The Pros and Cons of outsourcing for greater flexibility and profitability
Pros and Cons of Outsourcing
If you have followed me at all you know I am an advocate of outsourcing for greater flexibility and profitability. There are pros and cons to doing it. It is key to develop a strong outsourcing strategy supported by your team if you want to be successful at it.
Let us look at some of the pros and cons.
Pros:
- Allows you to focus on your core business activities.
If we focus on our core technology, we will not be distracted by all the efforts needed to deliver our total solution. Utilizing other people’s core technologies to deliver our solution will be much more cost-effective and can greatly shorten your time to market.
If you have a software solution needing some hardware to deliver the solution, why not find a partner with core technology in hardware. All your efforts should be focused on what you do best. If you are designing some new hardware you don’t need to build up a state of the art manufacturing facility. There are companies that have this as their core technology.
Having a strong team in-house to develop and manage these relationships is extremely important.
- Increases your reach by giving access to greater capabilities.
Giving you access to capabilities and facilities you would not otherwise have access to or that you would need to develop inhouse will pay off. This will allow you to allocate your critical capital to the most important tasks and not investing in other skills and facilities. Many of the tasks, if you keep them in house, could not match the quality or efficiency of companies that have it for their core competency.
This can also shorten your development schedule and get your product to market quicker.
- Greater flexibility and agility to react to changing markets and technologies.
Outsourcing can give you much more flexibility to changes in the market and changes to the non-core technologies you need to deliver your solution. It is always an advantage to be more agile in changing markets and economies. Your supply chain can give you this ability. Utilizing your partner’s investments in your non-core technologies allows you to take advantage of their work.
Understanding your partner’s product road map allows you to plan for technology changes and innovations that can enhance your solution. Again the keyword is a partner, not just a supplier.
Cons:
- Service and Delivery.
Delivery is key to any successful business. When we outsource part of our deliverables we do give up some control of the overall process. Also, the service level we require to be successful can be in someone else’s hands but still reflects directly on us.
- Confidentiality and security.
If you must share some key technologies to your outsourced partners you run the risk of your technology being stolen or compromised in some manner. This can be at greater risk if you use offshore partners without the proper controls and security necessary to lock down your proprietary technologies.
- Lack of flexibility with the supplier.
You do give up some flexibility with any partner. Not having control over lead times, production priorities, your partner’s supply chain, and the partner’s overall stability as a company. Their ability to deliver is tied to their ability to maintain a robust production process and good relationships with all their suppliers.
I have spoken many times about how to outsource and be successful at it. Having a strong outsourcing strategy is key. Locking down our core technology in-house is of major importance. Where do we really add value? Looking at our outsourced resources as partners and not just suppliers is more than just a subtle difference. There must be a sharing of the risk and a sharing of opportunities from your overall relationship. Managing the entire supply change will make the difference in our overall company success. I would be happy to discuss the many successes and failures I have seen using outsourcing. Feel free to contact me and start a discussion.
What experiences do you have in outsourcing? Let me know in the comment section.
John Toomey
Executive Coaching | Interim Management | Fractional Management | Board Leadership
Reach out today to add me as your one on one advisor to enhance your personal performance and that of your company. I can also fill that vacant position until it can be filled or join the team on a part-time basis to bring my set of skills and experience to your team. Energize your board by adding me as outside board member that has only your company’s interests in mind.
