Top 3 Questions for Internal vs External Resource Decisionsby Patrick Quirk
Every organization is constrained by the amount of financial and human resources available. Leaders struggle with how to most effectively allocate these resources across ongoing operational tasks and the implementation of strategic initiatives. These three questions will help you determine when and where to engage external resources and what tasks are best performed by your internal staff.
1. What's the task/project mean for your customer relationships?
Continuing a trend since 2003, the value of customer relationships has been increasing relative to brands (See HBR for details). Since ~2008, customer relationships have become more valuable than brands and the gap has been increasing. Consider how important the effort is to your customer relationships: a. If your customer relationships will be significantly impacted, lean towards having your internal staff much more involved, even if external resources are selected for specific tasks. b. If your customer relationships aren't expected to be significantly impacted, consider using external resources for more of the effort, especially when they can perform the work at a lower cost.
2. Is the knowledge/skillset required more available externally or internally?
Even when internal resources possess the knowledge and skill required, those internal resources may be better positioned for higher value tasks. An example is when skillsets become commodities. For instance, call center and help-desk type services can often be better performed by outside specialists. Meanwhile, your internal resources can focus on driving strategic improvements to customer relationships such as developing new offerings and continuous improvement.
When internal resources lack specific knowledge or skills, consider engaging outside resources to train your internal resources rather than having external resources perform the actual work. When you choose to have work performed by external resources, a knowledge transfer plan should be established from the beginning. Having internal staff ready to assume any operational aspects of the effort once implemented, or to perform ongoing vendor management, is critical to integrating the effort with existing operations.
3. How often do you need such knowledge/skillsets?
When a need is temporary or only utilized sporadically, it is often more efficient and effective to use external expertise on an as needed basis. For example, if you are required to perform annual events such as a compliance audit, external resources who perform such audits all year long are likely to produce higher quality in less time than an internal resource who only performs the audit once a year. The size, complexity and predictability of such needs is also key factors. The larger and more complex efforts with known timeframes are the best candidates for utilizing external resources.
As a leader, when you do choose to utilize external expertise, stay involved with the effort. Contracts are good at documenting key concepts, but typically fall short in fully communicating vision and desired outcomes and are often negotiated with different individuals than those actually performing the work. Be sure those external individuals assigned to perform the contracted duties fully understand your vision and desired outcomes as early on as possible.