Should we outsource some of our activities to keep costs down?

Should we outsource some of our activities to keep costs down or is it better to keep them in-house?

Businesses often look to outsource functions as a way to keep costs down, but the best businesses know that the real benefit of outsourcing is that it enables you to focus your efforts on doing what you are best at.

The magic of outsourcing (or forming some sort of alliance or collaboration) is that you find partners to do the functions that aren’t your strength, while you focus your resources on the few areas that are.

But how do you know what your strengths are? It’s not as simple as saying it’s something that your business is good at. In much the same way as people can be good at things they find boring, businesses can be good at – or okay at – activities for which they have no passion.

If your business has no passion for an activity it’s likely that over time you really won’t do it that well. So instead of spending management effort on activities that drain your business, think strategically and focus your efforts and resources on the areas that yield the greatest upside for the business.

But what do you do if the functions that don’t seem to play to your strengths are really important to the business? Can you outsource these?

The management guru, the late Peter Drucker, gave a resounding “yes” to this question. It was his view, for example, that the customer cared much more about hassle-free, fast and reliable service than about who was actually performing that function. And as a consumer I would have to agree.

The important point is that you have to really manage the outsourcing.

First up you have to pick the very best organisation to outsource your activities too. Look for the organisation that is passionate about the very stuff that your business is ambivalent to.

And then you have to seriously invest in your relationship with that organisation. Because while the word outsourcing conjures up delightful dreams of abdication of all responsibility, it is of course not the case. You can outsource the task but not accountability for it. Outsourcing requires careful management.

Outsourcing can make a big impact on an organisation and is, strategically, too important to be seen just a cost-cutting exercise.

Instead think of it as an opportunity to find the best organisation to deliver the activities which your business doesn’t get great satisfaction from.

Years ago outsourcing was not very available to anyone but the largest businesses, but in today’s environment of “pay as you grow” there is really no excuse not to look into it.

Julia Bickerstaff’s expertise is in helping businesses grow profitably. She runs two businesses:Butterfly Coaching, a small advisory firm with a unique approach to assisting SMEs with profitable growth; and The Business Bakery, which helps kitchen table tycoons build their best businesses. Julia is the author of “How to Bake a Business”  and was previously a partner at Deloitte. She is a chartered accountant and has a degree in economics from The London School of Economics (London University).