The Case for E-Business Outsourcing
May 17, 2002 3:32 PM PT
When you want something done right, there are times when doing it yourself is not the best option. Even the best companies need to recognize the limitations of their operational expertise and know when to outsource certain e-business functions.
For example, many companies now outsource a variety of ongoing, daily e-business tasks that do not fall within their own specialty area. In fact, just about any function a company requires can potentially be outsourced.
"These companies are saying to the outsourcers, 'If you can set this up faster than I can or cheaper than I can, I'll pay you a monthly fee,'" Aberdeen Group research director Stephen Lane told the E-Commerce Times.
Old and New Players
For online transactions, e-billing and other financial tasks, companies are turning to stalwarts like IBM and EDS, as well as to several smaller and newer players.
For running hardware and server systems, they might employ the services of Oracle, Sun, or one of dozens of less well-known providers.
Still other outsourcers provide such services as Web hosting, customer management, security and e-mail support. In addition, Aberdeen's Lane said, a Web-based business might employ outsourcers for traditional human resource functions like hiring and training.
Outside the Core
Experts noted that companies outsource for a number of reasons. Some find it necessary to hire an outside firm so they can focus on their core operations, providing the product or service that inspired them to go into business in the first place.
A company that manufacturers car engine parts, for example, would outsource functions that are not a direct part of that process, such as Web site hosting or automated customer support.
"If it's core to what you are and what you do as a business, you're probably not going to outsource it," Lane said. "If it supports your business but isn't core to what you do, you could probably outsource it."
Other firms may outsource in order to bring products or services to market more quickly than would otherwise be possible. New or small companies that do not have resources to devote to a large-scale project are among the most likely to do this.
Some companies outsource to obtain work skills that they do not possess in-house, while still others may go outside the firm for a very basic reason: Doing so helps lower costs.
In many cases, Lane said, outsourcing firms have the necessary size and overhead to provide service, including labor, at a lower price than would be possible in-house.
"In certain economies, this is becoming a popular selling proposition," Lane added, noting that companies in some industries are seeing cost savings of 30 to 60 percent as a result of outsourcing.
But the outsourcing trend has repercussions for the workforce in many countries. As technology makes it possible to contract out many e-business functions via the Internet, Lane noted, some companies are going outside their respective markets and hiring outsourcers -- many of them freelancers in India and other Asian countries -- who are willing to work from a remote location at much cheaper rates than local candidates.
Doing It Right
It is important to keep in mind that outsourcing is not a panacea if it is not done right. For starters, a company must convey precisely what it wants an outsourcer to do, and it must make sure the outsourcer has the necessary knowledge to carry out its mission.
What is more, companies cannot always expect instant results from outsourcing and could even end up babysitting an outsourcer, which defeats the purpose of obtaining outside help in the first place.
"It still can take longer to get up to speed even after you have outsourced a function," said Lane. "The big challenge is defining and capturing the details of what exactly you do as a business."
Avoid Culture Clashes
Marc Schwarz, director of global outsourcing at Deloitte Consulting, said other factors must be considered in addition to the competence of the company performing outsourced work.
One key issue is the "cultural fit" between client and outsourcer.
"Outsourcing is a long-term relationship," Schwarz told the E-Commerce Times. "Can the two organizations work well together?"
The outsourcing company's long-term viability is another important issue, Schwarz noted. "Will the service provider still be in business five years from now?"