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It's become a mantra for businesses both large and small:
"Stick to what you do best, and outsource the rest." And
for good reason. In one study, companies that outsourced
various business services realized, on average, a 9 percent
cost savings and a 15 percent increase in capacity and quality'
In addition, as the charts below show, companies that outsource
are often financially healthier than those that do not.
It's not just large corporations that are outsourcing,
either. In fact, of the 1.6 million companies that outsource,
firms with fewer than 10 employees comprise the largest
group. What's more, 70 percent of companies that purchase
outsourcing services have fewer than 20 employees.
The most outsourced services as a percent of dollar expenditure
are:
• Information technology - 30%
• Miscellaneous - 22% (transportation, warehousing, etc.)
• Human resources - 16%
• Marketing and sales - 14%
• Finance - 11%
• Administration - 9%
Is outsourcing right for your business? Frank Casale, executive
director of the Outsourcing Institute, said that five years
ago outsourcing was typically limited to large companies
in financial trouble. "Today, more and more small and medium-sized
growth companies have leveraged outsourcing as a growth
enabler," he said. "It's the new growth weapon for the small
business."
Casale recommends a six-step process to use when evaluating
whether to outsource a specific service: strategic analysis,
identify the best candidates, define your requirements,
select the providers, transition the operations, and manage
the relationship.
Whether you ultimately decide to outsource depends on a
multitude of factors. The key question is, wouldn't your
business be better off focusing on what it does best?
Mistakes to Avoid
1. Don't allow the company's finance and legal department
as well as vendors, to dominate the decision process.
2. Be sure to "prequalify" vendors based on their total
capabilities rather than judging bids on price alone.
3. Don't pursue short-term benefits at the expense of longer-term
considerations.
1) "Purchasing Dynamics, Expectations and
Outcomes," 199S Trends Report from The Outsourcing Institute
2) Dun & Bradstreet
3) "The Outsourcing Index," Dun & Bradstreet Information
Services Data and The Outsourcing Institute, November 1997
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