Outsourcing

Outsourcing is one of the 10 flatteners that Tom Friedman in his great book The World is Flat says flattened the world. I recommend that book highly. Read it if you're the only other person in the country who hasn't.

Outsourcing is subcontracting a part of your business to a third party. Dell computers outsources it's customer support to a third party. When you get a computer delivered it's not by Dell it's by some other company. Don't get me started on that.

Advertising agencies usually outsource all their research to research companies. Many companies use UPS as their shipping department. Globalization makes this easier and makes it easier to outsource parts of their businesses to companies half-way around the world.

Some companies have outsourced so may of their divisions that they remain just a coordinating office connecting together all the businesses that they outsourced their divisions to.

If you're having profitability problems analyze your business model and construct a value chain. See what parts of the business can be spun off into another business so you can allocate costs to that new enterprise. And see what can be done more cheaply by outsourcing it to a company which will do that for you.

Outsourcing is not without risk. The companies you outsource to have to be reliable. You have to be able to count on them to do what they said they will do, when they said they'd do it, and provide value to your customer. If they foul up it will cause you trouble.

For example our cable company outsourced the hooking up of our new cable service to an independent companies. They guy they sent wasn't so good and we are convinced he ran off with our steak knife. At least we knew where it was. My wife let him use it to cut something and it was gone after he left. It may not be the company's fault, but they're the one that gets blamed because they're the one who sent him out.

Also, you may incur higher transaction costs because you have to manage the supplier. They might not be as easy to work with (or easier maybe) than people in your own company.

Entrepreneurship is the life's blood of all my professional activities. It makes them go. And go read my mystery for free at wwww.kearneymusicschoolmurders.blogspot.com or buy it from Amazon.com more cheaply than you can print it out.