A company should delegate work beyond its walls when that work is important, but not central to the company’s core competency. Outsourcing isn’t limited to offshoring work. Even hiring an outside accountant from the office down the street is considered outsourcing work. Still, this can be a very dynamic process and evaluation to make.
And the tradeoffs of outsourcing work are becoming even more complicated as more people use technology to collaborate over long distances. When in-house staff may be working from thousands of miles away, why look to outsourcing for the answer?
The Outsourcing Test
In general, the calculus is identical to management decision making at the personal level. The test for determining whether work that might be delegated is too core to ones’ special expertise is simple. Just ask yourself whether you can train someone else to do the work such that the cost of the time it takes to train the person plus the cost of the person you're training is lower than the cost of the total time it would take to do the work yourself.
In other words: Cost of the Outside Contractor < (My Own Training Time + Execution Time)
If it is cheaper to do the job in-house, it is probably because delegating the work would require you to impart too much specialized in-house knowledge to someone on the outside.
Conversely, if the cost of delegating the work is lower than doing it in-house, it is probably because either:
1) The learning curve required to do it in-house is high, making it more suitable for delegation to an outside expert, even if that expert is expensive. This is analogous to a law firm hiring an architectural firm to design new offices.
2) The learning curve required to do the work is very low relative to a company’s core work and, therefore, the outside contractor is inexpensive relative to keeping the work in-house. This is analogous to hiring a shipping company to send company sales packages instead of purchasing your own trucks for every road. These roles often get sent to areas with lower educated and lower cost labor markets.
Don't Forget the Cost of Time
But when you’re making the analysis for whether to outsource something from your company, don’t forget the price implications that go beyond the hard cost of labor. There are three big ones here that drive up the cost in terms of time.
1) Getting started: Even the simplest tasks must be trained for. This requires personnel time and documentation. That makes it not worth doing for one-off tasks. Most often, losing time today to save time tomorrow is only true for ongoing, repeated processes.
2) Creating context: Sometimes tasks can be very simple in isolation, but they can only be done correctly with a lot of contextual understanding. Without this contextual understanding, the would-be delegator may need to break steps down into too many parts to successfully hand them over.
3) Ensuring continuity – The company delegating its work must know that the person doing it for them is reliable. If turnover is too frequent, or if redundancy is not built in, the cost of repeating the steps of getting started and creating context will be too high.
As corporate walls have become less rigid and workers more independent, companies are able to outsource more work because the costs of getting started, creating context and ensuring continuity have decreased. From food service and gym management to finance and HR, there are almost always companies out there that can manage business operations better than in-house staff.
Prialto’s administrative services are in this vein. The company is able to leverage online collaboration technology and robust processes to create context for remote workers who are experts at their jobs.