Outsource or DIY? Does the pandemic make a difference?
Outsourcing is an important option for many businesses, and the opportunities have expanded with nearly universal Internet connectivity and the growing trade in contract manufactured goods and components. However, the pandemic and its impact on the economy and workforce calls for a closer look at the whens and whys of outsourcing.
It’s rarely been more important for a company to focus on its core goals and change management, which can be difficult to outsource in full. Accordingly, a new venture or one-off project you had the bandwidth to absorb a year ago might now stretch your team and resources too far or distract them from more critical goals. The “outsource or do-it-yourself” decision can come down to either outsourcing or passing on an important opportunity or need. For initiatives too critical to delay, outsourcing can be the best option, at least as an interim measure.
While outsourcing is often driven largely by costs, it can mitigate other hazards of new markets or products – and the investment in needed equipment and personnel – especially at a time of heightened overall uncertainty.
If outsourced processing/manufacturing capacity is available for new products or expanded production, it may make sense to utilize it until volume is sufficient to justify the investment needed for internal production, even if it costs more in the short term. A company we work with developed a new product for which there was no automated processing, and the cost of manual production was too high to be an option. The company opted to have the product handmade overseas from US inputs until they developed their own automation, then moved production back to the US. This allowed them to get into the market earlier and made for a smoother transition to internal production.
There are advantages to keeping critical support functions such as accounting, IT, HR, and legal internal, but even larger companies outsource elements of these for reasons including continuity, expertise, scope of experience, and level of need.
In the current economy, outsourced support can offer continuity and expertise that would be difficult to maintain otherwise, and there may be niche functions that don’t pencil out to maintain internally. For example, a company with capable IT and accounting functions might utilize outsource consultants for an ERP conversion; a company with an in-house legal department may outsource patent law issues if it is not something they deal with regularly. As many providers offer what we call the “faucet approach,” you can turn many services on and off as needed, which helps to both control costs and keep the focus on immediate needs.
There’s no denying there are downsides to consider. Employee engagement may be negatively impacted if the outsourced functions involve duties key personnel feel they can do themselves, even if they are stretched. Cyber security issues can arise with services performed remotely on systems outside the company, or that require outsider access to company systems. Communication problems can arise and product standards can vary, particularly when outsourcing overseas.
Yet outsourcing can be an important way to control costs and hedge the risks of hiring and growing production in light of current uncertainties. There are no 100% safe strategies, but outsourcing can be an attractive option for many companies, and for many needs.
About the Author
Brent Morrison is the founding principal at Morrison. To get in touch with Brent, please find contact information for Morrison here.