Close the Loop

If you're outsourcing projects right and left, make sure the information you need is rolling back to you.
Magazine Contributor
4 min read

This story appears in the October 2003 issue of Entrepreneur. Subscribe »

The magic word for many entrepreneurs is "outsourcing." If you don't have the in-house talent to get something done, you outsource it. And today, you can outsource just about anything.

Sending projects, even whole departments, outside the company is working for Bibby Gignilliat, 43, and Shannan Bishop, 32, chefs and co-founders of Gourmet Gatherings, a San Francisco culinary entertainment company specializing in private cooking parties and corporate team-building dinners and events. They outsource everything but their recipes and menu. "We think of ourselves as conducting a symphony of specialists," Gignilliat says. "Outsourcing is key. It's the only way our company can grow."

Companies outsource for cost savings, but too many companies fall into an "outsource it, then forget about it" mind-set. Companies that have outsourced like crazy could wake up down the road to find they haven't kept track of projects and departments they've outsourced--or worse, they've lost touch with their core business strategy, now residing outside the company.

This danger is lurking on the horizon, says Sridhar Balasubramanian, a professor at the University of North Carolina's Kenan-Flagler Business School in Chapel Hill, North Carolina. "Companies think of outsourcing as an operational task, when it's a strategic asset," he says. "How do you feed [outsourced projects] back into your strategic planning? That's the problem."

The small- and midsized-outsourcing market is growing 12 percent a year, says Robert H. Brown, a principal analyst who follows trends in small-business outsourcing for research group Gartner Inc. in Stamford, Connecticut. "Vendors are rushing in to grab a piece of this fast-growing market," he says.

With so much work flowing outside company walls, think about more than outsourcing; think about insourcing--in other words, how you'll bring information that's generated by outside departments and projects inside the company for strategic planning, Balasubramanian says. Welcome to knowledge management in the new millennium. How do you do this?

Taking stock of the outsourcing firms you employ is a good start. How much face time are they giving you, and how much are they telling you? Many outsourcing firms see their methods as proprietary, which can leave you with incomplete information for strategizing. If you outsource your customer service department, for example, and you don't know everything about the interactions customer service representatives are having with customers, you're missing valuable information that could help--or hinder--company growth.

Find outsourcing firms that keep you posted not only on the work they're doing, but also on how they do the work. Test how deeply they understand your industry and company culture. Sit down to discuss roles and expectations and how they'll provide information that keeps your strategy on the cutting edge. You may find that certain functions are too mission critical to outsource. "Outsourcing firms are very good at managing data and applying techniques across databases, but they don't know your industry," Balasubramanian says. "You want to make sure that they're implementing the process, but that you're driving the process."

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Gignilliat and Bishop drive the process through a Web site and database. But they've also created templates to follow, like having contractors fill out questionnaires regularly to say how things are going. A system for bringing information back inside the company helps Gignilliat and Bishop find new strategies that expand their business. "Provide a framework for what's expected," Gignilliat advises.

Technology helps, but it's never a substitute for hands-on management. "The technology is the easiest part of the whole outsourcing arrangement," says Pamela S. Harper, a business performance expert and author of Preventing Strategic Gridlock (Cameo Publications). "Ultimately, it's your organization that's going to make [outsourcing] work."

Is outsourcing creating knowledge gaps within your company? It's happening more often than you might think. For example: Say you outsource to a marketing firm to handle your coupon specials, but when customers show up with their coupons, they find employees don't know anything about the coupons. Situations like these reveal a failure by companies to make sure knowledge maintained outside the company is used strategically by employees inside the company. "Companies need to think about the connection points that exist between an external service provider and their own staff," Brown says.

Balasubramanian sees outsourcing coming full circle in the next few years as companies do too much outsourcing, only to discover they're losing too much information: "Companies will become more sensitive about how to manage outsourcing so they don't lose contact with data and the insights they draw from it."

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