February 25, 2013 by collemar
By Marco Colle, MSc in Management Consulting 3 student
Real entrepreneurs, like business owners or managing directors of small enterprises, are multi-talented. They are not only experts of the industry they are working in, but they also have a fundamental understanding of finances, organisational design, business strategy, operations and process management, as well as marketing and sales. However, these broad skills entail the risk of overconfidence; they might think they can do everything within their company, with their own resources. Let’s consider a company that constantly gets bad customer feedback on one part of their operations, for example on how they ship goods to customers. The business owner now realises that there is a flaw within his supply chain and then tries to reorganise tasks within his organisation. In most of the cases he might not think of the outsourcing possibility and shifts around responsibilities to solve the issue. But this might cause an even bigger grievance than before as the employees now will have additional tasks to their daily business. The risk appears of not handling the extra work with the necessary dedication.
A good way to find out if it makes sense to outsource is in using the outsource-decision-matrix from Barnes (2008).
You need to decide if the task you are considering to outsource is of strategic importance and how it contributes to the overall operational performance. Tasks which are not strategically important but contribute to a high operational performance are not worth doing in-house as it is a waste of time. A manufacturer could for example outsource the freight management to a specialist company as it has nothing to do how the customer values the product itself, but how well it is done matters; the customer wants the product undamaged and as quick and cheap as possible. The manufacturer would not be able to offer all that and therefore should consider outsourcing his freight management and giving it to an expert company.
Having decided on outsourcing the task this company has to find the right partner. It might be a bit time consuming, but in the end worth the effort. Write down exactly what improvements and changes you need and according to that look for a partner. You can use the internet to look for reliable and capable partners, but probably the most promising way is to rely on recommendations from your own network. As soon as you have found the right partner and done the due diligence on the contractor, you should set up a detailed contract. Include clearly defined tasks, deliverables and the timeframe as well as all the responsibilities. Also find an agreement for regular review meetings; the goal should be to continuously improve the task. Your responsibility from now on will be to step back and allow your contractor to do the job you agreed on. You’re only duty from now on is to monitor and evaluate the progress on a regular basis and if necessary mention flaws in the meetings.
In my opinion, leaders of small enterprises should be more courageous and dare to outsource certain operations, or at least proof an outsourcing solution in order to be able to better focus on core competencies.