Own vs. rent is a common question when running a business. This not only applies to renting or owning capitol equipment but whether to hire a contractor or an employee. There are obvious differences between capitol equipment and humans, mostly being that equipment is an inanimate object vs. people who have feelings and must be treated with respect. Assuming that this is fundamentally understood and practiced in your business, we can draw a reasonable parallel between the decision process of renting/owning equipment and contracting/hiring work.
The single largest factor in making this decision is whether the resource is an integral part of your product’s differentiation. For example, if you are (insert email break here) creating a Website or a Website Application, it is unlikely that you need a permanent employee to administer your servers. The System Admin function is hands-down the most commonly outsourced task in any business for just this reason. Taking this further, if you need specialized enterprise software such as a Document Management System or Enterprise Resource Planning software, you’ll likely hire a contractor to install and customize it. It’s much like building a house; once the structure is built you don’t need to keep a full-time crew around for maintenance. While you may want them to come back at some point to build an addition, keeping them around is simply not necessary and incredibly inefficient.
This practice is commonly referred to as in-house vs. outsourcing. As a quick note, many people incorrectly associate the term outsourcing with off shoring, when in fact they’re different. Outsourcing by definition is the action of obtaining resources from an outside supplier (independent of location), in place of an internal source. The decision to use onshore resources vs. offshore resources is based on very different criteria than hiring vs. outsourcing. We are huge proponents of using onshore resources for efficiency and quality purposes, and will cover this in more detail in an upcoming article.
Going beyond the two examples given above, it’s good to know have some general rules that will help you decide if a project should be done in-house or outsourced…
The Company’s Mojo
If the work is centered squarely in a company’s deep level experience and differentiation (aka mojo) then it really should be done in-house. This can include algorithm development, patent development, creating a licensable framework, etc. If not, hiring employees to do commoditized work is not only inefficient but also puts the company at risk by loading down the payroll with permanent employees or increased rates for unemployment insurance if the company downsizes. While growing and maintaining a company’s differentiation requires the ongoing attention of highly trained and focused employees, all other work should be outsourced.
Team of Specialists
Some projects require a team of specialists. Building such a team can be a long and prohibitively expensive process from both a cost and time perspective. Many web applications require at least a User Experience Designer, Web Developer, and a Project Manager. Unless a company has employees with the right experience and enough bandwidth to focus on the job at hand, it’s best to find a Web Development company with a ready-made team.
Chronic vs. Acute
At first blush it may seem strange to compare work to an illness, but the truth is that work is the process of curing problems. Chronic issues are the ones that are engrained in your business model. Furthermore they come in two flavors: revenue generating or overhead. Typically chronic issues will require hiring an employee; as by definition, the problem will always be there and hence requires a permanent resource. On the other hand, acute issues are optimally handled by outside contractors.
Building and Handing Off
Quite often you’ll need to hire a contractor who has the skills and experience to quickly and efficiently build a specialized project from the ground up. In this case it’s best to find a contractor that knows how to design and implement projects such that continued maintenance can be handed-off to an internal resource.
Outsourcing an In-house Trainer
There are times when a company needs to expand its knowledgebase in an area that is tangential to its mojo. This is much like Building and Handing Off, except the contractor is building a knowledgebase and handing it off in the form of training and documentation.
This should give you some insight and a few guidelines for deciding when to hire an employee vs. a contractor to do a particular job.