The Ins and Outs of Outsourcing

If you run a medium to large sized business you will likely have considered outsourcing at some step along the way to building your successful company. Even if you have only recently started out as a small business with just a handful of employees you may well have built outsourcing into your five or ten year plan for the company’s infrastructure.

Outsourcing is a great way to increase productivity and reduce running costs at the same time. There are three main types of outsourcing which we are going to cover: Internal Outsourcing, External Outsourcing and Mid-Level Outsourcing.

External Outsourcing

This is perhaps the type of outsourcing which would be most familiar to someone who does not work in business. Namely it is where you pay an external company to carry out some of the day to day tasks which your business needs to keep running effectively but which it is not cost-efficient to base from your Head Office.

A very common example of external outsourcing in the UK and America is Outsourcing of Customer Care Call Centres. Although this type of outsourcing has had a bad image at times it can still be very effective if carried out properly. The downside to you as the owner and operator of a business is that, whilst this can save you a lot of money, you sacrifice a great deal of control over how the external company operates and it can take significantly longer for changes in policy and vision to be applied.

Internal Outsourcing

Internal Outsourcing is where a company sets up a subsidiary firm to cover a specific part of their operation. This option gives you significantly more control over the operations of each different subsidiary as they remain a part of the over ‘Umbrella’ company. It does also have the effect of reducing costs by streamlining efficiency.

Internal Outsourcing is also helpful if your company is in a highly competitive market or handles sensitive information as all knowledge stays within the company. However, having lots of little subsidiary companies can lead to numerous communication problems and an overly-complex infrastructure which eliminates any benefit which might have been gained from outsourcing in the first place.

Mid-Level Outsourcing

This type of outsourcing falls somewhere in-between internal and external outsourcing, attempting to take the best of both models and combine them into the best possible outsourcing solution. Mid-Level Outsourcing begins much like External Outsourcing, whereby you hire an external contractor to carry out the work on your behalf. The difference being that it is done much locally, most often in the same or bordering countries.

This company then functions as a kind of ‘Outsourcing Management’ where they take on a number of jobs for your company and then outsource within their own subsidiaries. The structure looks something like this

The cost of implementing this kind of outsourcing is greater than the external model, but is still cheaper than not outsourcing at all. It also means that you maintain greater control over how different parts of your business are run, giving you greater security. As a business owner/ operator you are given a single point of contact who then takes care of the process of management of each individual subsidiary on your behalf.

Do you use outsourcing within your company? Which method do you use and why? Let us know in the comments below.

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