The Outsourcing Dilemmas: Beware – Outsourcing Might Increase Your Business Overheads and More

outsourcing dilemmaLet’s forget about mindset – many willing business owners are having difficulty in outsourcing their business processes due to the fact that it cost money, the most important factor in today’s business world.

Money, a.k.a. cash in hands a.k.a. the cash flow is king, queen and prince today. Revenue is not that significant anymore, as receivables are much harder to convert into cash due to the economic downturn.

Preserving your hard earned cash is probably the single, most important, goal if you want your business to survive, let alone to thrive.

Outsourcing often comes up as a solution – let less important and costly business processes to be managed by a third party. However, although outsourcing is meant to be a cost cutting solution, it often cost money, as the most liquid form.

To cut cost, businesses need to outsource

Here’s one part of the dilemma.

Following Pareto’s law, the coveted 80-20 rule, 80% of your business processes only brings you 20% of overall revenue. The following is also proven true: 20% of your overall business processes takes 80% of your business resources. Therefore, outsourcing comes up as a logical solution to cut those overheads.

…However, outsourcing can cost you money and opportunity losses

Here’s the other part of the dilemma.

It’s true that outsourcing can save your business resources. However, outsourcing the wrong business process can cost you even more money, plus opportunity losses.

For example, suppose you want to copy what those big corporations are doing: Outsource your customer services. However, bear in mind that the third party is acting on your behalf based on a predefined policies you both agreed. If something “unscripted” happened, e.g. your top customer needs non-ordinary problems to be resolved, can your outsourced customer service handle them? Doing this wrongly could cost you your business.

The key is knowing to do what and when

I remember what Tim Ferriss stated in his 4-hour Work Week book about outsourcing – As outsourcing can double your business profit and magnify the efficiency effects on your business, doing it wrongly (outsource a ‘broken’ or unnecessary business process, for example) can, in the other hands, double your business loss and magnify the problems your business is having.

The bottom line is, if you can eliminate non-productive business processes altogether, why bother outsourcing them?

Now, your task and I is to identify, based on the Pareto’s law, which business processes can be outsourced and which ones can be just eliminated – This way, you can benefit fully from outsourcing.

What’s your view on this? Please share by commenting on this post :)

Ivan Widjaya
Solving the dilemmas
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