Outsourcing non-core business to improve competitiveness

Sustainability of profits during an economic slump is possible if businesses maintain lean operations. Maximising profits in a fiercely competitive market with frequent steep fluctuations in demand is possible only if you have the minimum fixed and maximum variable costs.

One good way to do this is by outsourcing non-core business activities. Outsourcing companies in Sri Lanka today have matured into professional businesses and boast of excellent systems and processes with optimum client satisfaction in a cost-effective manner.

Severe local competition has driven them to hone their services and improve business processes embracing global best practices. Typically the staff is skilled, experienced, qualified and trained to meet industry standards and the leadership, generally very professional.

Outsourcing, in its early days, seemed possible only by larger companies which farmed out many low-end business processes. Since then, outsourcing has become more of a norm than an option.

The outsourced provider should be an expert in his field and therefore know how to be cost competitive and efficient. Apart from the cost savings, outsourcing is seen as a strategic move that can allow businesses to gain a competitive advantage. Most multinational products and services have outsourced input to a very large extent, hence their competitiveness across the world.

Selecting the right partner

Selecting the right outsourcing company is critical to the success of this venture. The business principles of the outsourcing company should be in alignment with your business policies and values, communication should be transparent and timely, reporting should be exhaustive and prompt and quality of work should meet or exceed expectations.

The right outsourcing provider could actually do the job much better than you, in less time and for less money. Before selecting an outsourcing provider, you should always check references from previous clients, longevity in business, experience in your business industry, customer service, expertise of personnel, past service records and their capacity to handle the expected volume of work.

Outsourcing companies work with a business for a contractual period. They will put in more effort and offer more for less to prolong their professional relationship with you. For example, HR outsourcing not only builds the employer-employee relationship, it also uncovers potential problem areas and deals with them proactively. Logistics providers don't just store and ship products but also provide customer support.

Strategic reason to outsource

The most strategic reason to outsource is to take the problems away and allow you to focus on the activities that truly add value and put money in the bank.

Outsourcing services fall cheaper than in-house operations for many reasons, they work for more than one client and therefore multi-use resources; they give bulk orders to their suppliers and get the benefit of heavy discounts; they leverage the economies of scale.

So for you, a sudden spike in work can be handled without the pain and expense of recruiting new personnel and having to train them. Outsourcing services often manage a job better than in-house operations for many reasons, they typically manage aspects of specific operations only; they keep getting better with time and experience and reach expert levels; they receive training and keep in touch with changes in processes related to their work; they tie up with more than one supplier or service to ensure work does not stop because of any one supplier's problems.

Many businesses are now moving from offshore outsourcing companies to onshore companies because of cultural affinity and local business knowledge. This is the new trend.

As more businesses look to outsource operations, outsourcing companies themselves become a viable option for unemployed professionals left in the lurch by economic challenges.

Pitfalls of outsourcing

It is open to debate of course, but I believe that outsourcing activity doesn't mean outsourcing the responsibility. You need to manage a third party provider just as you would a regular employee or team of employees.

That means following the same management processes of agreeing minimum standards, performance targets, measurement of results and taking appropriate action according to whether the targets have been met or not.

You find that generally most of the businesses that argue negatively about loss of control have in the past had an experience with a third party provider where the management processes were not adhered to.

Of course you can't expect a third party provider to be loyal to your company like an employee would be, can you? It's a fair point that any third party business will have a different set of objectives to your business but understanding the corporate values of the third party during the selection process can go a long way to ensure that the most suitable partner is selected on long-term basis.

One of the biggest disadvantages of outsourcing is the risk of losing sensitive data and the loss of confidentiality. It is important, therefore, to have checks in place to avoid data loss.

Though outsourcing has its share of advantages and disadvantages, the many benefits that outsourcing brings far outweigh its disadvantages. Many of the pitfalls of outsourcing can be avoided by choosing the right company to work with. Before taking the decision to outsource it is important that you align the goals of your company and employee considerations with the objectives of outsourcing.