The rapid rise of organisations like Google, Airbnb, Uber and Tesla have prompted people to rethink what is required to be a successful organisation, inspiring books like The Exponential Organisation by Salim Ismail. But it is not just these new organisations who have found that doing less and outsourcing more is the recipe for success. The Hollywood film industry is a good case study of an established industry that has used this model to transform itself to meet the needs of a changing world for more than half a century.
So why isn’t everybody doing it?
There is a real danger to businesses that do not adopt this business model, as like the taxi industry vs Uber, they find themselves the victim of those that do. With such a compelling case for adopting this approach, it is reasonable to ask why more businesses are not jumping on board.
The major barrier to adoption is mindset. Individually and collectively, people in organisations are reluctant to proactively seek out disruptive change. By thinking of the world as it is rather than as it could be, they are limited to creating a faster caterpillar, rather than transforming into a butterfly. Some organisations only consider disruptive change when it is forced upon them. Often, this is because adapting to a disruptive change is regarded as high risk and high pain, with little gain. The irony is that – if they had proactively chosen to do it on their time frame, rather than as a last resort – it would be far less painful and risky, with a much higher chance of success.
Changing the organisational mindset is not easy. Generally, it starts with recognising that the organisation already outsources some aspects of its business – which is why it has suppliers. It also helps if people inside the organisation truly understand the purpose of the business. This has been a hot topic on Ted Talks and through organisations generally over the last five years, but unfortunately, most businesses still have some way to go. Too often, businesses retrofit the ‘Why’, ‘How’ and ‘What’ to their current world view, and in doing so, fail to open themselves up to the possibility of a different future.
A clear example is a business owner who insists on doing everything themselves. Their business would be limited to one skillset and the amount of work they can do personally. Pride, fear, lack of trust, inexperience, or simply personal preference could lead somebody to this approach. Regardless of their reasoning, the fact remains that unless they get help, the profit and potential of their business is limited.
Redefining the Boundaries
The outsourcing mindset requires you to stop defining the functions of the organisation based on by who, and how they are performed. Focus on what needs to be provided to the customer first. Then, reconsider everything that needs to be done to make this possible. Airbnb realised that people needed places to stay. They also considered that they did not have to provide the accommodation to add real value to customers. In doing so, Airbnb redefined the boundaries of being in the accommodation industry – by removing a major restriction and overhead from its business.
Every function of a business can be outsourced. Businesses are available to answer customer calls, perform bookkeeping, accounting, transport, sales, marketing, IT, product design, manufacturing goods, even owning the building that the business operates out of or the equipment used. The discussion should not be about if it is possible to outsource something, but how the best outcome for the customer can be achieved, and by who – considering all internal and external possibilities. It is a discussion that will help refine your understanding of your organisation’s unique value proposition and purpose.
Getting Started
Different books have different words and phrases to describe how to replicate the success of the latest global success stories, the underlying principle is simple:
If you are not adding value by doing it internally, find a way to outsource it.
Most business functions have three components: people; systems; and processes. Review every function of your business. Consider if each function needs to be performed within your business, or if it could be better done externally. Transportation is an excellent example to start with: delivering your products to your customers is a critical function, but is your business adding any value to the customer by doing it inhouse?
Once you created a list of functions that need to be done internally, ask the same question of the people, systems and processes within each function. There are many examples of businesses that adopt external systems. For example, Word processor or accounting package. Outsourcing people and processes can be harder for businesses to get their head around. Franchising provides examples of both: the franchisor outsources the people; and the franchisee outsources the processes.
The franchising divide brings into focus another lens through which to view your outsourcing strategy – do you want to outsource business as usual, or business change? Many organisations outsource elements of business change as it often requires a temporary influx of capability. IT and engineering projects are typical examples of this. There are also irregular BAU functions that are regularly outsourced, for example accounting and legal requirements. Similarly, most organisations draw on external marketing resources to assist with major projects or campaigns. While these examples demonstrate that most businesses have adopted outsourcing to some degree, it is still rare for business to embrace it as a competitive advantage.
Be Brave
To truly adopt the approach of growing faster by doing less, an organisation needs to understand the ecosystem it operates in and identify how it can maximise the value it delivers with minimum internal resources. Airbnb sell more beds per night than the largest hotel chains, but don’t own a single hotel. Uber sell more rides per day than the largest taxi fleet, but don’t employ any drivers. What does your business do for your customers? How can you deliver more value with fewer internal resources?
In a highly connected world, there are an increasing number of functions that you can outsource to specialist organisations at a lower cost than employing staff, with the advantage of more skills and expertise. Some organisations are reluctant to adopt this approach as they perceive a loss of control, but the opposite is true: employees are legally required to try; while outsourced providers are legally required to do.
Keeping It All Together
An essential part of ensuring your business can grow rapidly is by understanding how you can readily control all the moving parts, regardless of whether they are internal or external. Uber controls the payment process, matches people to rides, and allows the matched individuals to track and rate their experience. In doing so they have ensured they are controlling the process. When you look at your own business, what is it that ensures you are in control?
Conclusion
We are living in a rapidly changing world. For a business to thrive in this new world it needs to take advantage of the capability of other businesses. Don’t ask where you need help, ask who does this the best, if it is not you, outsource it. This will enable you to focus more on what you do best. In doing so, you will create the best outcome for your customers, and they will love you for it. Surround yourself with stars and you will shine.