Inside or Out: Sourcing Strategies for Midsize Companies

If you’re considering outsourcing your company’s non-core functions, these five steps will put you on the path to success.

To outsource or not to outsource? That is the question facing many midsize companies today, particularly as cloud-based solutions create increasingly more attractive options. Whether you are looking to consolidate or offload your company’s non-core functionality, quickly add capacity, or get new products to market, outsourcing and shared services can offer a cost-effective and flexible way to address numerous business needs. But before you dive into the outsourcing pool, you and your team should take some time to determine how it fits into your company’s strategic goals and how to implement with minimum disruption and maximum impact. Here are five key considerations when evaluating outsourcing solutions:

  1. Start with strategy. “The first question we ask our clients is, ‘why do you want to do this?’” says Larry Scinto, a business transformation and IT expert at PA Consulting Group, a global consultancy with offices in the U.S. “If the answer is just ‘to save money,’ we know there’s more work to be done.” Outsourcing, he points out, isn’t a strategy in and of itself. “It’s just an enabler of a business strategy. So you really have to understand where the business is going and what the business case is for outsourcing, both quantitative and qualitative.”
  2. Strengthen the core. One important reason for considering outsourcing is to allow your company to focus resources on building out its core competencies and mission to face future challenges. Scinto cites technology giants that outsource multiple marketing and operational functions to home in on product engineering. “That gives them ultimate flexibility, so they can spend time in R&D, engineering a product rather than taking it to market and selling it.”
  3. Evaluate options. Once you lay out your strategy, you can begin a search for solution providers. “At this stage, the decision’s not made yet,” Scinto cautions. Instead, you should be analyzing in-house options against what capabilities the market has to offer, comparing them on criteria such as cost, flexibility, efficiency, and effectiveness.
  4. Focus on the future. When evaluating options, keep in mind that you’re not just shopping for a solution to current needs, but future ones as well. “A lot of times people just think about near-term costs,” Scinto says. “But it may make more sense to spend the same or even more to gain other advantages such as flexibility, scalability, and risk mitigation. For example, your strategy may include expanding your product line. To minimize risk, you may begin by outsourcing its production, and then either bringing it back in house if it’s successful or limiting downside if it doesn’t take off.”
  5. Understand the challenges. Integrating outsourced or shared services into your company’s current operations may ultimately be the best choice for achieving your strategy, but that doesn’t mean it will be easy. As with any major change, it requires consensus building among stakeholders, clear communications, and careful oversight, which can be a considerable challenge. Consider the case of a company that coordinates dozens of major contractors for its main product with mixed results that include production delays and technical problems. Outsourcing is also not a “set it and forget it” process. You should establish benchmarks and metrics, and continuously monitor them to determine how either to refine the relationship with suppliers or even bring outsourced functions back in house.

In the end, the decision to outsource business processes comes down to whether or not doing so will create value for the company. If the answer is yes, then it may be time to pull the trigger.


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