Are all projects suited for all organizations? To rephrase this question, can organizations do internally all projects (means use internal resources) or they should outsource?
“To every disadvantage there is a corresponding advantage.”- W. CLEMENT STONE, U.S. Philanthropist
Questions we have to ask:
How much organization can outsource? What to do if not enough skills in house? Are we adding risks to projects by outsourcing to external vendor? How we will manager vendor? What is a culture in organization? Can people accept another company is working on project? Can people working as a team (vendor and company)? How can we make sure project will be successful?
To outsource, or not to outsource: that is the question .
Is the organization better served by outsourcing their project work to experienced vendors, or would they do better to build that expertise in house, and rely on vendors mostly for fieldwork? Some organizations do nearly everything in-house. Others act more as consultants or coordinators, managing the process between their internal client and the external vendor handling most of the actual project work. Still others rely on both models, and choose which direction to go on a situational basis.
Staffing Issues - The decision of whether to outsource most of the project work often comes down to the overall company philosophy about staffing. Some companies making decision such as “One of our core values is keeping costs at a minimum. The thinking is that we could staff minimally, and then find outside resources to do the work, and pay ‘outside’ expense dollars, instead of paying salary and benefits for a larger internal staff.” Companies are thinking that this approach is more economical, as they didn’t have to pay salary and benefits for a large staff.
Another advantage of outsourcing is that if budgets need to be slashed during a tough financial period, it’s much easier to cut project budgets than to lay off employees – and when the financial crunch eases and budgets are back to normal, it’s also much easier to pick up where you left off with external vendors than it is to go out and find new staff.
Building Intellectual Capital - Although staffing issues would seem to point to outsourcing as the way to go, there’s an alternate side to that: one real benefit to having in-house SMEs is that they build intellectual capital in the organization. That’s the idea that increasing the knowledge level of employees is just as valuable as making capital expenditures on equipment or materials that enhance productivity and efficiency. When the organization has a staff of experts they serve as consultants who apply their growing knowledge to serve the company in ways that aren’t directly related to projects. This capability is not as readily available when much of the project work is outsourced.
Who Has the Expertise? Internal SMEs and external vendors will both have areas of expertise. The question is what kind of expertise is more important. When you link up with good vendors, you get their knowledge and expertise that they have built up by working across different industries. I think that’s really valuable. I am usually so impressed with the scope and experience a really good outside vendor brings to the project – better vendors will add a lot to the project through that experience. Good vendors can apply things they have learned from other clients (techniques, not information) to make a project run more efficiently and more effectively. But there is a trade-off. It is unlikely that a vendor will ever understand a client’s situation as well as that client’s own employees does. The major benefit is the understanding of the organization, and the ability to translate the data into strategy that addresses the business problem. Vendors generally won’t have this ability as strongly as internal consultants. The vendor won’t understand enough about your business, or they don’t know the subtle nuances of interpretation, or the organizational changes that are driving a decision.
There’s no perfect world. With outsourcing we get a broad range of experiences that usually aren’t available internally. With internal work, we get a deeper knowledge of our organization and its needs. Who is perceived to have the expertise? While one question is whether or not outsourcing a project brings greater expertise to that project, a completely separate question is how the internal client perceives the work of internal experts versus external vendors. In some organizations, internal consultants are respected for their knowledge of the company and its goals. Stories about employees who leave to become consultants, and suddenly are perceived as experts – even though what they are saying as a consultant is the same thing they were saying six months ago as an employee. It is a fact that in some organizations, the recommendations of an external consultant carry far more weight than those of an employee. The key is to know the organization you’re working for, and the people involved.
Capacity, Flexibility, and Emergencies - Outsourcing is also a trade-off when it comes to time use. Doing project work internally means your organization can set priorities more easily. With internal work, the competition for the staff’s time is from other internal projects. With a vendor, the competition is from other clients, and sometimes this means lack of availability. Having more than one vendor who can do a certain kind of work will help countermand this, but it is still entirely possible that all the vendors you use for multivariate analysis could be booked solid at any given moment. At the same time, with the occasional exception, outsourcing still provides greater overall flexibility. When four big projects come up, you simply spend more money to hire vendors to handle the work. You could give all four projects to one vendor or contract with four different vendors. One quarter you can outsource $10,000 worth of work; the next, $200,000 – all while staying at the same staffing levels.
Although vendors don’t always like it when clients think this way, the simple truth is that it’s also easier to get a vendor to work the whole weekend than to put that expectation on a staff member – because vendors often have less of an option to say “no”. In doing work internally, prioritize what’s important for the corporation, and then make a decision on what can be done internally and what can be done externally.
Finding the Right People - Whether you’re looking for the right staff member or the right vendor, it can be a challenge to find competent resources for your research needs. Organizations that do a lot of outsourcing often have three to six vendors they might rely on for any given type of work. If one goes out of business, or a key person leaves, there are still other vendors available (and hundreds more who would like to have a shot at the work).
With internal project work, if a key staff member leaves, it’s a different story. It means organization has lost intellectual capital it has built up over the years (and maybe lost it to a competitor). It means money to find, hire, and train a new person. It means other people have to take up the slack (if possible). And it could mean going weeks or months without a qualified staff person in that position. Particularly right now, recruitment is very difficult because of the tight labor market. Vendors, on the other hand, are easier to find and hire than employees, and easier to fire if things simply don’t work out.
Control Issues - Outsourcing can mean somewhat less control over the work than you would have with an internal staff. You can aim to have work done the same way each time, and shore up the weaknesses of a particular employee in any given area. Vendors, on the other hand, often have their own way of doing things, and it can sometimes be difficult for them to adjust to your exacting needs. Some vendors also see themselves as experts who are there to guide the client, which means it can be a battle getting things done the way you want them. Having internal staff doesn’t solve this problem, but it gives greater daily control over these issues.
Conclusion
Outsourcing only works well if there is some internal control and value-added services provided by internal staff.
There’s a lot of work in integrating all of the pieces together – and if you can’t do that, it’s not going to work.
