Staying competitive in a declining market

Sustainability of profits during an economic slump, is possible if businesses maintain lean operations. Maximizing 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.

A good way to do this is by outsourcing non-core business activities. Today, outsourcing companies in Sri Lanka have matured into professional businesses and have 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 is 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 will be an expert in his field and therefore, know how to be cost competitive and efficient.

Apart from cost savings, outsourcing is seen as a strategic move that allows businesses to gain a competitive advantage. Most multinational products and services have outsourced input to a very large extent, hence competitive across the world.

Business partner

Selecting the right outsourcing company is critical to the success of the venture. The business principles of the outsourcing company should align 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 activity, customer service, expertise of personnel, past service records, and 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 merely store and ship products but also provide customer support.

Outsourcing

The most strategic reason to outsource is to take the problems away and allow you to focus on the activities that truly adds value and puts 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.

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 moving from offshore outsourcing companies to onshore companies because of cultural affinity and local business knowledge. As more businesses look to outsource operations, outsourcing companies themselves become a viable option for unemployed professionals left in the lurch by economic challenges.

Do not outsource responsibility

It is open to debate of course, but I believe that outsourcing the 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 to minimum standards, performance targets, measurement of results and taking appropriate action according to whether targets have been met or not.

Most of the businesses that argue negatively about loss of control generally 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 is going to 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 for the long term.

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.