If you’re lacking the skills or technology to do something, you can either acquire those resources internally, which is an investment, or you can leverage outsourcing. By outsourcing, you leverage another company that already has those skills and resources available. From a company’s perspective, it’s looking at outsourcing as “do we have a competitive advantage to do it ourselves, or should we rely upon someone who does have the competitive advantage to do it?”
Technology is a great example. You can’t do everything for everyone, some things you want to rely upon the experts. That is, those who are current in industry trends, and able to stay on top of the latest trends and features.
The experts are usually specialized, so they have the specific skill sets or technology readily available for something that you may need. It could cost a significant amount of money to do develop that internally, so the options are developing it yourself, or outsourcing it from someone that can pool their resources, and serve a lot of different customers in a more economical manner.
Outsourcing can be a great approach if you want to avoid the capital investment in personnel and technology. Capital expenditures are limited at all companies, so a way to spread the costs out over time, rather than making a large upfront investment, is through outsourcing. It is also great for something you need for a limited time, or if you have concerns of obsolescence. If you invest rather than outsource, you own that asset and bear the risk if that asset does not provide value over its useful life.
When considering outsourcing, a key aspect is to know what you’re looking for, and what need you’re trying to resolve. If it’s more of a commodity than a competitive advantage type service, you would strongly look at outsourcing, and have someone else provide it for you. For those things that differentiate you from your competitors, owning may be the preferred route to take.
Once you decide outsourcing is the way you want to go, you then need to determine which parties or entities provide those services. It’s important to see if the company has the skills, expertise, and if they’re cost effective. It’s having the same due diligence that you would have in making an investment decision.
Once you’ve found a possible candidate(s), you need to ask several questions. Is it a partner that is well respected in the industry? Do you see your parties having a similar culture and good fit with your organization? Have they demonstrated the skills you need? When it comes down to it, it’s choosing the best match for your needs, and it financially makes sense for your situation.
You can’t do everything yourself. There are some aspects that just don’t define you or your company, that aren’t your competitive advantage. In those cases, outsourcing is the way to go. Read more about leveraging both outsourcing and digital transformation in our white paper.