By Harry Stephens

One of the benefits of having been in business for 30 years is the opportunity to work with a large number of diverse, yet successful companies. However, for outsourcing to be successful, management must have a clear set of goals and objectives in mind from the start.  Companies that have incorporated outsourcing into their business management philosophy do so for a variety of sound business reasons.

Today, with so much focus being on business processes and the return on investment associated with them, it is important to look at the strategic and tactical objectives that can make the decision toward outsourcing non-core business processes a wise one.

Reason #1: Reduce and Control Operating Costs
(Strategic-long term benefit)

The single most important strategic reason for outsourcing is to reduce and control operating costs.

Having access to the outside provider's lower cost structure and advanced technology, which may be the result of greater economy of scale or some other advantage based on specialization, is clearly and simply one of the most compelling reasons for outsourcing.

Additionally, companies that try to do everything themselves may incur vastly higher research, development, marketing, production and employment expenses—expenses that ultimately have to be passed onto the customer. Today's customers are too sophisticated to accept the costs associated with an organization's attempts to maintain singular control over all its resources.

Reason #2 : Make Capital Funds Available
(Strategic-long term benefit)

Outsourcing is a way to reduce the need to invest capital funds in non-core business functions. Instead of acquiring the resources through capital expenditures, they are contracted for an "as used" operational expense basis, thus making capital funds more available for core areas. It can also improve certain financial measurements of the firm by eliminating the need to show return on equity from capital investments in non-core areas.

There is tremendous competition with most organizations for capital funds. Deciding where to invest the funds is probably one of the most important decisions that an organization's senior management makes.

For example, when a firm decides to outsource its statement, invoice or debtor letter printing, the equipment and personnel in that area no longer compete for the company's capital. Often, these types of investments—and their constantly escalating demands—have been difficult to justify when compared to areas more directly related to producing product or serving the customer.

Reason #3: Free Resources For Other Purposes
(Tactical - near-term issue)

Every organization today has limits on the resources available to it. The constant challenge is to ensure those limited resources are expended in the most valuable areas. Outsourcing permits an organization to redirect its resources from non-core activities toward activities that have the greater return in serving the customer.

Most often, the resources redirected through outsourcing are people resources. By outsourcing non-core functions, the organization can redirect these people, or at least the staff slots they represent, onto greater value-adding activities. People whose energies are focused on accomplishing internal process can not be focused externally—on the customer.

Reason #4: Resources Not Available Internally
(Strategic - long term benefit)

Companies outsource because they do not have access to the required resources within the company. For example, if an organization is expanding its customer base and does not have the equipment or personnel to continue mailing customer billing statements in a timely basis, cash flow is adversely affected. In addition, recent postal changes providing discounts to qualifying companies using automated mailing systems further impacts a company's operational costs in that area because of limited resources.

Quite simply put, rapid growth or expansion of operations is often a strong indicator that outsourcing may be the right decision for a company.

Reason #5: Improve Company Focus
Tactical - near-term issue

Outsourcing lets the company focus on broader business issues while having non-core operational details assumed by an outside expert. Outsourcing is an organization-shaping management tool which can lead to a clearer more effective focus on meeting the customers' needs. For many companies, the single most compelling reason for outsourcing is that several of the "how" type of issues are siphoning off huge amounts of management's time and attention. Too often, resolution of these issues get stuck in middle management "decision gridlock". This creates financial and opportunity costs that affect the organization's future.

Outsourcing can enable an organization to accelerate its growth and success through expanded investment in the areas which offer it the greatest competitive advantage.