Outsourcing can be a "growth vitamin" for midmarket companies, with effects going beyond cutting costs and sending jobs overseas, according to a recent report.
Outsourcing is about "finding partners who can do what you need to do better than you can," according to an article by Gerry Mendelbaum and Mark Neibart, managing partners at Camber Advisors, a firm offering operational and technical expertise to private-equity firms and their portfolio partners.
Global competitors, the Internet marketplace, and higher customer expectations mean SMBs have to meet higher standards. They need to be able to compete with big companies with greater resources. And often they can't do that with a do-it-yourself approach, say Mendelbaum and Neibart.
Instead of focusing on cost cutting, SMBs are considering outsourcing to improve competitiveness in IT, as well as transportation, logistics, and procurement, the authors say.
For example, after superstorm Sandy hit in October, companies that outsourced IT to datacenters in multiple locations were more resilient.
Outsourcing can provide new technologies to enable growth, such as transaction processing and business intelligence, previously available only to bigger companies.
Outsourcing can help companies get specialized skills. For example:
When Alfred Angelo, a $100 million-plus manufacturer and retailer of wedding gowns and bridesmaid dresses, needed to get its products from its Chinese distribution center to a network of more than a thousand company-owned stores and independent retailers, and do so quickly and reliably, it turned to a major third-party logistics provider. Alfred Angelo could not have afforded to develop the systems and management tools, or the infrastructure, by itself. Its business is brides, not logistics.
And don't forget the more traditional benefits of outsourcing:
- Controlling capital costs: If your business needs new server capacity to meet a spike in demand, outsourcing to a cloud provider can let you avoid the need to buy new servers. Instead, just lease new capacity from your provider.
Increased efficiency: You can pass along costs for research, development, marketing, and distribution expenses to your outsourcing partner.
Reduced labor costs: You avoid the need to hire and train staff for short-term or peripheral projects.
Faster time to market: A good outsourcing firm can start a project quickly, while handling the project internally would require time to hire the right people, train them, and provide support.
Focus on the core business.
Reduce risk: If the new project turns out to be a failure, you just walk away from the outsourcing partner.
In addition to core IT functions, several IT-enabled business processes can benefit from outsourcing. Two examples: market research and cybersecurity.
Have you had much experience with outsourcing? What's the most interesting process you've handed over to outsourcers?
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