OUTSOURCING

OUTSOURCING

It is often possible for businesses to delegate non-core operations to external partners specializing in that operation. This can be cost effective and allow firms to take advantage of a specialist company’s expertise and its economies of scale.

The idea

Outsourcing is not simply purchasing services from another group: it involves a considerable degree of two-way information exchange, coordination, and trust. Out-tasking is slightly narrower—with very small segments of the production process being taken over, often on a short-term basis—but still requires mutual knowledge and communication. There are many advantages associated with outsourcing, in both cost and quality.

A specialist company will usually be able to complete the service more cheaply by negotiating supplier contracts and economies of scale. Variations in international economies and differences in exchange rates can make outsourcing more cost-effi cient. Quality can also improve, as the specialist company should know how best to carry out the task.

However, when not properly handled, outsourcing can gain an organization a bad reputation. Strict quality management, diligent research, and attention to ethics are important when deciding which company to outsource to. This is demonstrated by technology fi rm Dell, whose outsourcing of customer service duties was alleged to have led to falling quality and customer dissatisfaction.

In practice

• Research the people you are outsourcing to—are they trustworthy and capable? What advantages do they offer? 

• Be clear about the terms of the arrangement, and put in place a clear “service level agreement” (SLA) specifying the tasks that will be performed, how, when, and payment terms. Maintain quality and service standards when outsourcing. 

• Communicate frequently to ensure both parties agree on targets and strategies. 

• Remember that outsourcing can be a valuable opportunity to exercise corporate social responsibility. 

• In some cases of international outsourcing, research the economy of the country where you are outsourcing, to ensure you are paying a fair and living wage to outsourced employees. 

• Make sure you are aware of the business practices used by your outsourcing partner. Even if you are not in direct control of them, you are associated with their organization. Any negative business practices could easily result in your organization getting a bad reputation.