Perils and Perks to Outsourcing Business Functions
Outsourcing offers strategic and financial benefits that are too important to ignore. When it works, companies decrease costs, increase flexibility, enhance expertise, increase core competencies, and are allowed to focus on the core business.
Today’s agile businesses use outsourcing all the time. Commonly outsourced tasks include janitorial, transportation, bookkeeping, payroll processing, telephone answering, IT technical support, printing, insurance, and legal services.
For organizations exploring the pros and cons of outsourcing, the following are the questions to consider: How do you make outsourcing work? And, how can you avoid the pitfalls that can occur in the outsourcing process?
Perks of Outsourcing
- Cost Savings: The costs associated with an in-house employee are generally higher than the cost of an outside provider. For example, it’s frequently cheaper to hire an outside bookkeeping service to keep track of your accounting, even though their hourly rate is high, because you only need them for a few hours a month. You also don’t need to provide office space and all the related overhead related to an in-house employee
- Access to Expertise: Highly skilled work is generally performed most cost efficiently if it is outsourced. An outside provider with specialized knowledge of computer programming or legal services can work on an hourly or per project basis which is more cost effective than hiring a person in-house.
- Quality of Talent: Outside providers are specialists, delivering services your business may lack expertise in. This in turn allows your business to focus efforts on your own area of expertise. The outside provider is also usually able to provide a more consistent level of service than you could with in-house employees.
- Risk Mitigation: Many functions related to your business, though not core to your business, are critical to the success. For example, it may be essential that your customers be able to receive technical support 24 hours a day, seven days a week. You may find that by providing this service through an outside contracted provider is more efficient.
- Relief from Employee Management: This is one of the major reasons for outsourcing work. The hiring, firing, management of vacation and sick time of employees, along with the accompanying requirements of employment benefits, testing, training, record-keeping, payroll processing, tax-reporting, is a function that many businesses would rather outsource so they can focus on their core business.
- Increased Flexibility: Businesses that experience fluctuations in their work requirements can be assisted by an outside provider who has access to a significantly larger pool of talent.
- Access to Better Technology: The lifespan of technology is so short that most businesses can’t afford to provide the latest technology for every employee.
- Increased Productivity: When you outsource a business function, you are turning it over to a business that can perform the task more efficiently. Increased efficiency leads to increased productivity, which saves money and increases profits.
Perils of Outsourcing
- Social Responsibility: When work is outsourced to a third party, you are eliminating possible jobs in your own company that can cause low morale among your existing employees. The employer should use this opportunity to educate employees that by outsourcing services, they are able to save money which can be better spent on improving customer engagement experience.
- Language or Dialect Barrier: When a function requires high volumes of telephone calls, outsourcing to a foreign location is likely to decrease customer satisfaction due to language or dialect issues.
- Loss of Control: If the vendor relationship is not handled properly, you will likely have less control over your business when you outsource part of it. To mitigate this risk, processes should be put in place to support the ongoing supplier relationship built on good communication and reporting procedures.
- Inadequate Company Knowledge: Expectantly, an in-house employee will have more current knowledge about the business than would an outside contractor. If the outsourced vendor is not positioned as a threat to the in-house employee, the outsourced vendor can partner with a trusted employee to quickly gain the needed company knowledge in a timely fashion. With consistent exposure to your company, the outsourced vendor will become knowledgeable and proficient in much the same way that an in-house employee.
- Security Issues: Since it is more difficult to protect sensitive company information when outsourcing, it’s imperative to make sure your provider has procedures in place to safeguard information and can provide some sort of warranty against unauthorized access.
In the end, outsourcing business work functions can be a great way for businesses to gain productivity and save money. Nevertheless, the wrong decision can threaten the survival of your business and be very costly for your company. Taking the first steps toward outsourcing can be time-consuming, but figuring out how to build your business through outsourcing work functions can offer increased efficiencies and economies of scale.
Michelle Benjamin is the Founder and CEO of Benjamin Enterprises. She has created Workforce Solutions through Labor Management and Training for major corporations for over 25 years. She can be reached at 800.677.2532 or firstname.lastname@example.org