Outsource and Not Downsize – It Worked For Both IBM and Yahoo, But Can it Work For You?

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Downright downsize or Outsource, there are 6 essential points that every company or individual must consider when deciding whether to Outsource or Downright Downsize work. Almost anyone can do well in the good times. It is, however, the times of economic turmoil that separates the serious contenders from the pretenders.

In times of recessionary trends, companies

  • Must cut day-to-day operating costs.
  • Must be in a position to explore and generate new or alternate revenue streams.
  • Must provide services at more competitive prices.
  • Must reduce all non-essential overheads.

The usual response is for companies to handle the rough times by pulling the trigger and completely downsizing their staff, bring down their company to the absolutely needed personnel. Although this does help the company live to fight another day, it does so much more damage in the long term. This “Downright Downsizing”:

  • Limits the company’s ability to bid for new projects, due to lack of manpower.
  • Seriously restricts a company’s ability to generate new revenue streams, since the non-core functions like marketing and advertising do not have adequate budgets. ( I do not, for the life of me, understand why so many companies usually start by dropping the axe on the marketing and advertising budgets. This is an absolutely core, core, core function. No company can hope to ever survive, good times or bad, without advertising , except if you are Google – anyway this is another topic for another day)
  • It restricts a company’s ability to ramp-up operations in case the need arises.

However, most companies have accepted that downsizing is a necessary evil. What we need to realise is that while downsizing is required, the work associated with the personnel need not be downsized as well. This is where outsourcing comes in. Outsourcing helps you cut costs, while eliminating the pitfalls of downright downsizing. Outsourcing helps you:

  • Lower your operating costs: Let’s face it, currency conversion rates and abundant manpower ensure that you get more out of every dollar. A Web designer with between 1-4 years of experience will cost us anywhere between $29,000 to $39,000 per year. However, if we were to outsource this position, it would only cost us $7,000! $7,000 for the same amount of work!
  • Explore and generate new or alternate revenue streams: By outsourcing the management of non-core competencies, the company can narrow its focus, streamline its operations and generate alternate or new revenue streams.
  • Lower your product costs, thereby letting you price your services competitively: With outsourcing if a web designer, who would usually cost us $29,000 now costs us just $7,000, then now we can get almost 3 times the work done for the same price. Which means we can now afford to reduce the cost of our service, while still maintaining our profit margins.
  • Control over time lines: I cannot stress this enough. All outsourcing contracts must, must, must have a control clause. This ensures that the company that you are outsourcing to is FINANCIALLY responsible for any delays. This ensures that the company sticks to the agreed upon deadlines. The plus point for us here is that, we need not have to actively manage the team, and ensure that time-lines are met. It is now the outsourcee’s problems. We can instead now look for new projects and leads. (haha – ideally yes. However for the first few projects, it is always better to continue to actively monitor the progress to ensure that time-lines are being met)
  • Risk mitigation: By decentralising the management of functions, we spread the risks. The risk is now spread between the outsourcee and the outsourcer. This basically reduces risks for us as an organization – which is always good 😉
  • Leverage the supplier’s network to access specific regional markets: One of the best long-term advantages of outsourcing. As you develop long term relationships with your vendors, you can start looking at your vendors as outposts for you company. You can leverage their existing regional networks to sell your own products.

So the next time you decide to cut-costs, you have six essential points to consider, before you decide whether to Downright Downsize or Outsource.

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