Whether to Outsource for Small and Medium Business

The Question:

For the small & medium business, the question of whether to outsource most often is asked by the wrong people who accept the wrong answer. If your definition of outsourcing is simply paying an outside firm to perform a business function that your company currently performs then you’re veritably guaranteed to ask the wrong question and to accept the wrong answer.

So, what’s the wrong question?

“Is outsourcing cheaper than I do it internally today?”

The wrong answer is both:

“Yes and No”.

Consequently, if the decision criteria is solely cost and that’s how you make your buying decision, then you’ve missed the whole point of outsourcing.

Apples & Oranges

The key to unlocking the potential of outsourcing and realizing the myriad benefits is to determine the delta difference between the People, Process and Technology that your company has and what the outsourcer provides. For example, does your company have 24/7 IT Support? Can your company average less than 4 hours to resolve an issue? Does your company maintain a consistent and timely patching schedule? Does your company have the process infrastructure to reliably support the needs of the business in a timely and consistent manner?

For the aforementioned questions, of which there are many, many more, the answers always distill down to:

Do you have the right skilled resources doing the right things, enabled by the right tools and technology?

Value: Time & Money

Once you’ve identified the differences between what your company accomplishes internally vs what the outsourcer is providing, the subsequent task to assign value to those differences. In the simplest of terms, there are two currencies: Time and Money.

While some might argue that time can always be represented in financial terms, wandering off into quantifying all of the soft costs for dozens of scenarios is impractical and frankly unnecessary. When making objective, side-by-side decisions, it’s best to keep it simple, measure the duration for you to perform a task, and the duration for the outsourcer. Then, determine the cost to perform that task.

You’re not done yet

If you stop the buying process at this point, you’re making a mistake. Thus far in this decision guide, all we’ve done is begin to quantify the difference between you and the outsourcer for tasks that you both do. The reason stopping the decision process at this point is a mistake is because the value outsourcers provide is the value you place on the things they do that you don’t. In many cases, the things that they do that you don’t financially will look like a net cost adder, so in a vacuum, the outsourcer will be more expensive than your current operations because they have investments in People, Process & Technology that you don’t. The important thing for you the customer to do is determine whether those things have value to your business.

How do you know what you don’t know?

In IT it’s easy to get lost in the nuances of technology. When choosing outsourcers the least important element is technology. Technology serves to enable the execution of a process, whether involving people or not. Processes, whether IT or business, have inputs and outputs, ergo, outcomes.

If you consider the outcomes that your business is looking for then weigh the value of the outsourcer against those outcomes then you’ll be able to make the right decision. A quality outsourcer will show you the combination of People, Process and Technology they utilize to achieve those outcomes; and those outcomes are the value that you’re evaluating.

Measuring Outcomes

The good news is that measuring outcomes is a completely inward looking exercise. What are the business metrics by which you measure your own company? Do you track engineering or manufacturing productivity? Does your sales team measure how many inbound leads are coming in? Does your company monitor how many days outstanding accounts receivables?

Regardless of the KPIs by which you measure your business, when you’re looking at outsourcing it’s important to understand how the outsourcer improves upon your existing outcomes. In a practical example, if your IT department on average takes 12 hours to resolve an engineering ticket and an outsourcer takes on average 4, then by extension, that’s a 75% improvement in downtime.

Bravo! The outsourcer is better! Not so fast, if your engineer only has a ticket once every 4 years and the outsourcer is 25% more expensive than your current means of support, then it could be determined that there’s no value in outsourcing this specific function. If you have a team of a dozen engineers who each has a ticket monthly, then there would be value in outsourcing. The takeaway here is that value is unique and individual to every company.

To close this out, if engineering productivity is the goal, then you want the outsourcer to keep the engineer’s equipment from breaking and if it breaks, to fix it quickly.

Components of Outcomes

In outsourcing parlance, the components of outcomes are often referred to as Service Level Agreements (SLAs). SLAs are metrics by which an outsourcer can be objectively measured. Some metrics include:

Response time

Resolution time

Availability

Customer Satisfaction

On-Hold % (length of time a ticket sits in on-hold status)

Knowledge articles created

These metrics are all inputs by which the outcomes you care about are achieved.

Qualities that make for Good Outcomes

So, the qualities you should expect from your outsourcer to demonstrate are:

Strong Governance

Rigorous process and technology documentation and adherence

Rock Solid Change Management

Full suite of industry standard security and infrastructure management tools

Robust catalog of knowledge objects?

Conclusion:

Bringing this all together, evaluating whether to outsource is the process of assigning value to the things that an outsourcer does, which you may, or most likely don’t. A quality outsourcer can demonstrate the value of their differentiators and should take the time to sit with you and answer your questions in detail so you can be confident you’re making the best decision.

?

For any additional information, questions or to offer feedback, please contact Andrew at: [email protected]

?