Sunday, August 18, 2013

5 Reasons to Outsource Non-core Activities

A member at a recent Chief Executive Boards International meeting asked his Board for some opinions about possibly "insourcing" his Information Technology support.  He's presently using an external provider and paying enough that he could perhaps hire an internal resource to replace that function for about the same money.  A few members favored the idea, saying they'd rather have someone on their staff over which they would have more "control".   A number of members challenged the idea that an internal resource would be better, and actually made a decent case for how it might be worse.  Here are some of those viewpoints:
  1. Maintaining current know-how -- A person in the IT outsourcing business is eating, sleeping and reading about IT all the time.   He's in a community of knowledge that keeps him current, and he has experience with multiple other clients to add to his knowledge base.   An internal employee can quickly get cut off from that knowledge stream, finding his current technology awareness slowing considerably when he comes on your staff and is asked to do lots of things other than IT (yes, that's likely to happen - see #3 below).    
  2. Availability -- From an outside IT resource, you'd expect 24/7 availability - if not the person generally assigned to your account, an equally qualified person.   That way you're covered for holidays, vacations, sick days, and other times when your in-house person won't be available.  Not to mention what happens if your in-house person quits (IT professionals are not known for long-tenured employment).    
  3. Cost -- There's a false economy in staffing your IT support internally.   In most cases, it's not a 40-hour work load.   What happens during those other hours?   Tech mischief that costs you money.   They think of seminars they need to attend or certifications they need (for you to pay for).  They think of upgrades and enhancements you'll need to spend money on.   Their slack time experimentation will cost you network reliability.  Many times "better" is the enemy of "good" as far as networks are concerned.   You might be surprised at how your IT budget will go up, not down, when you insource IT support. 
  4. Alternate utilization/opportunity cost -- Another member asked "What is your revenue per employee?"  Answer:  "$300,000"   "So, if you're going to add someone to your staff, might it not better be someone with skills to drive or support another $300,000 in revenue?   Why add headcount to do something you're successfully buying now from the outside?"  This is a classic "alternative investment" question common in MBA courses. 
  5. Distraction -- IT is the core business of few CEBI companies.  When you take on non-core activities, the core business gets less attention.  You'll end up hiring and managing another person who's not a direct contributor to the core business.   
The bottom line was delivered by a member who is a demolition contractor.   He said, "We don't do anything in-house that's not our core business.  If wrecking is not involved, we don't do it."   I'll remember that one for awhile.  

If you have had experience (good or bad) outsourcing or insourcing non-core functions, click "Comments" below and share them with others.   

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Terry Weaver

Chief Executive Boards International

Chief Executive Boards International: Freedom for business owners & CEOs -- Less Work, More Money, More Freedom to enjoy it


  1. One of the many benefits of outsourcing is actually letting you focus on your business core activities that actually helps your company grow. Otherwise, you’ll end up just being on the same or under the same old line you’ve been stepping on ever since you started. Outsourcing lets you go beyond that line and succeed.

  2. Some business might think that in-house is a better option as it provides them control but there are some activities that can be outsourced and that are non-core activities. By outsourcing these activities, the business is saving its resources and time that can be used in business activities that are directly helping the business to grow. Non-core activities like calculation of payroll, can be easily outsourced and help the business to grow.


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