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Dangers of Not Outsourcing

Written by Nico Black

Digital Strategist and early-stage investor, Nico is also an AdTech enthusiast. He has over a decade of digital marketing experience and has been investing in tech companies since 2006.

May 5, 2012

Public outcry about jobs being shipped abroad? That’s because outsourcing isn’t done right. Let’s take an example from Apple. Apple has outsourced its manufacturing to China and was crowned the richest company in the world today. Not bad considering that 15 years ago they were 90 days away from going bankrupt. Outsourcing has allowed them to create more jobs where it matters.

How has outsourcing helped so many forward thinkers in industry increase their bottom line, growing both profits and jobs? it all started with the concept of JIT: Just in Time. This Japanese auto manufacturing principles helped march Japan into auto manufacturing primacy in the 70s. The concept? Order critical parts of your process production by pitting vendors against each other. Then select the one that matches your tender fastest and closest to budget. Bad results? Move on to another vendor willing to take your business.

This process allows you to test and build new parts to your process. It also creates a process and company mindset to optimize the vendor selection process by “split testing” them. Thus, the capacity for improvement is endless (only limited by budget / cash-flow / technology).

The Near Far Dichotomy

One of the challenges of not outsourcing seems like a non issue for a traditional business: location. Real story: my friend needed a personal assistant to help his budding credit card processing business a few months ago. And so he tapped into his social network, acquiring a personal assistant. This provider shows up at his home office once a week on Sunday for 4 hours to help him out. But here are some questions:

  1. What if he needed more than 4 hours on Sunday? What if he was on a road-trip? (which it was, he went cross country with family). Can the business afford to stop due to the limitations of an established physical meeting work process?
  2. What if he quickly needed to scale? He needs say not 4 hours a week, but 180? Where would he find the resources to do that?
  3. Is his assistant really the best match or value? His social network is limited to a couple hundred people (judging by his Facebook + linkedin connections). What are the chances he’s getting the best bang for his buck?

It is my experience, that being bound to the physical realm is a serious hindrance for flexibility and scaling of a business. Those are not the kind of shackles you need moving forward.

You Talking To Me?

Unlike relationships, lack of communications doesn’t ultimately get cast aside in the form of a disillusioned spouse. In business bad communication cost both heartbreak and money (although that can be argued to be the case in marriage as well). Imagine conducting your current relationship as is, but without the ability to communicate face to face. Sounds like a nightmare right? Well, it is.

The solution, like managing any relationship is in training and procedures. With outsourcing being very detail oriented is key and the use of lots of examples via screenshots and hyperlinks to illustrate your points.

The procedure, the standardization of the communication process requires the use of the right tools. No, email won’t cut it. Too many threaded discussions, to many lost files, etc. The use of software like / / pivotaltracker will help make communications fluid (I use all three: trello for top level planning, yammer for seamless discussions across time zones and teams, pivotatracker for software development).

The worst a communicator you are, the more tempted you get at keeping communications on a face to face basis. Face to face is indeed easier, but you lose out on a ton of benefits.

In House Talent Outsourced Talent

Mazel tov! By building a flexible set of contractors you have tapped into the endless potential of optimization. While the conventional wisdom is to allow your own in house team to develop in your firm, there is a significantly more robust alternative.

Assuming each one of your employees has a metric or metrics they perform against, you can perform a simple test. The test is: take our “regular” employees output and test that “against” 5 other outsourced providers. The winner in terms of cost divided by metric is your new “functionary”.

Your dear trusted employee? Well, don’t worry – they are still critically important. They can now become an overseer of the outsourced providers to ensure quality, provide documentation and training. If the function that has now been proven is something that you may want to scale, having that employee now manage 20 of such providers. Optimizing and scaling can really help you grow your business fast. You can also let your employee go, but that’s usually a bad use of organizational knowledge. It’s also demoralizing for the rest of your team.

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