Placing segments of your business with a contractor can help you take advantage of specialized skill sets needed for a short period of time or intermittent services. Business entrepreneurs rely on outsourcing as they start new businesses. But many businesses choose to outsource without consideration of the potential side effects of doing so. To make sure you’re getting the most from outsourcing, think about these five key issues:
- Never outsource your core businesses to a contractor, even if the potential contractor is a valued partner or key stakeholder. Your organization is (or should be) known and valued for its core services and products because you do those things better than anyone else. As soon as you allow anyone to manage and deliver your core business activities, you run the risk of losing the brand that establishes your very identity. The contractors become known for your having your supposed expertise, not your organization. If your contractors deliver a core service, they also have incentive to upsell their own abilities in that area rather than representing the interests of the organization. You will invariably lose market share to those you are trusting to help you.
- Be sure your contractor can deliver non-core services at a higher standard than you can. Use references and check the performance record of contractors carefully before you hand off responsibilities for an important function. Banks, credit card companies, and web service providers are examples of contractors that can handle specific financial and tech services more skillfully and securely because they usually have access to technology a small business or nonprofit lacks.
- Some business services are too proprietary or vital to management to outsource – Allowing a contractor to handle key services that include stakeholder data that is sensitive, such as donor information, can be problematic. I view bookkeeping/accounting as an area best handled by staff because of the potential for misuse of data. The exception is to outsource an external audit as a check on internal business practices. I once used an accounting contractor who did not file federal reports on time, resulting in the IRS seizing my bank accounts. Trusting a contractor with your most critical management information and analytical approaches can be a problem if they are not exceptional in their interest in serving your needs.
- Outsourcing must be to contractors who share your values – We have all seen mainstream vendors lose customers to the revelation that their products violate human rights or environmental ethics. Nonprofits and government agencies are held to even higher standards for selecting contractors who operate ethically, legally and generally with a compatible philosophy to that of the contracting business. Be sure your “due diligence” includes finding out who does the work, how it is done and where it is done.
- Outsourcing can achieve economies of scale – Many smaller organizations can outsource payroll services, health savings accounts, insurance, benefits management, maintenance and other services as part of a larger pool of similar organizations. Your business may lack the volume to get the best discounts on services, but in a pool you might be purchasing at volume rates. Some organizations specialize in helping you with pooled resources.
Outsourcing has its place in businesses of all sizes, but be sure you understand how it makes your organization stronger and better before you execute those contracts.
– Tim Merriman