I started out with no particular answer on this blog post about whether to outsource or not. I just wanted to go with the flow and see where it led. I don’t think of outsourcing as an inherently negative thing, or an inherently positive thing. I’ve certainly met IT business owners who generally felt that outsourcing was extremely positive or extremely negative. Some want to outsource as much as possible, and some would avoid outsourcing at all costs.
So what is outsourcing? It’s any job or duty that you choose not to do within your organization, but still needs to get done. When you choose to use a carrier or courier to deliver a package to someone, you have outsourced that duty. You could have put that package on your own moped, and driven to where it had to go. It seems like we all already outsource to some extent. Therefore it comes down to which duties to outsource and when.
Why do we choose a shipping carrier such as UPS, FedEx, or DHL? If I’m shipping a small package from Savannah, GA to Los Angeles, CA the alternative is to put the package on my moped (I really don’t own a moped, but thought it was funnier for examples), and drive it to LA. That’s 2431 miles, 35 hours of driving, 8 tanks of gas, and lot of road construction west of the mighty Mississippi…ONE WAY. Let’s just say your hourly cost is $50/hr for the round trip, forget the rest of the costs we are missing and you already have a $3500 bill for shipping that box. A shipping carrier can deliver that same box, for $100, which 5 minutes ago I thought was a ridiculous price for this little package. Okay, so this one is a no-brainer. Outsourcing shipping appears to be a win because our cost to ship is significantly less.
Many IT business owners find that these types of calculations are pretty cut and dry, but then we have to add the hardest factor of all…humans. Specifically, these entrepreneurial humans who were crazy enough to give up a paycheck and start a business. These humans, of which I count myself, like control. After all, many of us first the got the idea to go into business (the entrepreneurial seizure referenced in the E-myth: Revisited) because we felt we could do it better in our previous job, but didn’t have the control to make it happen. So how does control affect this conversation about outsourcing?
Let’s start with the shipping example. Most shippers seem to have a pretty good reputation, but if something was life or death, had to be there tomorrow, and it was a 2 hour drive, would you still ship it, even if it was 30% of the cost? If you said “no”, why not? We tend to be a self-reliant breed, and not always in a good way. Knowing that we are very dependable and perhaps detail oriented, by taking on the job ourselves, we have control over the outcome, and that makes us feel better about the potential outcome. That’s how control enters the equation of To Outsource or Not.
For the last conversation, let’s bring it down to a common IT business scenario like outsourcing recruiting. You can outsource to a recruiter who typically charges 30% of an annual salary. Let’s say you are hiring a $60K, Tier 2 engineer. That’s a $20K premium. By paying that premium you are saved from placing ads in various places like LinkedIn and Indeed. Perhaps it takes a a few months and you spend $2000 in advertising. Then you also spent time developing the job ad, placing and monitoring the ads, reviewing resumes, having phone interviews, performing testing (perhaps paying for a testing platform), and then final interviews with the team. I usually see the most expensive resources in an organization performing these tasks, as well. Add up those hourly rates, marketing costs, the cost of not having the position filled, and lost opportunity costs to see if outsourcing to a recruiter makes sense for your organization.
Now, I would be remiss not to mention that we have a new service called vScreening, where we are taking the recruiting concept a few steps further using our proven business processes (also available in our Community). Our goal is to make the outsourcing math ALWAYS work by charging as little as 20% of what recruiters charge and targeting an interview-to-hire rate of over 50%. That’s right, we screen so thoroughly, that most of the time we ask you to interview a candidate, you will hire that individual. By the time they get to you, they have had a resume review, personality and aptitude testing, and a phone interview with our professionals who are all MSP-specifically trained. We hand you all of our notes, testing results, call recordings w/transcripts, and specific guidance in what areas to interview for to add your hiring confidence. Do your math and see if it makes sense for you!
Don’t forget that this outsourcing math is the same thing you are dealing with asking your prospects to outsource their IT to you. Be prepared with this math in hand for every sales call and every Strategic Business Review. What other types of things are you considering outsourcing and how did you come to the conclusion? Sound off in the comments.