Todd Greenbaum is the President and CEO at Input 1, a tech-enabled insurance billing and digital payments company.
Every company looks to advance these business fundamentals: increase profits and reduce costs. But as a company experiences success, operations can often become bloated and suffer inefficiencies created by its own growth.
Greater interest for a company’s offerings means pushing expansion to ride the wave of demand. Natural responses by a company are to expand, dedicate resources toward an outlay of support operations and technology and hire new employees to manage the increased workload. Can all this effort produce the desired result? In a manner of speaking, yes. Did the company maximize its profit potential and consider the effect of changing market conditions? Not necessarily.
In the pursuit of growth and profits, one helpful course of action for a company is often to stay focused on its core business through the delocalization of non-core operations.
Defining Delocalization
In short, delocalization is the process of creating efficiency through the utilization of external service providers or automation technology to provide operational solutions that would otherwise be done internally.
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The changing economic landscape caused by continued globalization and tighter margins has made the adoption of this business strategy more common than before. Two of the key takeaways from a 2020 Deloitte global outsourcing survey showed cost reduction was given the highest priority and agility was crucial, allowing room to pivot in different directions as business priorities were in constant flux. Advancement in technologies are changing the aggregate of time, production processes, distances and value scales.
Three Potential Benefits Of Delocalization
As the CEO of a delocalization services provider, there are several primary advantages of this model that I’ve seen:
1. Enhanced Competitive Advantage
A company that specializes its operations can focus its resources and skills toward advancing the value it brings to its customers through its products or services. This means a company that delocalizes can focus its resources to bring new products and innovations to market faster because it is not slowed down by having the rest of its operations in tow.
For example, in the fintech sector, developing the technology required in-house dampens the speed of time to market. An outside organization would already possess the expertise and specialized employees necessary to ensure the software delocalizing company maintains its best practices. Having readily available access to a niche workforce enables a company to abbreviate the development period as well as time to launch.
2. Financial Flexibility During Changing Market Conditions
Every industry has its growth and regression cycles. Using resources to capture market share during growth cycles is a common course of action. However, the long-term financial obligations that come with internal non-core operations can greatly stunt revenue potential at a time when it may be needed most.
When using third-party service providers via delocalization, expansion can be achieved often at a lower cost and with a faster implementation time. When the market shifts, companies that use this business strategy can scale down operations with relative speed and ease, creating significant savings that can be used to shore up the company’s financial standing or get ahead of the next growth cycle.
3. Greater Efficiency Through Specialization
Delocalization allows a company the ability to master its core value proposition to truly be best-in-class. As labor is divided amongst more specialized sectors, the company is able to focus on fewer tasks, and the more efficient it can become through this renewed focus. Specialization allows for economies of scale.
How To Delocalize
As a general rule, delocalization can be described as “keep what is core, and outsource what is non-core.” Sounds easy, right? However, delocalization can be a daunting challenge for the uninitiated.
Start by determining what is internal or “core” to your business and what is strategic. Evaluating these distinctions will make it much easier to identify which tasks will bring in the most value when performed internally versus those that, when outsourced, will enhance your ability to stay laser-focused on core objectives.
In my experience, operations based on strategy — such as marketing — should remain an internal operation because no one knows the ins and outs of your business better than you. Delocalizing only works after you’ve mastered your core competencies. Then, you can use a third party to accompany the rollout of a core strategy.
How To Avoid Potential Pitfalls
For those starting out, it is essential not to overreach but to grow your programs organically. Delocalizing is also a long-term engagement. So, it’s important to know how your potential partners operate and communicate. An ideal way to gauge a potential partner’s compatibility would be to work together on a project of a much smaller scale. This way, a minimal number of resources is invested, ensuring a minimal amount of commitment, so it’s much easier to disengage from that partnership if there’s no opportunity to gel.
It’s critical to remember that delocalization is not a magic elixir. It should never be used as a surrogate for your internal capabilities. This would be counterproductive, lowering value instead of raising it. Leadership needs to keep their ears to the ground with the latest developments in the business space they occupy and be cognizant of the marketplace and the myriad of ways it can affect their business processes.
Delocalization has continually evolved to meet market needs. Today, public demand for a company’s offerings is swift and potent and can disappear just as suddenly if not met with immediacy and skill. That’s why it’s important not to spread resources too thin but rather focus on core competencies — the things that initially drew consumers in. Focus cannot be lost in the ambition of expansion and shuffle of shifting priorities. In the pursuit of growth and profits, efficiencies must be maintained, even in the midst of changing market conditions.
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