Four Ways To Make The Case For Outsourcing

"Businesses today are kicking into survival mode," says Bill Allison, managing director for the Pacific Southwest Management Solutions & Services Group at Deloitte & Touche. "With a sluggish economy and increased competition, shrewd executives turn to outsourcing as the most cost-effective strategy to meet the bottom line and seek a higher return on investment."

Outsourcing, especially in the information technology (IT) arena, is a mechanism that allows businesses to compete effectively and sustain market dominance in the future. According to Allison, it is something most midsize companies should think about if they want to be poised for success. Here are four arguments he suggests you can make in favor of IT outsourcing.

Technology allows businesses to create effective solutions when faced with a challenge. Generally the more demanding and complex the business, the more important the technology infrastructure becomes. Still, there are companies that continue to run their business on an IT infrastructure that has not been upgraded in years. These companies are jeopardizing their pecking order in a competitive marketplace. Ultimately, these companies spend too much time on IT problems stemming from a dated system, and too little time focusing on the customer.

Outsourcing eliminates the challenge of fixing IT problems (e.g. the system is inefficient, the space capacity is limited), as well as the time spent on recruiting and retaining skilled IT work force. Dedicating less time to IT issues allows a business to deliver a higher rate of customer satisfaction and more time to focus on new opportunities.

Outsourcing can be based on leveraging an external service provider's economies of scale and expertise. Many companies share a platform for outsourcing, meaning they reap cost benefits by sharing the provider's data center services and IT infrastructure already in existence for its other clients. This enables the business to accomplish new projects that were once considered too expensive.

A company that launches a new startup division will typically require highly automated processes. Outsourcing places those responsibilities on to a team of outsourcing experts who can quickly and successfully link the company's system to its vendors and customers. An outsourcing provider can get you up and running with a single, seamless solution to support multiple users in different geographic locations.

The ability to create and sustain shareholder value is what businesses want. Outsourcing helps achieve that, but you need to be careful about what you outsource and whom to outsource it to. Outsource correctly, and you can position your company to outshine your competitors and make your investors happy.

However, outsourcing decisions that are not carefully strategized will prepare you for declining market share and decreasing margins. Businesses considering outsourcing should develop an "internal characterization." If you were your own customer, what would you like to see improved, emphasized or removed altogether? An honest answer usually requires a fresh, outside perspective that is handled by an unbiased party qualified to take a holistic view of your business.

Internal characterizations performed with in-house personnel might capture the issues, but peering into the mirror can be more effective with a neutral set of eyes. A mistake to be avoided is basing your outsourcing decisions on what you think you are good at, instead of what you should be good at.

As for deciding whom to outsource to, ask yourself, "What is the basis of competition in the outsourcing vendor's industry?" Is your vendor appropriately integrated to deliver against the dimensions of performance that matter most to you? If so, you have made the right choice. If not, look elsewhere.