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First of all, what is outsourcing? When a company outsources, they are purchasing a good or a service that the company used to perform in house. Let’s assume for a second that you build cars. When building cars, you also made your own tires. After a few months, you decide that another company down the street can make tires faster and cheaper than you. Because of this, you decide to outsource tire production. Don’t confuse outsourcing with offshoring. Outsourcing doesn’t always mean that you are getting products or services from a different country. Offshoring is when you do purchase a good or service abroad. For example, Apple designs their products in America, but the assembly of their products is done in China. What this means is that Apple is offshoring assembly to a third party in a different country. We might think that profits and cost reduction are the main reasons why businesses¬†outsource. This is not always the case. There are reasons beyond cost reduction to outsource operations.¬†

Pace & Speed:

Pace and speed refers to the ability to get more work done in the same amount of time. For example, if you are starting a business making t-shirts you may be able to keep up with demand in the beginning. When you are starting your business, the number of customers you have are probably low enough for you to make t-shirts in house, satisfy demand, and provide great customer service. However, once you start getting so many customers that you are struggling to keep up with demand, you may need to outsource your t-shirt making operations. Another advantage for pace and speed that comes from outsourcing is a term called “follow-the-sun”. “Follow-the-sun” means to continue production and operations 24 hours a day, 7 days a week, and 365 days per year. How does “follow-the-sun” accomplish this? Let’s assume your business is based in USA. Normal hours of operations is 8am – 5pm. For your business, the hours between 5pm – 8am represent the night, and are hours with no production or operation because people need to spend time with their families and go to sleep. Although it is night time between 5pm – 8am in America, it is also day time in a different part of the world. You can have a second factory/building in a different country that is day time when it is night time at home. For example, you can have another factory in Asia to continue production while it is night time in America. This is different from outsourcing to a different country in the same time zone.

Talent:

We may need to outsource operations because the skills required may not be available locally. Let’s take a look at a doctor’s office for this example. Doctors are amazing when it comes to providing health care services. What they are not experts in is information security. Doctors are required to follow HIPAA regulations when it comes to providing service. These regulations must also be followed for their physical, electronic files, and communication tools. Because they are not experts in this field, they will most likely need services from an outside vendor that knows about securing information with respect to HIPAA regulations. Another process that a doctor may need to outsource is marketing. Unfortunately, even if a doctor is very good and talented, if they cannot market themselves well, then no one will know about them. In a situation where a doctor cannot attract more patients because of marketing, he/she will need to seek services from someone that knows about various marketing techniques.

Innovation:

Outsourcing for innovation refers to having access to skills and product related experience in areas that are unknown to local workers. Let’s say you would like to design clothing. In addition, you were born and raised in America, but the people you want to design clothing for are consumers in Japan. You may be very good at designing clothing that are attractive to people in America, but this does not directly translate into similar success in a different country. In this situation, you may want to look for fashion design talent in Japan to help you on your business venture. Innovation through outsourcing can happen in another way. If you outsource some of your business processes instead of trying to do everything, you will have more free time. What can you do with this free time? You can think about ways to create a more valuable product for your customers. With this free time, you will have time to think about questions like, “What things can I change about my product/service to increase sales?”

The Take Away:

Outsourcing is another great tool to help you grow your business. Depending on what and where you are outsourcing, you can get cost and overhead related benefits. As a whole, your business should outsource some of its operations, but not all. Outsourcing can allow you to focus more on your business and create value for your customers as opposed to overworking yourself by trying to do everything for your business by yourself.

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