Industry Market Trends

e-Commerce Outsourcing: Big Advantages for Smaller Businesses

Mar 26, 2001

As outsourcing e-business functions becomes a trend, particularly among small to medium-sized companies, it pays to apply project management expertise to the effort. Find out the key points in assessing outsourcing alternatives.

A recent survey indicates that 90% of those companies that are currently engaged in e-business initiatives are planning on sustaining or increasing their investments in the coming year. The survey also finds that the trend of outsourcing critical business-to-business functions is undergoing a rise in popularity. In addition, many of the companies turning to outsourcing to help launch their e-business initiatives happen to be small to medium-sized firms. As many of them are now finding out, the outsourcing market can be a confusing place for first-timers. These companies are being confronted by a dizzying array of options, replete with both advantages and risks alike. The shrewd companies are the ones who use project management skills to overlook their outsourcing ventures in a well-disciplined manner, thereby honing in on the advantages and avoiding the risks.

E-business outsourcing can run the gamut from specific functions (web design, development and operations) to the transfer or sale of e-business assets (equipment, facilities and people.) Many companies recognize that vendors offer a level of specialization at a lower cost and higher value than an in-house option can offer. In addition, a fixed price contract with definable service goals eliminates a great deal of uncertainty that would exist if the initiative were carried out internally. Furthermore, companies want to maintain the flexibility and reaction speed that is necessary in the ever-changing business world. By outsourcing their e-business initiatives they put the burden of making rapid adjustments in the initiative on the shoulders of the outsourcer.

Outsourcers have the expert staff and technological assets to facilitate functions like the conversion from legacy systems to new infrastructures, taking the burden away from their clients. They have the human resources required to take on information projects, whereas the non-e-business company's staff is generally focused elsewhere. For the small and mid-sized companies that are exploring outsourcing options, outsourcers usually can offer a pay as you grow plan for implementing e-business initiatives. This option might include scalable software and infrastructure solutions that are suitable to the smaller company.

Companies interested in outsourcing their e-business needs should also keep in mind the attendant risks of outsourcing. One underlying risk is that by relying too heavily on any one vendor, the company puts themselves in the position of having to depend on the outsourcer. Similarly, by appointing the outsourcer with the task of designing a "mission critical" application, the company is opening the door to the slim chance that delicate information regarding the application could be leaked to competitors. Also, as is sometimes the case, the vendor may not perform reliably. In these situations the company needs to have a viable back-up plan should they find it necessary to drop the vendor's services. It should also be noted that as outsourcing vendors take over certain aspects of a company's operation with their more technically knowledgeable staff, the company itself tends to hire less technical talent. This is a tendency that should be avoided as it can ultimately lead to a weakness in the company structure in the long run.

In addition to being aware of the advantages and risks that accompany outsourcing, companies need to pay careful attention in deciding what specific aspects of their initiative should be outsourced. One way of approaching this decision is to assemble a multi-disciplinary team to select the proper outsourcers. This team should establish a formal process for requesting information and proposals as well as employing a practical means of evaluating the vendors.

Once an outsourcer has been decided upon, the company should manage its progress as closely as they would supervise an in-house project. An agreed upon agenda needs to be established between the outsourcer and the hiring company as well as a time frame to report progress. It is not a bad idea for a company to go so far as to appoint an outsourcing director to ensure that the project development steps are maintained. Additional responsibilities could include the evaluating of the vendor's performance as well as determining a cost analysis of the venture. The director would also be the one to devise contingency plans and implement conflict resolutions so that any problems are dealt with rapidly.

As mentioned above, companies should be sure to retain enough e-business personnel to avoid an over-dependency on any single vendor. Additionally, any contracts with outsourcers should specify the matter of technology transfer. For instance, if an outsourcer uses any new technology, they must provide for the exchange of knowledge between the vendor and the company staff. Along this line of thinking, companies must always maintain a readiness to resume work on any e-business initiative that is abandoned by the outsourcing vendor. Allowing for contingency plans reduces the chances the company will become tied to a particular vendor.

The outsourcing of e-commerce initiatives is a growing trend in the current business climate. In order for a company to make the best of this option, a strong management infrastructure should be in place to devise and support effective outsourcing arrangements. The project management industry is in an excellent position to offer its guidance on best practices and lessons learned to help bring complex outsourcing projects to their fruition. Failure to do so would be to ignore a golden opportunity.

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Sources: Managing Outsourced E-Business Initiatives
Gene Bounds
EcomWorld, March 12, 2001

Still Rising
Joseph McKendrick
EcomWorld, March 12, 2001