About a month or so ago I was sent an article about the changing nature of ‘outsourcing’. This got me thinking, how are advances in technology resulting in different types of outsourcing and what could this potentially mean for New Zealand SMEs?
In New Zealand, when we think of outsourcing we typically think of redundancies with big corporates moving entire IT and call centre departments overseas in order to reduce overheads and resource costs. Occasionally we hear the success stories, such as companies that have been established in New Zealand to take advantage of our comparative ‘timezone’ advantage. But these success stories are in the minority.
By in large most New Zealand businesses have historically not considered outsourcing as the majority of businesses are SMEs and, traditionally, didn’t have anything to outsource. In today’s increasing on-demand economy, however, this is fast changing.
The increasing advances in technology over the past few years means that it is not just large projects or entire roles that are being outsourced. Increasingly, small projects, discrete roles and technical support are being outsourced. IT support is often the first thing that businesses look to outsource. Other areas are communications, marketing and design.
It is not just a case of companies outsourcing to other companies either. There is an ever growing pool of national and international freelance workers that are bidding for this work. These people are often skilled and time rich and can schedule projects around other commitments, such as looking after the kids. This evolution, facilitated by technology, means that the transaction cost of using outsiders is falling by the day. This is particularly the case when IT is involved as you can potentially have a national and global community competing for work, with the quality more likely to be high and price low, meaning that you are less likely to get a fly-by-night contractor than used to be the case.
While some may see this as a threat, I would encourage the majority of New Zealand companies, who we know are SMEs, to keep a keen eye on trends and developments. We are well known for and pride ourselves on our number 8 wire mentality and ability to ‘give things a go’. But in the workplace, I think this is where many of our productivity issues lie. For example, if SME owners were able to focus on the areas that they are skilled at rather than trying to stretch themselves and do try to do a range of other things that they are not so skilled at, then their value add may be greater.
I know this is easier said than done and that SMEs stray beyond core roles, both consciously and subconsciously, for a variety of reasons. These reasons include testing abilities, or because the perceived cost of getting someone external in is seen as prohibitive. And then there is the “nobody can do it better than me” mentality.
All these viewpoints can be valid sometimes. Most of the time though, they stretch SME capacity, and mean that people in these business are not using their core skills or competencies. The result – well, you don’t have to go further than the local pub to hear the many of the themes associated with the typical SME rant:
· We can’t find people with the right skillset
· We have too many competing things on so a lot of things don’t get done
· I’d love to do things more strategically, but just don’t have the time
· I spend all my time working for my business rather than on my business.
Now don’t get me wrong, many of these rants are valid. People working in SMEs do need extra targeted support. But they also need to know their limitations and know when to ask for help. They need to be agile enough to know when something they need done is outside of their skillset and know how to deal with it. This could be by hiring someone new, getting specific training if it is a technical aspect of operations that is required or, if it is a more irregular event, know when and how to contract out. All things that are easier to say than do.
The potential gains in productivity, however, do need to be weighed-up against the potential risks associated with this emerging trend, such as outsourcing something and having the resulting output or outcome being sub-optimal. This, in turn, needs to be weighed up against the risk of doing nothing. Case in point is the owner of an SME who is semi-tech savvy spending 2-3 weeks putting together an average website versus someone who can be contracted to do the work better in a couple of days. Here the risk is that the contractor doesn’t fulfil the brief. The probably larger cost, however, is the opportunity cost had the employer spent the 2-3 weeks developing the website.
This new way of outsourcing is not something that is coming, it is here and it starting to change the way we work. Historically there was little reason for people who have money but no time and people who have time but no money to interact. Technology and the on-demand economy is providing a mechanism for these two groups to engage with each other.
If SMEs grasp these opportunities in the right way then the new way of outsourcing could help improve on New Zealand’s well-documented productivity underperformance.
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