What is sensible to Outsource
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What is sensible to Outsource

If you are about to start something new, think of sharing the workload

Let’s start by looking at some of the most referenced reasons why to move towards Outsourcing:

  • Workforce optimization enables lower costs and assured redundancy since the provider needs to render the service independently of having a given human resource available or not. “Employees Cost More Than Just Their Salary” (FORBES, What Business Owners Should Outsource Now, October 2017); an MIT report states that the average employee costs 1.25 to 1.4 times their base salary.
  • Focusing on Core activities while delegating mundane time-consuming processes to external 3rd party providers.
  • Re-engineering costs elimination since the provider needs to supply an operational finished product.
  • Offshoring allows companies to leverage a global knowledge base, having access to world class capabilities. While simply having an Outsourcing mindset allows companies to grasp expertise that may be necessary at a given time, but makes no sense to have in-house.
  • Expanding into new markets may be leveraged by Outsourcing since it implies taking the point of production or service delivery closer to local end users.
  • Scaling and Flexibility is easily perceived as one of Outsourcing prime benefits. From the prior point, it is intuitive to assess that by partnering with a given geography or international outsourcing provider enables scaling into such region; flexibility wise the point is that some portfolio component may be seasonal and instead of supporting the cost of producing or stocking a product during the low sales season, if outsourced the company can reduce such costs to zero.
  • Compliance assurance towards a specific set of rules and regulations within a given geography, since the local outsourcing provider needs to operate according to such guidelines.
  • Efficiency can be gained by hiring a competent partner at a given set of tasks instead of developing them internally.
  • Service improvement, … What?!  Yes! Outsourcing can improve the quality of service you render to your clients. Having experienced professionals rendering some specific services instead of having to train and motivate your own team, may represent better service.
  • Tax Breaks, besides the above mentioned obvious example of the cost inherent to having own employees, some tax benefits are offered by some countries or the even Union States to locate services in their regions.
  • Time to market optimization may result from having (depending on the case) a team developing work or acting upon a given needed correction literally “on the other side of the world” which means that in your geography client’s will get things fixed overnight. This also represents a competitive edge that you may have towards your clients and competitors.
  • Service Portfolio adherence to market trends requires a significant investment in both time and capital to bring one’s team up to market standards and best practices. Resorting to Outsourcing allows to pass on such expense towards your 3rd party provider as well as easily change to one that complies with the latest trends and technologies if the existing one proves not to be updated.

So, now let’s look at Brian; he is willing to invest in his own business, becoming an entrepreneur.

After some heavy, laborious and long thinking process, market analysis and financial simulations, Brian decided to become a niche expert shoe maker, allowing clients to have personalized shoes tailor made with the very best materials and bearing prime quality. This seems to be a niche market with high demand and therefore potential high Return on Investment and profit margins.

Having attended several presentations, events and lectures on entrepreneurial endeavor and industry trends and processes he realized that developing from scratch all that was required would prove to be a “ginormous” task which by itself was likely to consume more than one year of his time plus all the money he did not have until it became (if it did) a reality.

With the clear notion of all the theoretical benefits of Outsourcing in his mind Brian decided to plan for such a scenario and so he started by drafting his shoemaker company structure.

Brian set the following tasks and objectives/ processes towards each of the Organization Chart areas and responsible elements:

  • CEO
    • Own the Vision - Strategy definition
    • Assure the appropriate resources
    • Build the Culture
    • Oversee company performance
    • Sales Roadmap establishment
    • Supervising corporate Operation
    • Making key decisions about company operation and market positioning
    • Making Key Financial Decisions

The CEO (Chief Executive Officer) is the person who bears the responsibility for steering the company through the marketplace as market dynamics and trends, constraints and competition moves take place.

  • Sales & Customer Service
    • Market Prospection
    • Prospects and Client contact
    • Negotiation and Sale
    • Contracts establishment

This is one internal area which is responsible for addressing the market in search of new business derived from both own sales activity as well as leads that arrive via the Public Relations plus Marketing and Advertisement initiatives.

  • OPM Operations
    • Managing the areas under his responsibility
  • OPM Administrative
    • Managing the areas under his responsibility

Both OPMs are company resources who bear the responsibility of running the two main corporate units, Operations and Administrative.

  • Secretary
    • Support and assistance towards the CEO and both OPM as well as Sales & Customer Service

Brian decided to try out the new trend Outsourced AI-based services such as Julie Desk (https://www.juliedesk.com) or X.ai (https://x.ai/).

  • Product Development
  • Product concept (3D)
  • Engineering

An expert engineering company with 3D modeling service offering was chosen to be the Outsourced Product Development area, assuring that upon client’s idea/ request (conveyed by the Sales & Customer Service area), an initial 3D model of the shoe is prepared in three different materials and design approaches for the client to choose from.

Upon getting information of client’s choice from Sales & Customer Service, the digital 3D model is forward to Manufacturing along with the bill of materials that in term is forward to Procurement.

  • Manufacturing
    • Production Warehouse
    • Sequencing – Linefeed and End Product Dispatching
    • Cutting
    • Assembly
    • Quality Testing

Two factories were hired to provide Outsourcing manufacturing services regarding the products and according to end client driven logistics.

The Factory receives the Production Order via workflow from the Product Development and the materials from the Logistics area.

The materials are sequenced according to Production Orders and the product is built.

After product completion, the Manufacturing unit produces a quality check and if proven to be within agreed metrics the End Product is dispatched to the client via a transportation company (e.g. DHL)

  • Logistics
    • Logistics
    • Transportation
    • Warehouse
    • Sequencing and Linefeed

The area was also Outsourced to an expert Logistics Operator and as it gets the materials from providers that were triggered by Procurement it timely assures material flow to the Manufacturing units while ensuring assertive identification and track & tracing plus the materials are maintained in proper conditions.

  • IT
    • Development and Maintenance of Corporate IT infrastructure

A company was hired under an Outsourcing contact to assure the full scope of Corporate IT Services, from user licensing, user management and support to infrastructure and Telecom.

  • Accounting/ Finance
    • Accounts Payable/ Receivable
    • Invoicing
    • Bookkeeping
    • Budgeting
    • Financial Reporting
    • Taxes

An expert Accounting Office was hired to run the entire Finance component in Outsourcing (including payment to providers and revenue collection).

  • Human Resources
    • Training & Development
    • Payroll

An expert Accounting Office was hired to run the entire Finance component in Outsourcing.

  • Procurement
    • Sourcing
    • Negotiation
    • Adjudication

An expert HR Office was hired to run the entire Human Resources component in Outsourcing (including, based on feedback from consulting companies who’s hiring lay within their responsibility a proper Skills Evolution Roadmap towards each of the Outsourcing Providers Service Portfolio).

  • Public Relations
    • Marketing and Advertising
    • SEO and Branding
    • Content Marketing

All the Brand awareness and building, marketing, and advertising, plus public relations were Outsourced to an expert company that assures from on-site live contacts to Social Media and Web Presence.

Any prospects, hot leads, contacts, other are conveyed to Sales & Customer Service under a specific process.

  • Legal
    • Contracts development analysis and reviews
    • Other legal issues

As in the remaining Outsourcing cases, the Legal area was Outsourced to an expert provider.

There are strict Service Level Agreements (SLA) in place between Brian’s company and each of the Outsourcing providers defining metrics such as Quality standards, delivery times, production times; also, there are penalties in case of noncompliance as well as bonuses in case of superseding the established expectations.

Additionally, Brian enforced SLAs between the Outsourcing companies that in fact act like Operational Level Agreements (OLA) between internal areas of a company, assuring a similar policy of penalties and bonuses towards the accomplishment of established goals within defined metrics.

One key component of the established metrics is the adherence towards established market standards which implies the Outsourcing companies need to have their workforce properly training according to the Skills Evolution Roadmap that Human Resources defines once a year.

Many are the online Cloud based services to which the several Outsourcing providers have resorted in order to assure their service (e.g. payroll via Capterra) (www.capterra.com/payroll-software)

“If in doubt, do a trial”

Now that Brian is firmly ahead of his company, looking back one can realize that the process of establishing the entire corporation has undergone some changes and fine-tuning events with the need of replacing some providers who were not able to comply by the required SLAs. Nevertheless, when hiring people, it is also almost impossible that everyone proves to be the best fit towards the job position, despite how well the interviewing process has happened.

Another calculation that Brian did which supported his decision for going full Outsourcing was to match how would the running operations Profit and Loss look like once the company started its activity if the areas were to be internal in-house or Outsourced. Here is the exercise:

Profit and Loss table

Bottom line, Brian could get a profitable company developing it in the traditional manner but having decided to Outsource his net earnings have almost doubled.

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