Outsourcing
solutions for mid-sized companies
Opportunities, challenges and
rewards for providers
I recently started to study the opportunities for medium-sized businesses to outsource some of their business
processes (Related link: Outsourcing
framework to determine processes suitable for outsourcing). Even today, outsourcing is a domain of large corporations and some medium-sized businesses are just starting. As we all know, managing an outsourcing initiative is not easy particularly if the work is going to be done at an offshore location. Large corporations that have the resources to take on challenging projects and are the first one to feel the pressure of embracing a new business model can take the risks. However, smaller businesses have to wait till a tested business model is available.
I started off by looking at what is driving the large corporations to outsource. According to a study conducted by The Outsourcing Institute, below are the top ten reasons. Then I started to look at each of them and to assess if they were relevant to medium-sized businesses. I think some might disagree on where to put the tick marks, but they all seem to relevant in my opinion.
| Reasons
for outsourcing |
Relevance
to mid-size businesses |
| 1. Reduce and control operating costs |
 |
| 2. Improve company focus |
 |
| 3. Gain access to world-class capabilities |
 |
| 4. Free internal resources for other purposes |
|
| 5. Resources are not available internally |
|
| 6. Accelerate reengineering benefits |
|
| 7. Function difficult to manage/out of control |
|
| 8. Make capital funds available |
|
| 9. Share risks |
|
| 10. Cash infusion |
|
| Legend:
High-relevance
Medium-relevance
Low-relevance |
What's going on with mid-sized companies?
They have been relatively slow to embrace it since they were not approached by providers first. The providers, who rely heavily on economies of scale, obviously targeted large corporations first because they were likely to be the most receptive to the idea. Since there is still tremendous potential for outsourcing untapped, the number of providers targeting medium-sized companies will remain limited for the time being.
Do you want to target mid-sized companies with your outsourcing solution?
It always makes sense to serve an under-served market. Many of them will welcome some attention from providers as they see their large competitors take advantage of the trend while they struggle to even get their arms around the issue.
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What are the challenges?
Many. When you try to serve a customer who is clueless, a significant portion of your time will be spent in education. The major problem when you have to educate a customer is the time it takes to close a deal. Plus, there never is an assurance that once you provide the education, the customer is going to buy from you. Once they are no longer clueless, they can either buy from anyone else, try to negotiate harder with you, or even worse, decide to do it themselves. In any case, if you develop a well thought out strategy, you can still be quite successful.
Recommendations
As Professor Paul Bauer successfully drilled into my head, never build a business model that is based only on lower cost, because the moment someone else can do it at a lower cost either you are dead or it starts off a price war in which no one wins in the long run. So do not base your outsourcing solution on cost-reduction alone. Figure out a more compelling way to create value for your customers. And finally, become your customer's partner so that the relationship does not end when you finish the project. You must structure your offering in a way that it results in an ongoing relationship.
(Related link: Impact of offshoring on American economy)
Related articles:
Stable
growth period creates new business opportunities
How
to develop an India strategy?
Outsourcing in mid sized companies
How to screen an outsourcing opportunity |
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