Friday, November 03, 2006

Is it time to outsource yet?

Outsourcing, is not only a buzz word but is also a practice being used on a regular basis by SMEs in the UK, US and Europe. more than 50% of UK businesses currently outsource one or more business activities. With the pressure to become more efficient and competitive, businesses - both small and large - have turned to outsourcing as the solution.

With the constant need to cut cost outsourcing has gathered pace in recent years. It has also provided the means to bring a lot of good business ideas into reality.

There are a variety of reasons for outsourcing, including improved efficiency, cost reductions, and increased flexibility. Situations are familiar, ranging from high-tech start-ups which are unable to raise funds or risk manufacturing their products to companies with cyclical sales, making production planning difficult and expensive.

What is outsourcing?
Outsourcing is the delegation of a business process to an external service provider. The service provider will then be responsible for the day-to-day running and maintenance of the delegated process.

Do you really need to outsource?

Before outsourcing an IT function, look at your firm's own goals and culture. What business objectives are you trying to accomplish by outsourcing this particular function? How will sending this function to an outside party impact the work flow within the company? Clear answers to these questions can help guide a business owner toward the most appropriate vendor.

Consider the advantages and disadvantages of outsourcing before you make your decision.

Allows a business to focus on core activities
Streamlines a business' operations
Gives you access to professional capabilities
Shares the risk ยท Piece of mind that the process is in good hands (reliability)
Do not have to worry about continually introducing new technologies
Improves service quality
Frees up human resources
Frees up cash flow
Increases the control of your business
Makes the business more flexible to change (i.e. demand)

The fear of the service provider ceasing to trade (bankruptcy, etc)
You may lose control of the process
Creates potential redundancies
Other companies may also be using the service provider. Therefore in some cases, the best interests of the service provider may be diluted with other users
You may lose focus of the customer and concentrate on the product (the outsourced process)
The loss of talent generated internally
Employees may react badly to outsourcing and consequently their quality of work may suffer.

Buy the expertise

A valuable outsource partner will do more than lighten the load. Such a partner will lend expertise to ensure an optimum blend of in-house and outsourced functions. In the case of network management, for instance, an outsourcer should "provide a small business with an operational, tactical and strategic view of their network environment,

This allows for quality recommendations to ensure network availability, reduction of total cost of ownership, optimization of network assets for meeting business needs, and support of future growth.

Know who you are outsourcing to.

The two most important factors in a successful outsourcing relationship are trust and security - without these the relationship is destined for failure. It is therefore important that you take the time and effort required to find the perfect partner.

Make sure your service provider is keeping current. "IT is very dynamic, so it can be difficult to intelligently know what's happening in IT," said Jeremy F. Shapiro, professor emeritus of operations research and management at MIT. The best vendors can provide not just services, but also "state-of-the-art knowledge about IT needs and developments."

Does this vendor value its employees? What is the average length of employment of the staff? A company that retains its employees must treat them well and value them.

Meet the team: Before signing anything, meet the people who will actually service your account. Good outsourcers will have a dedicated team servicing the customer, led by the controller who acts as the 'go to' person. Chain of command: Along these same lines, know who is talking to whom. The last thing that you can afford to have are layers of contacts, especially when time means money. Finding a provider or consultant that provides one point of contact and even better, one person, is any business' best bet. The language barrier: Finally, it's important to remember that even an outsourced IT function does not go away entirely. In most instances the small-business owner still will have to maintain some involvement. Look for an expert who can clearly explain answers in non-technical terms and can make tech-talk clear to even novice questioners.

Know what you are buying

As you get closer to making a decision, it is important to agree upon a set of service level expectations or objectives," said Hoyer. "Measurement objectives can include streamlined operations, cost savings, and reporting with all activities pointing to an improved bottom line," he added. What matters most is to agree in advance on the service to be delivered and especially on the measures that will be used to determine satisfactory performance.

Many of the disadvantages of outsourcing can be avoided if you research the service provider and you do not regard outsourcing simply as a money saving scheme - this is not always the case. Consequently, you should be certain that you have a valid reason for outsourcing and that you intend to liaise regularly with the service provider to avoid loosing all control of the process.


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