{"id":40,"date":"2012-11-09T09:12:08","date_gmt":"2012-11-09T09:12:08","guid":{"rendered":"https:\/\/ruizhidong.com\/?p=40"},"modified":"2012-11-16T18:22:53","modified_gmt":"2012-11-16T18:22:53","slug":"when-does-outsourcing-make-sense","status":"publish","type":"post","link":"https:\/\/ruizhidong.com\/when-does-outsourcing-make-sense\/","title":{"rendered":"When Does Outsourcing Make Sense?"},"content":{"rendered":"

There’s a lot of technical expertise now in India, the\u00a0Philippines, Vietnam, etc. who are able to program, design, and interact with customers at only a fraction of the cost compared to their US counterpart. This has spawned a lot of hype around outsourcing.<\/p>\n

Outsource and you can scale. Outsource and unlock the Tim Ferris Business Lifestyle. I earn 5X and someone else can do this job for me at X, therefore it’s inefficient for me to do the job. Does it really make sense for me to take out the trash or should I just pay somebody else to do it? Maybe I can get my VA to send my girlfriend a love email<\/del> text everyday at the same time… The 2 minutes of time it takes me to write the text is worth roughly $3.33 to me but $0.33 to my VA… Not to mention the additional time it would take for me to get back into my workflow…<\/p>\n

Despite my tone, I’m all for outsourcing (I outsource a lot myself) but only if it makes\u00a0sense<\/strong>. So when does it make sense? Well I’ll get to that shortly. Since there’s a lot out there about the advantages<\/strong> of outsourcing, I just want to touch a little bit on the\u00a0disadvantages\u00a0<\/strong>of outsourcing.<\/p>\n

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Agency Costs<\/strong><\/p>\n

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<\/strong>In economics, there’s a term called ‘Agency Cost’ which says that the interests of the person doing a job for you will never be fully aligned with your own interests. In other words, people only give a shit about themselves. If you hire somebody to do copywriting for you, they’re never going to do the job anywhere near as well as if you do it yourself because, well, it’s your business<\/strong>, not theirs.<\/p>\n

They’re only interested in what they’re getting out of it<\/em> which is their salary\/hire fee. They’re not going to take ownership<\/strong>\u00a0in the job the way that you would, irrespective of whether it’s the best PR agency in the world or if it’s somebody you found in India through oDesk.<\/p>\n

There are different ways people try to reduce this ‘invisible’ cost. Large corporations grant millions of options to CEOs to get them on the same boat as the shareholders (if you want to find companies where CEOs have real<\/em> skin in the game, look for companies where a good chunk of the CEO’s\u00a0net worth\u00a0is invested in the company). But if they have ownership (i.e. shares in the company), then they would be more incentivised to perform. There are literally hundreds of studies on the best way to reduce the agency cost which are outside the scope of this post. Treehouse for example gives its employees lots of perks<\/a> to motivate them and retain good employees.<\/p>\n

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Lost Learning Benefits<\/strong><\/p>\n

When you outsource, you lose associated learning benefits. For example, if you outsource customer service, then you miss out on customer feedback. If you outsource manufacturing, then you lose innovation benefits<\/a>. You will need to decide if the cost-benefit makes sense in your case.<\/p>\n

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Opportunity Cost<\/strong><\/p>\n

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If you’re deciding between learning to program and paying somebody else to do it, then obviously paying somebody else to do it will will get you what you need almost straight away (whereas learning to program will require learning time). If you earn $100 an hour and you can pay a programmer in India to do it for you for $13 an hour, then it’s a win-win, right? Well, it depends on a mixture of your financial circumstances, current abilities, amount of free time, your interests & passions etc.<\/p>\n

If you’re the CEO of Intel or the Mayor of New York City, then it simply makes no sense to learn how to program. Your time would be far better spent thinking about the ‘big picture’, the overall strategy and direction, negotiating big deals, thinking about whether your industry is\u00a0facing big changes<\/a>. The opportunity cost for learning to program would simply be too great. Figuring out how to save Intel or NYC a billion here and there, for example, would yield shareholders and city residents respectively, far greater benefit than learning about functions. So Bloomberg learning to program<\/a> probably isn’t the greatest use of his time.<\/p>\n

If on the other hand, you’re earning a comfortable salary that can support your lifestyle and you can put savings away, then you can decide what the best use of your time is after work. If you’re going to try and set up an online business, you may focus your time more on marketing, SEO, copywriting etc. than doing the programming yourself as those can be outsourced away relatively cheaply. But if you hate anything to do with marketing and don’t want to spend a few hundred hours on getting it right, but you do enjoy the technical aspects of the business, then there’s no rule that says you have to learn marketing. You can outsource it to a professional firm while you do what you love. Though I recommend that you read Eric Ries’ book, the Lean Startup<\/em>, and Ash Maurya’s Running Lean<\/em> so you don’t waste time developing something the market doesn’t want.<\/p>\n

If you’re unemployed with a lot of spare time then it makes a lot of sense to\u00a0do virtually everything yourself.<\/strong>\u00a0Make a list of everything you need to learn, prioritize the items and start learning and doing!<\/p>\n

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DISCOVERING YOUR CORE COMPETENCY<\/strong><\/p>\n

For me, the choice of whether to outsource boils down to:<\/p>\n