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Add Unique Capabilities with Outsourcing

Feb 25, 2008
The largest organizations can hope to attract top talent and create unique organizational resources; everyone else can only be jealous of that opportunity. But outsourcing is increasingly leveling the playing field for smaller organizations.

Globalization drives up the value of being the world's top talent as more people can potentially employ that talent. You see this situation in the entertainment industry where worldwide stars earn 20 or 30 times what someone does who is a star in only one country.

As a result, top talent often seeks the freedom to provide services to the highest bidder. This move usually increases the scarcity value of their skills versus working as an employee for one organization.

The exception is where the talented person can add more value to one organization than to all others combined, and that's rare. Even in those circumstances, compensation is more likely to rise for the talented person if the possibility exists of other people hiring him or her.

You can expect that highly capable individuals and organizations will increasingly operate like freelancers do in providing professional services. These talented individuals will be available to the highest bidder.

But with the world at their feet, such talent will need to be coddled wherever it is found. For instance, top internal groups are finding that they are being given increased freedom to serve clients and customers outside of their own organizations. Such expanded roles sharpen internal skills and help retain talented people who are looking for new challenges.

I was reminded of this point recently when one of the world's leading Internet marketers, Alex Mandossian, explained how he uses outsourcers to do virtually everything for his organization. In that way, he doesn't even have to learn very much about how to organize his marketing efforts.

Mr. Mandossian can focus instead on how to sell more products. He keeps at least four different top outsourcing organizations busy with each aspect of his various activities and switches back and forth among these vendors as his needs and their workloads vary.

Mr. Mandossian credits his suppliers with earning him as much as a million dollars in a week. His hourly income from leading teleseminars, as a result, rivals that of the highest paid professional athletes in the world for their competitive performances.

His network of suppliers also tips him off to new best practices he should try. As a result, Mr. Mandossian has an enviable reputation as one of the best teleseminar marketers.

But Mr. Mandossian isn't satisfied. He encourages his vendors to learn how to become Internet teleseminar marketers and leaders as well, knowing that these outsourcing vendors will deliver even more profits when they better understand his business.

Many people will tell you they wouldn't like to manage outsourcing vendors for small organizations: They favor the closeness that colleagues develop in a larger organization.

I wondered about that preference, however, as I heard vendors talk about how devoted they are to Mr. Mandossian. Two of their children have been named after him . . . and one of those was a girl! I cannot remember the last time we heard of people who work for a company naming their children after the CEO except when the parents were the CEO's relatives.

In describing what he looks for in an outsourcing vendor, I was impressed to learn that these vendors mostly run Mr. Mandossian's business without any guidance from him. On a day-to-day basis, each one primarily works with Mr. Mandossian's other vendors.

If a problem arises, the vendors usually decide among themselves who will take the lead in working things out. As a result, a project moves through to successful completion despite occasional hiccups along the way.

But, how could hiring all of these talented people be cheaper for Mr. Mandossian? It all depends on what you measure.

Certainly, the hourly cost of employing outsourced top talent is going to be higher than employing ordinary people . . . or doing the work yourself. Done carefully, however, the cost as a percentage of sales should be quite a lot lower.

Let's look a little deeper into the teleseminar business as an example of this point. The cost to develop the marketing for such a teleseminar is more or less fixed until you reach the point of buying or renting lists.

But the response to a marketing campaign can vary from selling nothing to selling millions of dollars of information services and products. Spread the cost of paying even three times as much to develop that marketing, and you're still way ahead when your revenues expand even faster than the development costs do.

Let's start by considering a hypothetical example of someone who does all the marketing preparation by herself. She spends nothing except her own time in the process.

Let's also assume that she is reasonably good at marketing and is able to sell $30,000 worth of products and services. Let's also assume the costs of delivering those products and services are quite low. In that case, the profits can be as high as $25,000 . . . before putting any value on the her time.

Let's now assume that Mr. Mandossian pursues the same marketing opportunity. We'll create a hypothetical example for him as well.

Let's assume he spends 5 hours on the preparation while our do-it-yourselfer probably spent 100 hours. But Mr. Mandossian also has to pay a lot of expensive people to do the rest of that work. Let's assume that he has to buy 150 hours of other peoples' time at $150 an hour (probably more than he spends).

If Mr. Mandossian can sell $100,000 worth of products and services, his gross profit before the extra expense is probably around $83,000. If we deduct his added marketing costs, Mr. Mandossian's profit is over $60,000 while the do-it-yourselfer earned $25,000.

Let's analyze the profits per hour. Mr. Mandossian earned $60,000 in profit contribution for 5 hours of marketing effort. The do-it-yourselfer earned $25,000 in profit contribution from 100 hours of marketing effort. Assuming they each then spend another 10 hours to deliver the services, Mr. Mandossian earned $4,000 an hour while the do-it-yourselfer earned around $223 an hour.

Next, let's assume that Mr. Mandossian has a large number of marketing projects he could pursue, and he spends the 95 hours he saves doing six other marketing projects. If each one is equally successful, he earns an extra $395,000 over the $25,000 the do-it-yourselfer gained.

If you were operating like Mr. Mandossian in this hypothetical example, would you care that your top-of-the-line vendors were earning $150 an hour? Probably not.

Here are questions to help you use outsourcing to make breakthrough gains in cost reductions:

-How can you use outsourcing to advance your most important tasks?

-What kinds of outsourcing can allow you to make gains while you are busy?

-Which outsourcing approaches can help speed you to industry leadership?

-When should you use outsourcing as a financial tool?

-How can outsourcing allow you to attract people you couldn't hire to be employees?
About the Author
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at

http://www.2000percentsolution.com .
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