To outsource or not: The five questions you need to ask internally first

Most businesses will at some point face the decision to outsource certain functions. The question of when and why to outsource is a tough one. No one running a business likes to lose too much control, but taking on every single task internally just isn’t practical or a particularly smart business move. On the flip side, outsourcing adds risk to any business. Navigating the balancing act is tricky.

At Mayflower, we are in the unique position of being on both sides of the outsourcing line and we understand the delicate balancing act. As consultants we work with companies in certain areas where they may lack expertise, resources or time. On the other side, we are often tasked with helping our clients determine what aspects of their business to outsource. Never a light decision, these processes often involve considerable planning, analysis and risk assessment.

From these experiences, we’ve developed the five key things to consider when deciding to outsource (or not) a function of your business. If you’re preparing for a management or board meeting and just don’t know where to start in getting to a decision, consider these questions to get the discussion flowing:

1. Will outsourcing enhance or diminish innovation on a whole of business level?

When outsourcing, you do not want to make any decisions that will negatively affect your core competency, your unique selling point or competitive advantage. This is what makes your business succeed.

As a specialised business, you employ specialised experts in your core competency. They may have many capabilities, however they are hired for their talents and expertise in your business specialty. Getting them involved in jobs that are outside of their core strengths only weakens the company’s total output. For instance, in an IT company you wouldn’t ask the head of the department to fix the printer. That’s a waste of that person’s time and abilities.

If keeping a task internal will derail innovation and business growth in any way, it doesn’t belong internally. Whilst you may have a member of the team who is capable of completing a certain task, this doesn’t mean they should. If you want to gain value from your team and grow your business, you assign them value-add jobs.

Alternatively, if you need to outsource any component of your core competency, you need assurance that the outsourced party will be able to do it at least as well, but preferably better or more efficiently than you can. It’s your company’s reputation and future at stake.

2. How will outsourcing affect internal morale and culture?

You need to consider your internal teams reaction to any outsourcing move. Without implementing the right strategies to maintain a positive work environment, it is easy for staff to become concerned about job security and their value to your organisation. A company will invariably suffer when its team doesn’t feel appreciated.

3. How will outsourcing affect external stakeholders?

Clients and external stakeholders are key figures to the success of any business and should be given careful consideration when deciding to outsource.

No outsourcing agreement should have the potential to disrupt communications, supply chain logistics or relationships with key external stakeholders. Further to that, appointing outsiders to take on certain levels of your business could lead to a lack of confidence in your capabilities from the people who are key to your success.

4. Is the function in question significantly affected by scalability?

When scalability becomes a pivotal concern in the context of outsourcing, there are several factors at play.

Firstly, it is essential to assess both an internal team and proposed external provider on their capacity for rapid expansion or contraction due to demand. Depending on the task, it can take considerable resources to hire and train internal staff should there be a rapid increase in scale, which is where having a heavily resourced external provider in place may be more beneficial.

If deciding to outsource a function that is sensitive to scale, it is essential to find a provider that provides assurances and flexibility that your business won’t be negatively impacted with any significant changes in either direction. This could include cost, logistics, infrastructure, or even technological capabilities.

5. What critical data or information will be handed over and how do you protect it?

In this age of widespread cyber security criminality, it can be daunting to outsource even a small part of your business. Financial services are particularly vulnerable.

Risk assessment should always be completed as part of any due diligence on an external provider but it’s especially important to highlight the handling of critical data before even deciding to outsource. It will be more difficult to manage data protection when it is no longer exclusively in your hands.

More words of wisdom from our in-house expert

Mayflower’s new Senior Account Manager Katie Sparkes has extensive experience running RFPs for financial services agencies. In her experience, having done the hard yards, working out the risks and benefits of outsourcing will put a company in the best position to choose the right provider and minimise disruption to business. She says:

“Making the decision to allocate internally managed functions to an outsourced provider is a fraught process for any financial services provider. Risk management should be the core tenet of the project, but the potential scale advantages can be a boon for small-to-medium sized firms and should not be discounted.”

Our next article on this topic will be the do’s and don’ts of writing an RFP (Request for Proposal). We’ve seen our fair share of RFPs and written a few, so we have experience in how to make these work most effectively. Stay tuned. Have some opinions of your own – we’d love to hear them. Need help making decisions around change in your business? We love these types of projects at Mayflower, drop us a line.