When is the right time to expand a business and begin to outsource tasks? How should I decide on the tasks within my business to outsource?
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You should consider several factors when deciding to outsource a task.
First is the cost. If you find someone to do the task at a lower cost compared with you doing it in-house — outsource it. Outsourcing it is more flexible. You only incur the cost to do the task when you need it done. There are also costs (dollars and time) to hire and train a new employee. You may think you are paying more to outsource the task compared with the wages you would pay an employee, but be sure to include all of the costs when you do the comparison, especially if it is a new employee.
Second is the specific expertise to do the task. If there are special skills needed to do the task, and none of your current employees has those skills, you need to include the cost of training someone to do the task. If the task is performed infrequently, it may not be worth training an employee to do it. If need for the task increases, you can consider doing it in-house — until then, outsource it.
Third is the mission critical nature of the task. Never outsource a task that is critical to your business. One of the challenges of outsourcing is that you have less control over the task. If you outsource, can you be certain the task will be performed at the level of quality your customers expect? Will it be completed in time for you to meet your delivery promise? How will your customer react when they discover you are outsourcing a task that is the reason they buy from you? If they buy from you because they believe you provide the best value, and you are paying someone else to create that value, they may question why they are buying from you and not your competitor. You could outsource if customers simply want the lowest price or don't care where the work is done. However, it could create doubt if they buy from you because of the quality of work and reputation only to find out you outsource some of the work. That doubt could breed business for your competitors.
About the author
Mark Spriggs is a professor of entrepreneurship at the University of St. Thomas Opus College of Business.