Outsourcing is the business practice of contracting with an outside party to take care of certain tasks instead of hiring new employees or assigning those tasks to existing staff. It's a popular way for businesses to lower operational costs and streamline operations while still handling important functions.
Outsourced tasks may be occasional, such as hiring an accountant to do your taxes once a year. They may also be a regular part of business operations, such as contracting with a cleaning firm rather than hiring janitors as employees.
The Advantages of Outsourcing
The businesses you outsource to may be independent consultants or other large corporations. No matter the size of the business you work with, contracting out operational tasks can provide a variety of benefits.
Outsourcing helps you:
- Focus on core tasks
- Lower costs
- Promote growth
- Maintain operational control
- Offer staffing flexibility
- Provide continuity and risk management
- Develop internal staff
Focus on Core Activities
The back-office operations of a company tend to expand during periods of rapid growth. This expansion can tie up your human and financial resources at the expense of the core activities that made your company successful in the first place.
Outsourcing important but mundane activities can allow you to refocus your in-house resources on the activities that make you profitable without sacrificing quality or service.
For example, let's say your company lands a large contract that will significantly increase the volume of purchasing in a short period of time. By outsourcing purchasing responsibilities, you free up personnel to focus on the contract itself.
Maintain Lower Costs
Sometimes the expense of purchasing equipment or needing a new location can be prohibitive. In these cases, it's more cost-effective to outsource than to expand operations internally.
If the growth of your business results in an increased need for office space, try outsourcing simple operations such as telemarketing or data entry rather than moving to a new location. It might cost far less than the price of expanding, and it is both more efficient and less expensive than relocating.
Outsourcing can also lower costs by reducing the expenses associated with bringing on new employees, such as:
- A hiring search
- Healthcare and other benefits
- Payroll taxes
- Increased need for workers in management and HR positions
Working with contractors rather than employees can minimize these costs, allowing your business to get the same amount done for less.
The overhead costs of some operations are extremely high, but you might want to offer them to satisfy customers, expand your business model, or compete in the marketplace. Outsourcing can be a good option if the cost of expanding to handle those operations yourself is too expensive, would take too long to effect, or would create inefficiencies in your business model.
For instance, your small doctor's office wants to accept a variety of insurance plans, but one staff member can't keep up with all the different providers and rules. Outsourcing to a firm that specializes in medical billing will cost less than hiring additional skilled staff or training existing personnel, while still increasing the benefit to your customers.
Maintain Operational Control
Operations with rising costs should be considered for outsourcing. Departments that might have evolved over time into uncontrolled and poorly managed areas are good candidates. An outsourcing company can often bring better management skills to your company than what would otherwise be available without significant restructuring.
For example, let's say your IT department has too many projects, not enough people, and a budget that far exceeds its contribution to your organization. An outsourcing agreement with an IT contractor will force management to prioritize their requests, bringing projects and spending back under control.
Offer Staffing Flexibility
Outsourcing allows operations or departments that have cyclical demands to bring in additional resources when they're necessary. The outsourcing company can then be released when things slow down again, maintaining a company's flexibility.
Outsourcing functions, such as when your accounting department is short-handed during tax season and auditing periods, provides the additional resources you need for a fixed period of time at a consistent cost. Working with the same accounting firm or contractor each time provides consistency in addition to flexibility.
Provide Continuity and Risk Management
Periods of high employee turnover can add uncertainty and inconsistency to a business. Outsourcing provides a level of continuity to the company while reducing the risk that a substandard level of operation could bring, even over a short period of time.
For instance, your HR manager is on extended medical leave and her administrative assistant is leaving for a new job. Outsourcing the human resource function reduces risk and allows the company to keep operating while the manager is unavailable. It also gives you time to hire a new assistant without rushing the decision because the office is understaffed.
Develop Internal Staff
A large project can require skills that your staff does not possess. On-site outsourcing, where you bring in contractors to operate at your own location, can provide you with the people who possess the skills you need while your people work beside them to acquire a new skill set.
Let's say your company needs to upgrade custom-built equipment, but your engineers don't have the skills required to design the new and upgraded equipment. Outsourcing this project and bringing the outsourced engineers to work on-site allows your employees to learn from the contractors while ensuring that the job is done with the necessary level of skill.
How to Get the Most From Outsourcing
Businesses often think about outsourcing purely in terms of cost savings, but outsourcing can do more than just lower expenses. As your business grows, outsourcing can be a way to promote innovation, disrupt your industry, and access new skill sets that reposition your company in the market.
When considering how outsourcing can help you grow, don't limit yourself to looking at the cost of hiring outside contractors versus handling a task with your current staff. Focus on the value a contractor's expertise adds to your company. Whether through expanding production, marketing your company more extensively, or disrupting the way your industry does business, outsourcing can provide an opportunity for you to innovate, grow, and rise above the competition.