Knowing When You Should OUtsource And Tips For Selecting An Entity To Outsource To

These days, businesses are always in search of ways to operate more effectively and efficiently, which in turn generally results in increased productivity and profitability.  One strategy some companies use to increase their effectiveness and efficiency is to utilize outside contractors to outsource certain functions.  For some organizations, it does not make sense to have a full-time employee to do certain tasks in-house and it is more cost effective to utilize a company that specializes in that particular area.  Other businesses prefer the convenience of having someone else handle certain aspects of their daily operations.  There are also businesses that integrate and utilize outsourcing as a strategic part of their operation.  

Functions that are most commonly outsourced are:  HR functions (payroll, recruiting, etc.), accounting, marketing (social media, website, etc.), manufacturing, IT/computer programming, compliance and legal.  Outsourcing is not appropriate for every business or every function, and a decision to outsource should only be made after careful consideration and detailed analysis as to whether it is appropriate for your specific business.   The decision to outsource should be made by more than one person - we recommend establishing a committee or team of individuals in leadership roles and that are familiar with the function at issue.  Here are come questions you should ask to help your organization conduct an honest assessment to aid in determining whether outsourcing is appropriate for specific tasks.
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1. Is the task a primary service or offering provided by your business?  [If no, this tends to lean toward outsourcing]
2. Does doing the task internally/in-house provide you with a competitive advantage? [If no, this tends to lean toward outsourcing]
3. Is the task something that is very specialized and/or is not required regularly such that you don't need full-time support?  [If yes, this may tend to lean toward outsourcing]
4. Do you have the required skills in your organization to do the tasks well? [If no, this tends to lean toward outsourcing]
5. Is the task something that someone else (outside vendor) is more qualified to do and can do better and/or more efficiently?  [If yes, this tends to lean toward outsourcing]
6. Are the costs of outsourcing lower than doing the job in-house? [If yes, this tends to lean toward outsourcing]

In the event you decide to outsource, here are some tips to help you identify and select the right firm.

• Do your homework - Ask colleagues and other companies for recommendations on outsourcing firms in the area(s) you're interested in.  In addition, ask them why they are recommending them and what their personal experience has been (if any) with the firm.  It's great to receive a recommendation, but if you learn that the owner of the firm is related to the source of the recommendation, well that recommendation might not be credible in and of itself.

• Conduct a thorough interview of the firm - Face-to-face meetings are generally preferred, but if the firm does not have a local office, that might not be possible.  Either way, you want to make sure that you meet with the sales team, the implementation team and the team that will be servicing your company on a regular basis.  The sales team is generally made up of salespeople who are excellent at the sales pitch but who generally lack a connection with how you as a client will be on-boarded and serviced.  I have seen many instances where the sales team is incredible and the client is excited for the relationship but is later disappointed because the service does not live up to what the sales team described or promised.  Where the work involves certifications, be sure to verify that the vendor and/or specific employees have the necessary expertise, credentials and/or certification.

• Ask for references and work samples (if applicable) - One of our clients was on the verge of signing a contract with an outsourcing firm but at the last minute one of the executives decided to ask for and check references.  In particular, this client wanted references of any clients of the firm that had similar needs (i.e., out-of-state employees).  After speaking with the references provided, it became clear that the outsourcing firm had overstated its capabilities and the firm's current clients were not entirely satisfied with the firm's services.  Thus, while it may be time consuming, doing a reference check and review of work samples may ultimately prove to be a wise upfront investment of time and resources in order to prevent your company from making a costly mistake in selecting the wrong vendor.


• ​Check for financial stability and creditworthiness - It is always a good idea to check that any company you're doing business with has adequate working capital, is financially secure and is creditworthy.   Where you will be outsourcing an entire business function, you definitely want to do a more detailed assessment of the vendor's financial health and their ability to provide services to your organization over the short and long-term.  Although it is not cheap, requesting the vendor's Dun & Bradstreet Credit Report may be a worthwhile investment.

• Be clear about your expectations and ensure good communication - At the outset of the relationship, you need to be clear about your expectations for the relationship and the vendor's performance are.  On the other hand, you should also have a good understanding of what the vendor's expectations are as well.  For many functions, the vendor will require certain information from the client in order to do their job.  We have seen the deterioration of many outsourced relationships due to inadequate communication between client and vendor.  In order to address this, we recommend that from the beginning, you set up a schedule of regular meetings with the vendor to stay informed, discuss day-to-day issues and address potential issues before they become problems.

This list is certainly not meant to be exhaustive, but these tips are based on things we have experienced/observed personally, or are the result of lessons our clients have learned through their own outsourcing experiences.  By following the general tips outlined above, you will be in a better position to identify and select the right outsourcing company that can potentially provide you with a competitive advantage.  ​​