Monday, August 29, 2011

Everybody Outsources

It seems like every day I see at least one article trying to convince a business to outsource some process or function rather than do it in-house. Here the reality--every business outsources something. No business owns the entire supply chain. A painter doesn't make his own paint or manufacture his own paint brushes and paint clothing. Every business has inputs that it does not create itself.

So, it's never about if a company outsources, but when. So why do some outsourcing relationships work well and others fail? Here's the reason: Failure to clearly define roles, responsibilities, and cost-benefit value.

Think about it this way. Wal-Mart wouldn't exist without all of the independent inventors, brands, and product manufacturers who give them things to sell. They make the products, Wal-Mart sells them (roles). They have a contract that clearly defines the relationship (responsibilities). And both sides independently determine if the relationship is worthwhile or not (cost-benefit value).

Here's another example. Law firms go through a lot of paper. Yet I don't know of a single law firm that has invested in forests, paper mills, and distrubution channels so it can own the entire paper supply chain. Most buy their paper from an office supply store--yes, they outsource their paper.

I could go on with many more examples, but I have one that I recently addressed on Melnida Emerson's blog at Do-It-Yourself, In-Source, or Outsource Small Business Accounting is an article evaluating when it's best to outsource and when its best to in-source your accounting functions. Outsourcing bookkeeping is like any other outsourcing relationship. Roles and responsibilities need to be clearly defined and the cost-benefit value needs to exist. If you're not happy with your current outsourced solution, then it's in one or more of these three areas. It may be repairable, or it may not. If you think outsourcing might be right for you, then you need to manage these three elements of the outsourcing relationship to maximize success.

Don't go into an outsourcing relationships without clearly defining expecations, roles, and responsibilities.