Updated: Feb 17
Should You Outsource Or Hire In-House? Make or buy, like any other major decision in an enterprise, ought to start with strategic considerations. Following the thought model “if this is my goal long-term, what do I need to do to get there?” management needs to recognise those aspects which are mission critical for reaching that goal and hence require the development of respective in-house capabilities.
In other words, core competencies of an organisation are developed and built based on the strategic intent.In most cases this will be the company’s products or services, and it’s immediate auxiliary activities. But as Apple has proven successfully, this need not to be the case.There are a number of criteria which are helpful when deciding on the ‘make-or-buy’ decision for certain roles and favour to keep them in-house.
This is one of the most important considerations besides the strategic dimension in decision making process.There are three aspects in this context:
Timing: because of the reliability of a particular outsourcing market:
if it provides only unreliable suppliers which may result in delivery delays, which in turn lead to loss of sales or even penalties for late completion of projects for example.
Cost: as a company might only require small batches, which, in combination with a lack of competitive suppliers, can expose it to extortionist pricing.
Secrecy: there might be product features, manufacturing processes or, generally, IP considerations, which need to be kept under lock.
On the other hand there are some very compelling arguments for outsourcing processes and activities.Avoiding the distraction of the organisation
There might be certain functions which are critical for the achievement of a strategic goal but which are more auxiliary in nature. Taking them in-house would create too many distractions and bind resources. A good example is the managing of transportation of workers to a factory. Whilst it is mission critical for the achievement of both, revenue and growth goals,it might simply be too cumbersome to do it in-house. Imagining the effort it takes to manage a fleet of 60 or 100 buses, from acquisition to maintenance, from hiring to retaining drivers, from scheduling to optimising routes–day-in and day-out.
Contracting out this task to a specialised supplier is the right answer here.
An organisation that is focused has many advantages.It is a fact that all companies are struggling to get enough resources. Be it the right talent, or sufficient funds, or even time.Whilst acquiring valuable resources is the first step, allocating them where they have the biggest impact is the logical second step. Military doctrine stipulates the protection of the most valuable resources and bring them to bear where they will lead to a distinctive advantage in battle.I believe the same can be applied to an organisation and focus must be central to any successful company.
This is a most interesting and multi-facetted aspect.In general, one would think that making something in-house is advantageous as it allows to keep cost under control. On the other hand, outsourcing certain tasks to 3rd party suppliers has a long tradition, mainly based on the argument of ‘economies of scale’. However, in recent years, a new trend has emerged with the sharing and gig economy. It allows more bang for the buck: buying top-notch expertise on a part-time basis does not break the bank. It also provides flexibility as it allows the adjustment of capabilities and capacity with a short-term horizon. There are a number of criteria which can be applied in order to determine whether an activity offers itself for outsourcing: tasks that are menial, repetitive, well structured and specialised or clearly delimited, i.e. they do not have too many overlaps with other (in-house) activities and have a clear hand-off; they also can be easily controlled with Service Level Agreements (SLA ).
Prime candidates for outsourcing are hence services such as bookkeeping and accounting, payroll legal, IT (vs. tech) or certain aspects of social media like content, blogs etc.
However, there are other candidates which are not so obvious but which deserve a closer look. The role of technology for example has fundamentally changed, and with it the possibilities for outsourcing. Automation and machine learning (ML) in areas of customer service and engagement has proliferated bots as a primary interface with customers. But also plays a role in the process of qualifying leads and, in particular, drip campaigns.
Stephan Hablutzel is Chief Operating Officer at Fresh Accounting Ltd. Prior to starting with Fresh Accounting Stephan has for over 25 years resided and worked in Hong Kong and Singapore in regional roles as CFO and COO from startups in LegalTech to multinational groups in the fashion and lifestyle industry. He held numerous directorships and sat on various Board of Management. Besides finance related expertise, he brings in-depth experience in legal and international tax matters, corporate governance, restructuring and project management. Stephan holds a degree in Economics from the University of St. Gallen in Switzerland and holds the rank of a captain in the Swiss army.
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Daniel Walker, Chief Executive Officer, Zegal