Phillips Innovations

Outsourcing can be a strategic tool for making your business more productive and profitable - if you know when and how to take advantage of it. All too often however, small business owners shy away from outsourcing because of their lack of knowledge about the process, and their lack of relationships with overseas providers. This guide aims to provide an introduction to outsourcing that will:

a) identify tasks that are appropriate to outsource,
b) expose the potential pitfalls and problems that many businesses encounter
c) provide practical first steps to start the outsourcing process.

Outsourcing may be a viable option for everything from payroll, accounting, manufacturing and delivery to customer service, employee training, property management and of course IT services. The key advantage of outsourcing is that it enables you to invest your resources into more profitable activities that your business excels at. One should be careful however not to outsource functions that appear negligible, but that are actually essential, such as customer service operations in a small business that relies on building rapport with a loyal customer base.

Consider the following criteria when deciding whether to outsource:

• The activity must not be central to generating profits or competitive success.
• The job is a routine one that wastes valuable time and energy.
• The task is a need that's only temporary or that recurs in cycles.
• It's less expensive to have someone else do it than to do it in-house.
• The activity can be done cheaper in-house, but drains resources that could be better used elsewhere.
• The skill required is so specialized that it's impractical to have a regular employee do it.
• The activity isn't one that people enjoy doing.

Quite often IT services will fit these criteria in a small business environment. IT skills are highly specialized, and use up vast amounts time and resources if attempted to be done in house. Moreover, there is a well established community of IT service providers in countries such as India that are experienced in assisting western small businesses with common tasks.

Once you've decided to outsource a particular area, here are some tips for finding and working with a company or freelance provider that's right for you:

Do your homework.

Ask companies in your area for recommendations on good outsourcing firms, and search the Internet for a more comprehensive list of services available. Ask the companies you research to give you client references, and interview these clients to find out how reliable and flexible their services are.

Select a compatible company.

Choose a company that understands your needs and can accommodate them. Devise a contract that allows you to adjust the terms of the agreement to suit unforeseen changes. An arrangement that's satisfactory now may not work in the future if the company expands or competition increases.

Establish the standards you expect.

Outsourcing will mean the loss of direct control and supervision, so communicating the standards of performance you expect is a must. Outline these standards in the contract in detail, and check up on the company periodically to make sure that it's doing its job correctly. It cannot be emphasized enough the level of detail that should be given to the provider, especially at the beginning of the relationship. Because your new business partner is not physically present in your office, detailed written instructions will ensure that he has a clear understanding of the task and can deliver the results correctly and on time.

Arrange for constant communication.

This is perhaps the most important instruction, especially near the beginning of the outsourcing relationship. After providing detailed project specifications, the client must be in regular contact with the provider to guide his decisions when problems arise. Schedule regular meetings with your outsourcing people to stay informed and discuss the day-to-day problems they've encountered. By staying aware of what's going on, you can prevent potential problems and improve how your business operates. The success of most outsourcing arrangements depends heavily on the quality of communication between the two parties.

Keep an eye on your provider

Be aware that your provider will naturally stray from your instructions when unforeseen problems arise if you are not closely involved with the project. It is essential that you are given access to a daily log of your provider’s activities, and that you check it diligently and provide feedback on the performance of the team. Without regular monitoring and feedback, you will never realize the provider’s full potential.

Know you're not handing over the risk

One of the fundamental rules of outsourcing is that your partner's problem is your problem. People talk about transferring risk, but that's not really possible because it's your business at the end of the day. You can transfer some responsibility, but it is generally not possible to withhold payment so long as the work was attempted. This underscores the need to monitor activities regularly early on the in the project. A small amount of oversight will undoubtedly save a lot of clean-up when the problems becomes larger over time.

Retain a healthy skepticism – Demand Transparency

Don't be blinded by the sales pitch: Hold your regular commercial toward impressive promises. If a supplier reckons that it can cut the number of people you need to work in an area by half, ask how it's going to do that. As the provider works, don’t just wait to see if he delivers the end goal. If he is providing a relatively mysterious service such as Search Engine Optimization (SEO), insist that he explain exactly what steps he will take to reach the end goal to give you some idea of the work involved.

Take the long-term view

Although the 15-year mega-contract is less common nowadays, organizations still need to be thinking of outsourcing as a relationship that's going to last about 3-5 years. If you're just thinking of how this will help your business today, it could wrong tomorrow and the relationship you have invested in will not deliver long term results.

Getting Started – Practical Tips

There are many different ways to go about finding outsourcing partners, and one must consider the nature of the project, budget, and expected degree of involvement in the project. If the project is small or simple you can micromanage it yourself and save the costs and inefficiencies of hiring a project manager. If the project is large, or in an area you are unfamiliar with, its best to save the hassle and hire a firm with experienced managers to ensure your project stays on track. Regardless of how involved you intend to be on day-to-day basis, there are several places you can go to find good partners to work with.

1. Personal Referrals

In a perfect world you could always rely on your personal contacts to recommend great overseas firms they had worked with in the past. This is a great starting point, but you many need to venture out on your own and find new companies online.

2. General Outsourcing Websites

There are several huge websites that act as a ‘marketplace’ for all types of outsourcing assignments. Most often the projects on these sites involve translation, content writing, search engine optimization, graphic design, website design, pay per click campaign management, and programming of all sorts. These sites usually also management payment through some form of escrow, which is well worth the 10% commission they typically charge. Most importantly however, the providers receive detailed feedback after each assignment and you can easily gauge the effectiveness of any provider before you hire. Check out oDesk.com to get a feel for how these sites work.

3. Large Outsourcing Companies

When an outsourcing provider gets large enough, it no longer requires the credibility from its customer feedback on a site such as oDesk and begins to build a separate reputation in the blogosphere and mainstream media. A great example is VirtualAssistant.org which employs thousands of staff all over the world. While the hourly rate charged by such companies is higher, it pays for a solid recruiting process, employee training, and a good management structure which ultimately ensures the client much more reliable and high quality service than available from cheaper alternatives. Such companies can be found through a Google search, and will have an ‘in the news’ section where you can read what the media is saying about them.

4. Specific Project Type Websites

If you require a very common yet narrow set of skills from your provider, there may be a marketplace set up just for that type of task. One example that comes to mind is Joomlancers, a freelancer website for projects relating exclusively to the popular content management system, Joomla. Just like general outsourcing websites like oDesk and GetaFreelancer.com, Joomlancers allows providers to bid on your project, manages payments, and logs customer feedback.

5. Use a Company like Phillips Innovations

There are many western companies already actively engaged with expert providers in the developing world. If you don't have time to manage an IT project yourself, or can't be bothered building your own outsourcing relationships from scratch, we can help you. Take advantage of our expertise in project management, our established overseas relationships, and you too can take advantage of the high quality, yet affordable labor around the world.