I recently came across a book entitled ‘The 4 hour working week’ by Timothy Ferriss who had transformed his life by outsourcing every aspect of his business and personal affairs. Although I have to admit I haven’t read the whole book the theme of it was that he only spent 4 hours per week managing the service providers that he had contracted to assist him in running his business. He claimed that he now earned more money and worked fewer hours than when he was working full time including 12 hour days, 7 days per week.
This allowed him to spend the rest of his time travelling the world and challenging himself in various pursuits, some of which involved cage fighting, kickboxing, holding a tango dancing world record, playing hurling in Ireland…etc. I am sure that these methods work for Timothy and I suppose the royalties from the book help to pay some of the bills but it is definitely worth a read if you have the time to spare!
For the rest of us the options of outsourcing will be greatly dependent on the type of business we operate and the services that we provide. As a result of the economic downturn, more and more Irish businesses are exploring the different options available through outsourcing.
What is outsourcing
There are many definitions of outsourcing, but at its most basic, outsourcing is simply the farming out of services to a third party for a fee. There are a huge variety of examples of outsourcing services such as IT, cloud computing, call centre management, accounting, payroll, transportation, distribution etc.
The term outsourcing is often used interchangeably—and incorrectly—with offshoring. But offshoring (or, more accurately, offshore outsourcing) is, in fact, a small but important subset of outsourcing wherein a company outsources services to a third party in a country other than the one in which the client company is based, primarily to take advantage of lower labour costs. This subject has proven to be a political hot potato because unlike domestic outsourcing, in which employees often have the opportunity to keep their jobs and transfer to the outsourcer, offshore outsourcing is more likely to result in layoffs. Recent examples of offshoring in Ireland would be Dell in Limerick which moved its manufacturing plant to Poland with a reported loss of 10,000 direct and indirect jobs.
In today’s challenging economy, all businesses are looking at minimising expenditure to ensure that they are achieving the maximum return on all costs that they are incurring in their business. Cost-cutting may not be the only reason to outsource, but right now, it’s certainly a major factor.
The main reasons for outsourcing would be as follows:
- Reduced Capital requirement - reduces the need for a high initial capital outlay,
- Core Investment - releases capital for investment elsewhere in your business,
- Revenue generating - allows you to avoid large expenditures in the early stages of your business. Businesses are therefore able to pump more capital directly into revenue-producing activities.
- Operational/Quality Control - Operations whose costs are running out of control must be considered for outsourcing. Departments that may have evolved over time into uncontrolled and poorly managed areas are prime motivators for outsourcing. In addition, an outsourcing company can bring better management skills to your company than what otherwise may be available.
- Staffing Flexibility - Outsourcing will allow operations that have seasonal or cyclical demands to bring in additional resources when you need them and release them when you're done.
- Development and training of internal staff – If a large project needs to be undertaken that requires skills that your staff does not possess. On-site outsourcing of the project will bring people with the skills you need into your company. Your people can work alongside them to acquire the new skill set.
- Economies of scale/operational efficiencies - with these greater efficiencies, it is possible to reduce operational costs such as rent, rates, utility costs and the ongoing management costs associated with for example operating your IT infrastructure.
- Reaction/turnaround time - A good outsource service company has the resources to start a project right away. Handling the same project in-house might involve taking weeks or months to initiate, and if a project requires major capital investments (such as a major data/IT centre construction project), the startup process can be even more difficult.
- Improved customer service - Outsourcing can help your business to shift its focus from peripheral activities (administration, bookkeeping, payroll etc) towards work that serves the customer, and it can help managers set their priorities more clearly.
- Expertise - Most small firms simply can't afford to match the in-house support services that larger companies maintain. Outsourcing can help small firms act ‘big’ by giving them access to the same economies of scale, efficiency, and expertise that large companies enjoy.
- Risk/access to diverse technologies - Every business investment carries a certain amount of risk. Markets, competition, government regulations, financial conditions, and technologies all change very quickly. Outsourcing providers assume and manage part of this risk and responsibility for you.
- Reduced overheads - Outsourcing is a definite way to drive down operating costs, reduces labour costs, HR issues, alleviate administration burdens and for example cancel payroll, stationary and software costs completely.
Outsourcing is increasingly being pursued by organizations as a ‘quick fix’ cost-cutting move rather than an investment designed to enhance capabilities, expand globally, increase agility and profitability, or bolster competitive advantage.
The most important thing to remember for companies considering availing of outsourcing services is to ensure that they employ a trusted partner with a proven track record in their area of expertise. It is essential that they are very clear on exactly what function they want the outsourcing provider to perform on their behalf so that there is no confusion as to who does what, and they also need to establish at the outset what they will be paying for and the associated costs.
The most frequently cited improvements brought on by the adoption of an outsourcing strategy include a better ability to plan, higher levels of operational reliability, and more rapid implementation of new strategies and initiatives.
Outsourcing is a definite way to drive down operating costs, and in the current economic climate, it really is the ideal solution.
It may even allow you to work a 4 hour week….now that would be nice!
To view Marks bio please click here.