Outsourcing

Paying somebody else to do part of your operation.

What it means

Outsourcing contracts out a function — payroll, IT, manufacturing, customer service, bookkeeping — to a specialist provider.

Why it matters

It converts fixed cost to variable, brings expertise you cannot justify employing, and creates a dependency you now have to manage.

What it looks like in practice

Outsource what is not your differentiator and keep what is. Payroll is a good candidate; the thing customers choose you for usually is not.\n\nAgree service levels, reporting and an exit process before signing — see SLA and exit and termination.

What to watch out for

Losing the internal knowledge to bring it back in. And offshore arrangements where data protection obligations follow the data.

Where to get proper advice

Your own fully loaded internal cost as the comparison, which most businesses have never calculated.