Outsourcing is a useful tool that can be used to streamline a budget if an organization needs to cut down on their spending. However, like other business tools, outsourcing can also have negative financial affects on a company if the organization is not ready for the task which takes business matters and control out of the company on a marginal scale. The following is a guide on how to properly analyze your company to see how practical outsourcing may be.

When it comes to deciding if a business is ready to outsource, an organization must first analyze their 'core competency.' The theory of core competency was first introduced in 1990 by Harvard Business professors Gary Hamel and CK Prahalad. The definition of an organization's competency exists in how they are able to harmonize work activity and technology to improve its specific area of expertise. Adding outsourcing to an organization changes this balance and can upset the business processes of a company. Thus, certain areas of a company must be investigated before outsourcing is attempted.

How to decide where to outsource activities?

While it may seem simple to avoid all core competencies and just outsource other matters, this is no longer the answer as business needs have become highly integrated. For example, while you may be able to outsource something like business production, if your customer service is not up to par anything you gain may be lost by the high costs of other in house activities. With this in mind, you should consider outsourcing interrelated areas regardless of what type of competency they involve given that the results of both influence each other.

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Easy areas for outsourcing

However, if you are not sure how to properly divide outsourcing needs between core and non-core competencies, you may want to direct your outsourcing efforts in another direction. There are areas of an organization that are non-core competent that tend to be more ready for outsourcing than others. For example, collections and receivable departments generally work on their own accord and can be successfully outsourced.

Of course there are some things to consider such as the overall financial performance of your company. If this is a weak area then it may not be the correct time to outsource these areas. Keep in mind also that an outsourcing company may not address financial collections with the same fervor as your own employees.

Identifying areas within your business

The first step of your company when it comes to analyzing organizational areas that are ready for outsourcing is to separate your core competencies into three different categories as recognized by most business professionals. The three categories are Basic Operations, Planning, Budgeting and Accountability, and General Management.

The aim of each business should be to develop each of these areas with a focus on how they can be self-sufficient enough to allow outsourcing to become an option. Keep in mind that since many employees that have positions within these categories are responsible for a variety of tasks the competencies that are assigned to each group will need to be tailored specifically.

Evaluate each area for organizational ease in terms of outsourcing

From here, each of these groups needs to be evaluated into three levels of competency. The different levels indicate the level of tasks that the groups perform and indicate whether outsourcing will be an option for your organization's needs or not. In general, there are also three levels that can be assigned to each group or section of a group's functions. In order to place a category into a level the abilities, skills, and knowledge of employees within that sector needs to be evaluated.

Level 1: Ready for outsourcing A task that is assigned a level one distinction generally requires one to three years experience to complete. The task or group's focus within the business is related to basic, fundamental, or routine activities within the organization. Given the simplicity of these employees' job tasks this is a prime sector in which outsourcing is a distinct possibility.

Level 2: Possible outsourcing candidates This is the middle level of expertise and typically consists of activities that require at least four years of professional experience. The task or group's focus within the business generally is focused on a specific area, applications, proficiency, or local missions. Due to the fact that this group needs to be familiar with the organization's focus outsourcing is a possibility but workers will need to be highly skilled and possibly brought into the organization for a brief time for training. Training managers from an outsourcing team who also teach their

Level 3: Organizational functions that should not be outsourced This is the highest level of competency within your company and involves positions held at the senior level such as a supervisor or team leader. The activities of these employees are high level and include expertise, extended operations with multiple organizations, complex problem solving, or high program impacts. For this reason outsourcing at this level is generally not recommended and would be a highly risky practice. In other words, organizational employees or categories that qualify as level three should not be considered an outsourcing option otherwise the business may be placed in jeopardy.

Final thoughts on outsourcing decisions

Outsourcing is an extremely practical tool utilized by many different companies. However, it is not a one size fit all tool such as an operating system for customer PCs. Each potential outsourced task must be approached gently with an eye on the final goal: productivity for an organization. If an organizations overall value is sacrificed than outsourcing no longer becomes a viable option.

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