Outsourcing: Reducing the Running Costs of Your Business

One of the most important changes to the business paradigm over the last few years has been the concept of Service-Dominant (SD) logic. S-D logic was first introduced by Steve Vargo and Robert Lusch in January 2004 and has been hailed as a paradigmatic shift for the way businesses operate.

The core concept of S-D logic is that businesses, industries, and society are all primarily concerned with the exchange of service as opposed to goods. From this perspective, service is seen as the application of knowledge and skills (competences) for the benefit of an individual/organisation.

S-D logic also advocates that the value of a service is assessed by the customer ?in-use?, as opposed to being embedded in the product/service itself. A simple way to illustrate this concept would be if you gave a brand new, state-of-the-art smartphone to a teenager and an 80 year-old woman; both phones are exactly the same, and both retail at the same price.

The teenager would realise far more value from the smartphone ?in-use? because they would be more likely to know how to download apps, music and games, and use more of the phones features such as instant messaging, e-mail, and GPS. In contrast, the 80 year-old woman would probably only want to use the phone to make calls, and would also find the touchscreen functionality unfamiliar and therefore far more difficult to use. This would mean that she would realise very little value from the smartphone, and would probably be better off with a much cheaper landline handset.

The concept of S-D logic can have an immediate impact on your own business; the business practice of ?outsourcing? is empirical proof that businesses can thrive by applying their own unique competences for the benefit of another business. Outsourcing refers to the common practice of employing external firms to manage work that is normally performed inside a company.

There are a myriad of successful businesses that outsource their unique services to other businesses. These businesses have developed their unique competences with years of experience and a wealth of expertise and resources, which cannot be easily replicated. These unique competences are extremely valuable to other businesses that need them.

Outsourcing can be an incredibly valuable tool for your small business, as it allows you to integrate various industry experts into your own value chain. This will allow you to focus all of your efforts on the development of your own unique competences (your Unique Selling Point) and customers, which may ultimately help your business to gain a competitive advantage. Outsourcing specific business tasks, such as payroll and distribution or your online marketing, can provide a number of long-term benefits for your business. The main benefit however, is that it can dramatically reduce the running costs of your business.

Firstly, outsourcing can help you to control your initial capital expenditure, as you will not be faced with large peripheral expenditures. This means that you can channel your financial resources into revenue-generating activities, which will also make you more attractive to prospective investors.

Secondly, outsourcing your business processes will give you access to that particular firm?s economies of scale; if you carried out these processes internally, these expenses will inevitably be passed on to your customer, which will subsequently drive your prices up.

Finally, if you were to carry out business processes internally, it would be necessary to hire and train additional members of staff, which can be an incredible drain on resources (especially if you hire the wrong person). However, if you were to outsource your payroll and distribution processes to specialist service providers, you would be safe in the knowledge that your business processes would be managed by a highly-skilled team of specialist staff, without the need for you to hire additional members of staff.

Source: http://www.informationgateway.org/outsourcing-reducing-running-costs-business/

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