Businesses might hire external workers to help with various projects or day-to-day services; this strategy is often called “outsourcing.” Outsourcing became common in the late 1980s and early 1990s to help reduce labor costs as companies grew. All types of companies can take advantage of outsourcing, not just large, global corporations. Although it may be a vital step in growing your business, there are disadvantages to be considered and mitigated.
Types of Outsourcing
By outsourcing, you can find various services for your business, from marketing to human resources, to administration. Common types of outsourcing include:
- Managed Service Providers (MSP): Some businesses have specific IT needs that in-office teams cannot satisfy. MSPs use software, such as remote monitoring management (RMM) software, to help companies manage IT infrastructure, add cybersecurity measures, and offer technical support.
- Financial services: Companies may outsource financial services as a way to help cut costs. Accounting requires time and skill, which can be a large investment for small businesses. Professional accountants can help business owners balance their books to increase efficiency.
- Customer service support: Businesses can outsource call centers and chat services if that is the primary way they communicate with customers. To do this, you should include standards and expectations to the outsourcing company to help maintain your business values.
- Marketing: Outside marketing firms provide professional marketing assets for businesses that can help them grow in the long run. These firms can also help ideate unique marketing strategies, written content, and web design services.
- Administrative tasks: In recent years, virtual assistants have become a popular outsourcing strategy. These assistants can help with scheduling, social media posting, inbox management, and even errands.
- Human resources (HR): HR tasks include hiring, onboarding, and managing employees. Companies typically hire recruiting services to find qualified candidates, but you can also outsource tasks such as payroll, benefits administration, and training.
- Contractors: A contractor is any professional retained on a non-permanent contract basis, typically to perform a limited, specific task or function. This can range from bringing in consultants to contracting specific functions like IT help, temporary labor, gig work, or completing special projects. Contractors may be highly specialized or complete more menial and repetitive tasks depending on the situation.
This list is not exhaustive; with rising remote work capabilities and freelancers, businesses can outsource various positions, projects, and operations.
Benefits of Outsourcing
Understanding outsourcing benefits can help decision-makers determine whether it’s right for their company or not. While one of the better advantages of outsourcing is freeing up resources for other areas, there are a variety of ways companies can take advantage of this business strategy.
Access to a Larger Talent Pool
Typically, companies hire employees that fit specific criteria and job positions. However, not every employee can satisfy the growing needs of a business. By outsourcing tasks and positions, companies can rely on experts instead of investing in training resources. Outsourcing provides industry knowledge and experience that most business owners may not know.
Many businesses rely on IT outsourcing because the industry is nuanced and ever-changing. These companies are also implementing software as a service (SaaS) in many aspects of their business. By relying on outsourced SaaS companies, managers gain peace of mind knowing experts handle their IT needs. Furthermore, remote work increases the talent pool. Outside IT experts can support employees through RMM, which centralizes all IT functions or managing IT assets.
Ability to Focus on the Core Aspects of Your Business
Businesses should spend time focusing on what they are good at; this helps create efficiency and increases productivity. While improving areas that are lacking in your business is good practice, these efforts could be taking focus away from your core aspects.
For instance, freelancers often outsource their accounting because they do not have the resources to do it themselves. Likewise, businesses and organizations could lack the same resources. Instead of recruiting, hiring, and training personnel for these tasks, it may be easier to outsource. Managers and employees can trust the job gets done by experts in the field and can spend more time on tasks they like.
Outsourcing projects and tasks are less expensive than hiring and training full-time employees. On average, new employees cost around $4,129. These costs include:
- Onboarding time;
- Recruiter fees;
- Deferred productivity.
With outsourcing, managers only pay for the services they use. They can hire personnel whenever they need to instead of paying for a full-time employee.
Moreover, businesses can also decrease their overhead costs by outsourcing certain positions, like administration. Instead of hiring a full-time employee, managers can hire virtual assistants, saving on expenses such as office space, furniture, computer equipment, and software tools.
Increasing Efficiency and Quality
Outsourcing experts complete projects professionally. Significant factors in any project are risk assessment and analysis. Because of their expertise, outsourcers can increase efficiency by planning for and mitigating potential risks unknown by managers. These risks include:
- Government regulations;
- Financial conditions;
Another advantage of using outsource providers is their ability to start projects right away. These firms have access to resources that your business may not. In-house projects could take longer due to training, hiring, and support.
Disadvantages of Outsourcing
There are also some disadvantages to outsourcing. Taking note of these disadvantages could be crucial in determining whether outsourcing is a good idea for a company.
It’s important to remember that these firms may have access to important information. Certain aspects, like payroll, HR, and recruitment include confidential data that is shared with third parties. Additionally, with increased SaaS implementations, businesses are more at risk of cybersecurity threats. To reduce these anxieties, companies can:
- Ensure the outsourcing firm has experience handling sensitive information;
- Sign a non-disclosure agreement with the firm before starting the project;
- Create a non-compete clause to ensure the firm won’t develop a competing project.
It’s understandable to be uneasy sharing confidential information with an outside source, however, the above tips help create a more secure working relationship.
Some outsourcing costs can go unnoticed, especially if a business is working with a firm for the first time. These costs can include:
- Management and coordination of contractors;
- Project attrition;
- Onboarding the firm;
- Processes costs;
- Governance costs.
Companies should have obvious requirements before the start of any project. Do not be afraid to explore the different costs provided by various vendors.
Impacts on Company Culture
Outsourcing can harm employee morale and company culture. While managers may see outsourcing as a cost-effective option, employees may feel like they are being replaced. They could also be confused as to why some company services need to be outsourced. Being transparent with your employees allows them to understand the business decisions managers make. It can also help increase workplace positivity and productivity.
Loss of Quality Control
Outsourcing means giving up some control on projects. Unlike in-house teams, managers cannot closely monitor the tasks and may only get updates once a week. It is essential to set up good communication with outsourcing companies to mitigate this problem:
- Be upfront about quality standards;
- Delegate parts of the project instead of the whole thing;
- Set a timeline for the project;
- Research the best outsourcing firm.
By keeping good communication with the outsourcing team, businesses can uphold their standards and maintain a professional working relationship with the outsourcing firm.
Should You Outsource Your Business?
Outsourcing may or may not be a vital tool for businesses, and shouldn’t be taken lightly. To determine whether your business should outsource, consider the following questions:
- Do your employees struggle with certain tasks?
- Is your budget getting tighter?
- Is progress stalled because of routine tasks?
- Do your employees lack fresh ideas?
- Are your managers overloaded?
- Do you deal with irregular tasks?
If you answered yes to these questions, there is a good chance that outsourcing is a good idea for your business.
Outsourcing can provide relief for some businesses, and for other companies, it may not be the right move. By understanding the pros and cons of this option, managers can make informed decisions about outsourcing for their business.