Here's a terrific suggestion for a topic from Paul Leblang, a legend in American Retail. Paul was the longtime VP of Marketing at Saks Fifth Avenue at the time when it was a great icon in retail. He's a consummate direct marketer. (Find one of his presentations here. [PDF 1MB])
"When should the entrepreneur outsource functions on his team, and when should he bring these tasks in by hiring?"
1. The cost of the test is less important than the result.
One instance of outsourcing is where the company is testing a new concept. For instance, we had a retail company in our portfolio that was going to test a new idea at campgrounds. This was a successful product at resorts, but there was some risk in this new group of customer. Rather than staff up to hire people to sell at each venue, (kind of a summer student kind of job) they used a temporary help agency. It doesn't matter much that by using the agency they paid more. When the test proved successful, they had acquired knowledge of sales per venue and so forth. This allowed them to calculate their "rollout" costs on the basis of real facts rather than conjectures.
2. The cost of the activity on an outsourced basis should be twice as expensive as in-house per employee when the entrepreneur hires to bring it in-house.
OK, so it's a rule of thumb. But, in general, if the company needs to hire 15 people, there ought to be deep knowledge that the function is going to continue to grow and cannot be bid competitively to transfer fixed versus variable risk to a vendor better equipped to handle it.
3. For activities that are highly skilled and would require many variable skills, outsourcing is probably better for a long time.
The growth of high quality programming skill at very competitive prices in many places is just one obvious example. If the entrepreneur can hire a company that will code "to spec" or even add project maangement skill, it is almost always true that they will have more ability than is easy to hire and manage at anywhere near the same price.
4. Skill in managing outsourced relationships is primarily specification and project management based.
The discipline imposed by managing the process of outsourcing reduces business costs and increases efficiency. This doesn't simply mean software development. We have a company with a distribution component. By streamlining the pick-pack sequence we have the perfect opportunity to hand if off with full knowledge of how it works and what capacity it can handle.
5. If you think that you must in-source an activity for strategic reasons, but it is not knowledge based, think again.
If you are neither designing the product nor executing the secret recipe, nor building proprietary knowledge based on results, you should consider an outsourcing strategy. We are looking at a business with parts from a contract manufacturer, a proprietary design, and a clever distribution plan based on tested results. (We know what each sale costs, what the repeat rate is, and so forth.) It's several million dollars in sales. Except for a couple of people (product design and sales), all the rest is contracted.