How to Decide Whether to Automate or Outsource
If your organization is facing capacity constraints and hiring full-time employees is off the table, automating or outsourcing are two other ways to free up capacity. Let's explore which path makes sense based on the types of business process involved.
For the purposes of this, we're going to use these definitions:
Automate involves using technology
Outsource involves using people like independent contractors, which could be local or a geographically distant variant (i.e. offshoring, nearshoring, friendshoring)
With those definitions in mind, these three components are critical to consider as part of the decision making process:
Characteristics of the work
Time and resource constraints
Governance controls
When looking at the characteristics of the work, evaluate factors like:
Repetition: highly repetitive tasks are better suited for automation, while tasks with variation or natural drift are better suited for outsourcing
Judgment: tasks with clear rules and deterministic logic are better suited for automation, while those requiring nuanced decisions and creativity are better suited for outsourcing
Standardization: tasks with standardized formats work better for automation, while those with unstructured content or evolving formats are better suited for outsourcing
For that last point, be sure to look at both the inputs to and outputs from the business process as part of the decision making process.
Time and resource constraints are fairly straightforward, namely involving the:
Time until recognizing value: automation requires more upfront time to implement but delivers consistent results once live, while outsourcing can be implemented faster but may take longer to achieve stable performance
Financial constraints: automation typically has higher initial and lower ongoing costs, while outsourcing has lower initial and higher ongoing costs
Adaptability: automation requires dedicated effort to modify when processes change, while outsourcing offers more flexibility to adapt to changes
Reviewing what governance controls are needed involves considering your organization's needs around:
Oversight: automation provides consistent execution that can be monitored easily, while outsourcing requires actively managing a vendor or individuals
Compliance: automation can produce audit trails and has codified paths, while outsourcing requires regular auditing and monitoring to ensure standards are met
Knowledge retention: automation captures institutional knowledge in its configuration and code, while outsourcing risks losing that knowledge through staff turnover or vendor transitions
If you're feeling stuck and know that your desired end state is automation, choosing to outsource now and automate later is often better than delaying any progress until capacity becomes available.
That is especially true if you anticipate that an outsourced perspective could assist with improving your business process before codifying it in automation.
TLDR: Automate repetitive, standardized tasks. Outsource varied, creative work. Consider time, cost, and governance controls when deciding.
