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Should You Outsource Work, or Management, or Both?

Outsourcing diagram

Outsourcing is not a new idea. Organisations have been outsourcing chunks of their work for thousands of years. However, there is a big difference between simply outsourcing work and outsourcing the management of the work as well.

Outsourcing management sounds scary. Doesn’t it represent a loss of control? How can you keep the outsourcer honest if you’re not managing the work yourself? Is it worth all the effort anyway?

The short answer is: sometimes.

It greatly depends on what area of your operation you’re considering outsourcing. In the wrong area, it can kill your business very quickly. But in the right area, outsourced management offers a lot of benefits.

In short, outsourced managed services can help enterprises take advantage of economies of scale and operation by leveraging a specialist. Organisations can then focus more tightly on core functions, and as a result, create more value. The key question for any business leader considering outsourced managed services will be: can I improve operations and efficiency with a managed service provider without sacrificing the positive differentiators of my business?

  • Functions that are key business differentiators AND critical to operations should be kept in-house. This is your core competence (or should be!).
  • Functions that provide differentiation, but are not essential to operations, are ideal for a strategic partnering approach. (This may typically include add-ons to your core products or services, or other offerings that differentiate your product or service by expending the scope of the overall solution.)
  • Functions that don’t make much difference to operational performance AND are not important to the strategy of the company are a problem. It might be time to get out of these functions, or at least minimise the resources applied to them.
  • Functions that ARE critical to operations, but provide NO real differentiation of your offering are the ideal things to outsource to a managed service provider.

Let’s look at how this works. Imagine a company, XYZ Inc., which gives training courses on first aid and occupational health and safety. They run courses for employees of big companies in over 30 cities. So what would fit where for XYZ, Inc.?

Training their trainers and developing their courses would be their core competencies. These are the ‘crown jewels’ which differentiate them from their competitors and which are critical to their operations. This is clearly stuff that should only ever be handled in-house.

XYZ, Inc. often mentions different safety equipment in their training courses. These are things like safety vests, goggles, fire warden helmets, and danger and safety signs. Being able to offer this stuff at the same time as the training course would be a good differentiator for XYZ Inc., but it is not critical to the core operations. This activity would be a good candidate for partnering. Finding a partner company to sell this stuff would give XYZ Inc. a nice differentiator in the market, but would also avoid XYZ Inc. becoming distracted from its core business.

Since it started, XYZ Inc has had a small fleet of cars in its home city, originally meant to help the trainers get to the training courses. These days, there are not enough cars to serve the needs of the company, and most trainers travel by other means. In the other 29 cities, all trainers travel by other means. In this case, maintaining the cars is obviously not a differentiator for XYZ Inc.. It is also clear that the cars are not critical to the company operations. The smartest decision for XYZ Inc. would be to sell the cars and get out of this area completely.

So far, so good. But what about the fourth quadrant in the diagram? The quadrant which is not a business differentiator, but is still critical to operations?

XYZ Inc. likely would have many activities in this quadrant. Running their IT servers would be one, managing their payroll and HR is another obvious area. Depending on the nature of their business, they may consider their phone sales operations to be in this quadrant too. All of these items, if big enough, would be places where XYZ Inc. could get a much better business outcome by managed services outsourcing.

The same is true for communication services. Companies like XYZ Inc. typically have significant communications spends, and in complex structures. Not only are there different carriers and plans and contracts, but a variety of different physical assets (smartphones, tablets, etc.) that are constantly changing and upgrading. How can XYZ Inc. manage such and environment without building their own in-house expertise on telecoms and mobility? Telecommunications, and mobility in particular, are critical to XYZ Inc.’s success – they must work perfectly, all the time. The spend is big, so it is critical that it be good value, all the time, or it would impact the bottom line. But communications is not a differentiator for XYZ Inc. – it is simply a business enabler.

In analysing your own company’s operational areas, a great starting point is figuring out which quadrant each activity falls in. Armed with that knowledge, you can then start to assess where outsourced managed services should and should not be considered in your business.

How do your company’s activities stack up on the quadrant diagram?

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