Developing Your Product Idea - Think Outsourcing
Outsourcing is a term which has received a great deal of attention lately. Despite the increasing trend in companies relying on outsourcing there are still some who do not clearly understand what is meant by the term outsourcing. This article will examine some of the key elements of outsourcing to help the reader develop a better understanding of the concept of outsourcing.
Outsourcing Defined
In the simplest language possible, outsourcing is when a company delegates the completion of certain tasks to an outside firm or an individual not directly employed by the company.
This individual may be an independent contractor or an employee of another company who is subcontracted to complete these tasks. In exchange for the individual’s services, he or his company receives monetary compensation and/or other considerations as negotiated.
This description of outsourcing makes it far easier to understand the concept. Most people incorrectly assume outsourcing only applies to situations where large corporations have products manufactured overseas by a subsidiary and don’t realize examples of outsourcing can be seen just about everywhere in corporate America.
Domestic Outsourcing
Domestic outsourcing refers to outsourcing where both the primary company and the independent contractor or subsidiary are located in the same country.
One of the main reasons for outsourcing is to reduce costs but it is not always necessary to outsource work overseas to reduce costs. Cost savings will be discussed in greater detail in the section on the benefits of outsourcing but essentially outsourcing results in a savings as a result of a reduction of labor costs.
Overseas Outsourcing
Overseas outsourcing is the type of outsourcing most people already understand. This is where large corporations such as Nike, and even some smaller companies, employ manufacturing plants overseas in third world countries to upsize their profits.
This is significant because their costs including wages, materials and building lease would be considerably higher in the United States than they are in these other countries.
Benefits of Outsourcing
Now that you have a clearer understanding of the concept of outsourcing, you might wonder why companies would go to the trouble of outsourcing certain tasks. Outsourcing is popular because there are a great deal of benefits to the companies who outsource the work. Some of the benefits include:
• Reduced labor costs
• Increased workforce
• Greater flexibility
One of the main reasons companies resort to outsourcing is it can significantly reduce costs. In the case of overseas outsourcing of manufacturing tasks, costs can be cut dramatically because there are lower wages and costs associated with managing and maintaining the manufacturing plants.
However, companies also enjoy a cost savings when they outsource tasks domestically. Reduction of labor costs is the primary source of savings in this case. Independent contractors hired on a contract basis for the purpose of completing specific tasks are often not given benefits such as social security, Medicare and workers’ compensation.
Another benefit to outsourcing is enjoying a larger workforce without actually hiring additional employees. Companies who maintain networking relationships with qualified individuals have more opportunities open to them because they are able to rely on these individuals to assist them if they acquire large or complicated projects.
Finally, outsourcing gives a company a great deal of flexibility. Companies who have a significant workload and backlog of work where the majority of the employees are highly utilized might be hesitant to compete for new work because they do not have a great deal of employee availability.
However, with a network of individuals to rely on if the need to outsource arises, the company has more flexibility in pursuing new work.
When Outsourcing is the Best Solution
There are times when outsourcing is the only option available for reasons such as no in-house employees are qualified or available to complete the particular task.
However, there are also times when outsourcing is not the only option but it is also the best option. In these situations, outsourcing becomes a wise business decision as opposed to a requirement or a matter of personal preference.
Now let’s discuss three situations where outsourcing is probably the best option. These options include:
• When outsourcing saves money
• When outsourcing helps make deadlines
• When outsourcing increases productivity
When Outsourcing Saves Money
Outsourcing becomes the best solution when it saves the company money without compromising the quality of the work. Companies whose goals are predominately financial in nature often focus on the bottom line in determining whether or not to outsource projects or tasks. When the cost savings results in inferior work it is certainly not the best solution.
However, companies who are able to outsource projects to highly qualified and capable individuals while still saving money enjoy the benefit of knowing they selected the best solution for their software related problems.
Whether or not outsourcing saves money is a concept which many have difficulty understanding. When most people think of outsourcing, they picture citizens of third world countries working for substandard wages but this is not an accurate representation of outsourcing.
Nowadays outsourcing often involves hiring high priced, domestic consultants to tackle complex software problems under aggressive deadlines. This explanation makes the issue even more confusing for some who think it is impossible for it to be less expensive to hire a high priced consultant than to complete the task in-house.
Examining labor costs is often necessary to see how outsourcing can often reduce costs. Outsourcing may carry a higher per hour rate but it is important to note that the company is often not required to pay benefits such as social security, Medicare and workers’ compensation to the consultant.
Additionally, the consultant may work offsite meaning he is not putting a drain on company resources. Examining these factors is necessary to determine whether or not outsourcing is the best option.
When Outsourcing Helps Meet Deadlines
Aggressive deadlines often make outsourcing the best available option. Most companies do not want to have to turn down work because they do not have enough staff members available to complete a particular project. Having the ability to outsource software jobs makes it easier for a company to compete for more jobs than their staff could possibly handle.
This is because the managements know they have a network of consultants to rely on during times when schedules are tight. In these cases outsourcing becomes the best option.
Whether schedules are originally set to be rather aggressive or become accelerated do to problems earlier in the project they can become a hassle for many companies. Regardless of the cause of the scheduling concerns, clients may not understand if the consultant is unable to meet the required deadlines.
When Outsourcing Increases Productivity
Outsourcing also becomes the best solution to a problem when it results in increased productivity. Consider the tasks you intend to outsource and determine the amount of time it would take for these tasks to be completed in-house.
Now consider the amount of time it would take to have these tasks completed through outsourcing. If the answer is outsourcing would be quicker, it is logical to go ahead and outsource these tasks. The reason for this is the consultant can be more efficient with the tasks.
When considering productivity it is also important to note that employees who are handling multiple tasks often take longer to complete each individual task then they would to complete each of these same tasks if they were his only responsibility. This is because employees who are multi-tasking are not necessarily as efficient as they believe they are.
The main problem with multi-tasking is when switching from one activity there is a small delay each time the employee switches tasks because he often has to review his recent progress and remind himself what he intended to do next. Conversely outsourcing singular tasks allows the individual to focus 100% on each task.
When Outsourcing Is Not a Good Idea
Outsourcing can really be beneficial for a number of reasons. Some companies enjoy benefits such as reduced labor costs, larger workforces, access to industry experts and increased flexibility through outsourcing. However, despite the obvious advantages to outsourcing there are some situations when outsourcing is not a good idea.
Although there a number of scenarios where outsourcing is a viable business option there are other scenarios where outsourcing is not the best idea. In these situations it is best to keep the work in-house rather than attempting to make an outsourcing situation work out.
When Outsourcing is Too Costly
One of the primary advantages of outsourcing is a cost reduction. In many cases outsourcing results in reduced labor costs because costs such as social security, health care and workers’ compensation are eliminated. Additionally, the increased efficiency resulting when tasks are outsourced to industry experts can also result in a cost reduction.
Despite these many opportunities for cost reductions, there are some situations where outsourcing might be the more expensive alternative and it may also lead to a financial loss instead of a gain. This may include a situation where the cost of outsourcing to a highly specialized expert exceeds the budget for the project.
Fees for individuals with highly specialized degrees or areas of expertise are often quite expensive. Another possible situation is one where finding an individual qualified to complete specialized tasks would be too expensive of a process.
When Outsourcing Causes Loss of Control
Even when tasks or projects are outsourced the company responsible for the work likes to continue to manage the project and keep close tabs on the progress of tasks. It is important for the company to continue to manage the project even after it has been outsourced because they are the ones who are ultimately responsible for the successful completion of the project.
Whenever an individual or company wants to deny the company
access to project files or documents, outsourcing is a bad idea. The company who has the vested interest in the outcome of the project should never be excluded from participating in making decisions regarding the project.
Before outsourcing a task or project care should be taken to establish criteria for the management of the project. Depending on the length and complexity of the project it may also be wise to schedule regular meetings to provide updates on the progress of the project.
During this time the contractor should provide the employer with all documentation necessary to evaluate the progress of the project and verify it is still on track for completion by the established deadline.
When Outsourcing is Not Permitted
Sometimes outsourcing is not a good idea simply because it is not permitted by contract requirements. Some project contracts may have stipulations stating the work cannot be outsourced to an individual or to another company. Inserting such a clause into a contract document is well within the rights of the clients.
When they hire a particular company to complete a project or task, they expect all work related to the project or task to be completed by members of that company unless they specified otherwise when negotiating the contract.
Violating the contract documents in this situation is not a good idea. The company could be penalized by the client. Penalties may include withholding payment or refusing to award future projects or tasks to the company.
Outsourced But Not Outsmarted
There are many who tout the advantages of outsourcing as essentially a little known secret to success. There are certainly a number of distinct advantages to the process of
outsourcing. Some of the most notable advantages include cost reductions, increased possibility for profit and the existence of a larger workforce without maintaining a staff of salaried employees.
All of these incredible advantages may make outsourcing seem as though it is an ideal resource in all situations but this is not true. There are certain precautions which should be taken when outsourcing a project. It is important to be mindful of these precautions when outsourcing a project to ensure the project runs smoothly.
Verify Candidate Qualifications
When outsourcing a task or project to an individual, care should be taken to screen all applicants carefully before deciding to outsource the work. This is important because you want to be sure to outsource the work to a qualified individual. Awarding a project to an unqualified individual can be a costly mistake if they turn in sub par work at the conclusion of the project.
It can also be costly if it results in unnecessary delays or setbacks as a result of the lack of qualifications.
One way to avoid being outsmarted by fancy resumes hyping the accomplishments of an individual is to verify all of the information on the resume before awarding the project. This may entail contacting previous employers as well as references to determine the capabilities and work ethic of the individual.
Taking the time to verify the information on the resume can help to ensure the individual you outsource the work to is truly qualified to complete the project.
Outline Project Requirements Carefully
When outsourcing a project it is important to be very clear in outlining the project requirements. This is important so both the client and the independent contractor understand all of the requirements of the outsourced project. Preparing contract documents stating the exact project details and compensation to be provided is a good idea as well.
Taking this extra precaution will ensure the client does not have to pay fees until the contract specifications are met. A contract can also be helpful if disputes arise and mediation is required to resolve the conflicts.
Additionally, it is wise to include information regarding the required deliverables in the contract documents. This should include the exact end product which should be submitted. In this portion of the document the client can specify information regarding whether they require the project submitted as a hard copy of the completed project, a soft copy of the completed project or both.
Schedule Periodic Milestone Meetings
Regularly scheduled progress status meetings are very important when a project is outsourced. These meetings should be scheduled often enough to ensure the project does not fall too far behind schedule during any one phase of the project. These meetings can be helpful to both the client and the independent contractor.
The client will benefit because they will remain in control of the project and can intervene if the independent contractor is heading in the wrong direction with the project.
These meetings are also beneficial to the independent contractor because they can prevent him from being caught by surprise at the conclusion of the project if he misinterpreted the project requirements.
Ken Mathie
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