Outsourcing is a word that has gained popularity in recent years. Skype, a video call service provider based in Scandinavia was able to build its business by using a team of developers based in Estonia. Outsourcing some of the business activity will lead to huge savings, as well as innovation, but there are some things that need to be kept in mind before taking the big decision regarding outsourcing.
Bifurcate Core from Non-Core Activities
Every business has some core activities and some non-core activities. The non-core activities help the efficient functioning of core business operation of the business. While having these non-core activities is imperative for the business, having them in-house is not important. These non-core activities can be outsourced which can lead in cost savings for the business. Before making a final decision, businesses have to separate core from non-core activities, and only outsource the non-core activity.
Consider Cost Efficiency
If, and only if, the bottom line of the company is improving, then the division of the business must be outsourced because the capital saved from outsourcing can be invested in other avenues to maximize returns. A thorough scenario and financial analysis is needed to be done, which will give the senior management a holistic view of the situation and will enable them to decide whether or not the business is needed to be outsourced.
Analyze the Impact of Reputational Risk
Reputational risk that the company would be facing after certain business divisions have been outsourced must also be considered. For Instance, if you provide a specialized service to your customers, than the outsourcing of customer service department might be a very bad idea because the unsatisfied customers can cause you to lose business. Moreover, if the customer finds out that he is talking to a guy sitting in Mumbai rather than in the company from where he bought the product, it will adversely affect the reputation of the company.
If the business does not want to take the risk of outsourcing, then it will probably be left behind in the industry where other players are already outsourcing their business activities. But make sure to critically examine the above mentioned points before making your final decision.