Outsourcing.......
An Essential Business Tool

By
Maurice Bretzfield

Outsourcing, in rapidly changing environments like today’s e-commerce and advertising marketplaces, is an effective and almost always-necessary tool that can help companies of all kinds out-compete. The primary reason for this is simple: specialist experts in any field learn faster and acquire deeper knowledge than internal company departments ever can, while producing cost-savings, heightened productivity and value added resources.

Firms of all kinds and sizes recognize the need to streamline by focusing on their core competencies and employing capital and resources in the most productive and efficient way. Outsourcing has become popular mainly because of the inability of internal departments to deliver quality solutions. Companies of all kinds must focus their attention on those things that they do best and outsource non-core functions to firms that are the best at what they do.

Outsourcing is about making internal business operations external. Businesses outsource specific functions to different specialist expert firms to streamline operations, enjoy improved performance of specific functions, and initiate new functions that were previously impossible due to cost or lack of expertise, and, to save money.

For these reasons, in today’s hyper-competitive environment, outsourcing to specialist experts is essential.

Seventy-five percent of American and European multinational companies report that they use outsourcing and 29 percent are planning to use it more[i]. These are huge firms who certainly have the resources to do these tasks themselves but outsource for many reasons.

Outsourcing is an essential a part of business in the 21st century because it is a methodology of increasing quality, not just cutting costs. A properly designed and implemented outsourcing program can make any process better, faster and more cost-efficient.

Moving any business function to another firm is like creating a new business that needs clearly defined performance goals and management that is capable of managing the relationship.

Companies that provide outsourcing services range from small operations to some of the nation's largest multinationals.

Small business outsourcing is a growing trend, according to Jericho New York based The Outsourcing Institute (OI). In its fifth annual Outsourcing Index, OI reported that 60% of companies with fewer than 500 employees expected to spend between $1 million to $5 million on outsourcing annually. Another 20% of the companies queried have budgeted up to $1 million for outsourcing.

More than a market equalizer, outsourcing is a key growth enabler for small to medium-size enterprises (SME’s) because it offers economies of scale which results in more predictable costs, shared or reduced risk, as well as access to expertise and infrastructure small businesses typically cannot afford or have no knowledge of.

The bottom line is that, provided they do the math, small business owners or leaders of business groups within larger organizations can enjoy a more efficient business by outsourcing tasks enabling them use their core competencies to concentrate on their key goals and objectives.

For small to medium enterprises the keys to success are to manage the details, establish a relationship with the right vendor, define your goals and expectations, understand the fees that are involved, and, most importantly, clearly define the tasks that are to be outsourced. Choose outsourcing vendors who can deliver increased productivity and efficiency.

Utilized properly outsourcing can potentially save companies 10 to 15 percent or more. The following formula can be used to determine if outsourcing is cost-justified:

  • annual salary +

  • commission +

  • bonuses +

  • benefits+

  • overhead+

  • any other internal cost /2,040 .

a + c + bo + be + o + ao /2040

*(2040 is the average number of working hours in a year)

If the costs associated with outsourcing exceed this total, outsourcing may not be a cost effective solution for you. 

The costs of outsourcing are nearly always substantially lower than the costs of hiring and managing internal staff. But by careful planning you can improve process and your bottom line through a properly designed and implemented outsourcing effort.

There you have it. There are certainly several areas of your business that are prime candidates for outsourcing, all you need to do is identify them and create a managed solution that will increase your efficiency, lower your capital costs and create competitive advantage.  

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Maurice Bretzfield, is highly knowledgeable about managed outsourcing solutions and Business Process Management. He is an online marketing expert who, since 1997, has built and e-commerce solutions for a prestigious group of clients including MSN, Sony Music, The Disney Store Online, Cooking.com, Home Shopping Networks’ Improvements Catalog and many others. For further information about how you can benefit from managed outsourcing solutions, contact me today. Email Maurice Bretzfield (maurice.bretzfield(at)gmail.com)
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[i] PricewaterhouseCoopers' Management Barometer Survey

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