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Leveraging offshoring and outsourcing to scale your operations
If you’ve worked at a fast growth start up, there’s likely been a time (or perhaps many) when the workload has gotten out of control and your team struggles to keep up with it. The team may have been unable to answer all the incoming sales calls, or the customer support team faced massive backlogs they couldn't overcome. In today's competitive job market, these issues are compounded by the challenge of quickly hiring talented individuals or avoiding excessive costs that could harm your business's unit economics and overall profits. Without a doubt, this is a tough situation to be in.
One of the most effective strategies I've observed in my career to overcome this challenge is leveraging offshoring or outsourcing. Each approach has its pros and cons and serves slightly different purposes. It's important to note that not all companies are ready to take this step, but being aware of the possibility allows you to think through organizational growth and plan accordingly.
Am I ready for this?
The most critical factor when it comes to offshoring or outsourcing is to ensure you have clear and well-documented processes in place. Without established processes, you're essentially building the car as you drive it, which is a risky proposition. Having clear and documented processes not only facilitates training but also enables you to conduct quality assurance (QA) on the outsourced work, ensuring it meets the expected level of quality. Without this foundation, you'll inevitably rely on subjective evaluations of performance.
Keep in mind that processes suitable for offshoring or outsourcing should be simple and repetitive, with a clear structure. Offshoring or outsourcing is typically not intended for processes that require strategic input. Dealing with such gray areas is challenging both in terms of training and evaluating the quality of the work produced.
Additionally, it's crucial to have a clear understanding of what success looks like for this initiative. This clarity allows for alignment internally and externally, ensuring everyone understands the expectations and signals whether to continue as is or pivot.
Lastly, it's beneficial to determine in advance the specific gaps you aim to fill through offshoring or outsourcing. This knowledge helps you find a solution that meets those gaps. Are you aiming to reduce response time? Extend operational hours or provide weekend support? Create redundancy for current team members? Answering these questions will shape the composition of your offshore or outsourced team, as well as the associated costs.
Offshoring versus outsourcing
Throughout my professional career, I have leveraged both offshoring and outsourcing, and the key difference, in my opinion, lies in the level of control you desire over day-to-day operations. Let's delve into each approach to better understand the distinctions:
Offshoring
Offshoring involves sending in-house jobs overseas, typically with the headcount still reporting into your organization in some manner. This can sometimes entail a third party sourcing and recruiting the headcount for you, contracting them via their entity, but the employees still report into your organization. Your company may choose to handle all aspects of offshoring directly, or you may opt to leverage a third-party company. When you offshore, you usually maintain direct contact with each "employee" and manage their performance closely (note that I put "employees" in quotes because these individuals are usually not legally contracted by your company). Offshoring is a hands-on approach where you train and closely oversee the entire team, treating them as an extension of your in-house team.
Outsourcing
Outsourcing involves contracting out a specific process or multiple processes to a third party. The outsourcing firm typically handles all aspects of the process, including training, quality assurance, and execution. Your team is responsible for training subject matter experts (SMEs), who then manage the outsourced process. Expectations are usually set through a contract, with regular check-ins between a designated point of contact on your team and the outsourcing firm. There are numerous outsourcing companies specializing in specific areas of expertise.
What are the benefits and downsides of outsourcing / offshoring?
Benefits
Accelerated hiring: Offshoring or outsourcing typically allows you to quickly hire a large number of people. This enables faster progress compared to building an in-house team that is already constrained by limited resources.
Equivalent quality output: For simple and repetitive processes, you can achieve the same level of quality output as you would from an internal employee, assuming proper training has been conducted.
Reduced headcount costs: Based on my experience, savings ranging from 30% to 60% are commonly observed. This greatly improves your unit economics.
Rapid operational changes: Offshoring or outsourcing can bring significant operational improvements within a month or two, a timeframe that would typically take much longer if handled internally.
Employee morale improvement: Offshoring or outsourcing typically allows in-house employees to no longer have to focus on menial or repetitive tasks and instead shift their focus to strategic issues that will not only allow them to grow professionally, but also have a significant impact on the business.
Downsides
Reduced control: Offshoring or outsourcing entails relinquishing a certain level of control, and you need to be comfortable with that.
Training risks: Improper training can temporarily jeopardize your brand and operations. Therefore, thorough and careful execution of training is essential.
Which approach should I choose?
I strongly recommend that smaller companies consider offshoring rather than outsourcing, as they are often in the process of refining their processes and need to make quick adjustments. Offshoring provides more hands-on control over the team and processes, allowing for faster adaptation than relying on a third-party trainer to implement changes promptly.
If you're considering offshoring or outsourcing and would like to discuss which option makes the most sense for you, please don't hesitate to reach out. Stay tuned for more information on evaluating an outsourcer, contract negotiation, and my personal experiences with leveraging outsourcing and offshoring.