at the water cooler. Or you pay for their time to learn about something they are not familiar with. Or you pay for their downtime for sickness and holidays.

You pay employees for being there even if they don't do the job well. You pay contractors for a result that they have to deliver in accordance with your terms.

There are also other cost-factors associated with outsourcing non-core services.

They use fewer overheads - less rental office space, less power and services, fewer telephone lines.

They use less supervision and management since performance measures are likely built into the contract.

The largest services currently being outsourced is in the category of professional, technical and scientific services, which include legal, accounting, engineering, consulting, and other similar services. Outsourcing of transport and delivery led to the building of giant transport-outsource companies like TNT. Outsourcing of administration and office support services now are at about 9% and growing through the increasing use of human resources services, payroll, call centres, cleaning and gardening - all previously done in-house.

However, at the heart of outsourcing is not just cost-saving. 

It is primarily about creating an efficient and simplified internal operations workflow. It's not just about getting a contractor to do what you cannot do yourself, it is about outsourcing something that you may have done in-house but is now deemed non-core and more efficiently done by someone else.

In order to decide if outsourcing can work for you, look at Activities, Assets and Alternatives.

Look at any support Activities that are non-core and where their in-house capability is not relevant to your business revenue or success. Identify non-core activities where even if they are relevant to revenue (for example marketing and social media) you do not need an in-house capacity for the effective achievement of objectives.

Look at any Assets you own that could be sold and leased-back, creating cash for expansion.

Look for Alternative models to use the core assets of your business like IP and unique systems. Perhaps you can become a franchisor so that your business model moves from applying effort to earn revenue to providing IP to earn a fee and a fee for support services to franchisees?

Choosing what to outsource has to rely on the objectives of outsourcing - efficiency.

So consider if eliminating something from in-house operations creates that efficiency (or whether it has the potential for inefficiency), and whether removing the activity will remove the distractions from core business activities.

Then, as you seek outsource alternatives ensure that standards, quality and control are maintained by choosing suppliers who are accountable, transparent, and capable of negotiating and reporting on performance measures that you agree on, such as the speed of service, availability of support/technical staff, quality standards and so on.

Outsourcing, and not merely sub-contracting, can lead to an efficient new business model that relies on unique business assets such as IP, a strong corporate culture undiluted by non-core activities and focused management and leadership.

Operating a small business is no longer uncomplicated due to the complex demands on traditional functions. Outsourcing leverages your assets and provides efficiency and flexibility.

 

Cover photo by Jeshoots.com on Unsplash

 

 

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