Monday, March 15, 2010

Where is the best place to outsource?

Someone in one of my LinkedIn groups asked this question: "Where is the best place to outsource?" Now, he was from an outsourcing company and was only trying to raise awareness for his company, but the responses made me smile.

Most responses mirrored my advice: Avoid outsourcing if at all possible and keep it in house. I understand…many companies outsource because they feel it’s their only option. They can’t afford to keep the work in-house and outsourcing makes perfect financial sense on paper.

However, as countless companies learned the hard way, the reality of outsourcing doesn’t usually match the “money-saving” perception. There are plenty of factors to consider depending on what area of your business you want to outsource. For example:

Moving your customer support overseas might save a bunch of money on paper. However, the true impact of a move like this is extremely difficult to measure. For example, how many customers will you drive away with your degraded service? They won’t tell you. They’ll just leave. How many potential customers will hear about your poor service and buy from a competitor? There’s no way to know. Those aren’t the only pitfalls of outsourced customer service. Check out this recent news article for a real-life example.

Okay, so let’s keep customer support in-house and outsource the internal help desk. That won’t negatively impact the company, will it? Guess again. I know of a few companies that outsourced their internal help desk to save money. They soon realized that IT issues were resolved 3-5 times slower than before, damaging productivity and frustrating the employees.

Want to outsource application development? You will need to consider data security, communication, and business knowledge. However, I really can’t think of any good reasons to outsource web application development. Why? Because there are tools available that will allow you to do develop web applications in-house faster and cheaper than outsourcing. You can use your current staff and save money. There’s no downside.

Remember, outsourcing is never as good as it appears on paper. Consider every area of your business that might possibly be affected, even the areas that are difficult to measure. Also, don’t assume outsourcing is your only option. Look for tools and strategies that empower your own employees.


Anonymous 12:09 PM  

Well said. I once called HP support and talked with a person located in India. After more than one hour of struggling she escalated the call to tech support located in USA. The problem was solved in 5 minutes. HP should have trained the overseas support people better but

KDPaine 4:45 PM  

I totally agree, but if you MUST outsource, might I suggest that you "outsource" to a community in the US that needs the work. There are dozens of towns in America filled with bright people and broadband that can do the work for you. I "Northsourced" my company to Berlin, NH in 2006 and immediately saw a 60% reduction in costs thanks to lower wages, cheaper rent and a far more efficient workforce.

Stephen King 12:35 PM  

Like any generalization, I think the answer is wrong for a large percentage. It should have been "it depends". It depends on the size of the company and whether you have the ability to build the core competency in house. If not, why not leverage other people's resources? For example, should every small business hire a staff person to process payroll when service providers can do it for a fraction of the cost. Yes, there will be hiccups as with any service provider, b ut those hiicups pale in comparison with the cost of time, systems and increased risk of fraud.

I agree outsourcing overseas causes problems beyond language barriers. I believe in onsourcing in stead of outsourcing. Find a US based company that specializes in the servcies you need and leverage their investment in training, technology and best practices. If you can only afford one staff person for a certain function are you going to get the best talent if they can't grow professionally and economically? Most outsourced providers provide more extensive training and career paths than a small business can provide.

In the interest of full disclosure, I'm CEO of GrowthForce one of the largest outsourced bookkeeping and Controller services for small business that use QuickBooks. Our clients usually have one person in the company who is "trusted" with all finance functions. That's an internal control nightmare. Most small businesses cannot can't afford to get a team of a CPA, senior accountant and bookkeeper to deal with the bank, IRS and other users of financial information. As a result it ends up costing more to over hire for clerical tasks or clean up the mess made by an underskilled "controller".

In some cases, outsourcing (or onsourcing) does make sense and does save money. I believe the answer depends.

Stephen King, CEO

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