Evaluating The Outsourcing Pros and Cons
Have you been deliberating over the idea of outsourcing some of your company’s tasks? You may have arrived at this idea for a few reasons. As a business owner, you may be trying to cut costs in specific departments of the company or reduce the workload of your team. In most cases, trying to take on more projects at a higher frequency than your current workforce can handle, is definitely a risky move.
As with any major business decision, it is essential to evaluate the outsourcing pros and cons before moving forward. The truth is that you don’t have to tackle every area of the business when you can carefully outsource specific jobs to contractors, freelancers, or outside companies.
There are valid points for holding back on outsourcing – you may think it is cost-effective for the project to be completed in house, especially if the company is just starting out. This works for administrative roles and bookkeeping. However, unless your company employs experts in every field, there are highly skilled freelancers, who can help you execute projects and tasks in ways that save you effort, time, and money.
As with every decision, outsourcing has its pros and cons. The following are points to note before considering outsourcing as an one-time or ongoing option for a business.
Outsourcing Benefits
1. A Larger Talent Pool
Hiring employees only provides a business owner with access to a limited pool of local skills. This limitation sometimes means you have to settle for what you have. Outsourcing gives you the chance to reach talents all around the world. If you are looking for a particular level of expertise, it is logical to extend your reach among variety.
2. Don’t Commit To More Full Time Employees
Choosing to outsource allows a business owner to pay the vendor as a contractor, rather than hire more full-time employees to complete what may be a seasonal task. The pay-per-project concept ultimately saves the business from wasted spend on training, on-boarding, and payroll on employees that are only needed for a small task.
3. Save Money
Many companies have their reasons for outsourcing and cutting costs is the most common. While a business owner should never compromise quality for price, outsourcing is a cost-effective way to get the job done. Using outsourcing platforms or global talent pools, it is easy to find the suitable talent at a suitable budget for you.
According to an article in the New York Times, “control capital costs,” was the primary reason for businesses to consider outsourcing. Its basic business economics. Contractors reduce recruitment and business overhead costs. Not to mention – the flexibility outsourcing gives the business owner, in changing the size of the workforce according to incoming business.
4. Less Stress Behind Hiring and Firing
Even if done by the book with grace, firing an in-house employee an be a difficult decision and sometimes can be a human resources nightmare. Dealing with contractors can prove to be much easier. If you’re unhappy with the contractors work, move on to the next!
5. Access to Expertise
Instead of trying to multitask, outsourcing allows business owners to find highly skilled workers in very specific fields. These experts can help get the job done faster, and more thoroughly and don’t need to cost you a years salary.
6. The Time Zone Advantage
When you have a workforce located in another time zone, they can execute projects when your employees have retired for the night. The best part is that you will find the results waiting for you when you wake up.
Cons of Outsourcing
Don’t get too excited – you might be ready to outsource all your business needs after reading through that list. Outsourcing can come with its associated risks. For more business owners, it comes down to – what price point outweighs the potential risks of outsourcing?
1. No Room For Micro-Managing
For business owners that need to closely manage employees, outsourcing may not be the best option. Part of the benefits of outsourcing is relinquishing the ability to micromanage the work being done.
2. Communication Barriers
Outsourcing can refer to hiring any employee on a contractor basis for any type of work. This includes domestically located freelancers or highly skilled freelancers from abroad. It is possible to find quality work for extremely low costs in other countries. Along with this route comes communication barriers. Sure, most foreign freelancers speak English to some extent. Is their English level sophisticated enough to understand your project requirements? Are they going to be able to produce a product geared towards your consumer?
For some businesses, their outsourcing needs can be met overseas with minimal communication or direction. While this is the ideal situation, it is not often the reality of outsourcing work. Efficient communication techniques like screen sharing apps or Skype can help get the job done, but language barriers can prove to be catastrophic to the project timeline.
3. Quality Control
Outsourcing is only useful when it generates the expected results. What if the quality does not match up to your expectations? While this does not mean one should hold back, it means he or she should communicate the qualities expected before commencing the project.
4. Effect on Company Culture
It is important to consider how outsourcing jobs can effect company culture. Are you unsettling existing full-time employees about their job security? Is their position going to be outsourced next?
While it may seem like a minor setback, having a progressive work culture can increase productivity. Be sure to consider the following:
- Budgeting may become more difficult for directors.
- Employees may feel upset or threatened if their current position is up for outsourcing.
- The company’s flow of work becomes complicated.
5. Misaligned Work Ethics and Standard
There are chances that the outsourced workforce would have different work ethics and professional standards. Their efficiency and dedication to the project may have to be question because freelancers normally have multiple clients and therefore prioritize tasks differently. For some projects, a business owner may realize that outsourced projects take more time than doing it in-house.
6. Security Risks
If running a data-sensitive company, security may become a problem if the information is exposed to a third party, especially when there is a risk of misuse of confidential data. It is harder to secure data when it is out of your hands.
It is not always easy to protect rights to intellectual properties and taking legal action upon a confidentiality violation is expensive and not always possible, especially if the contractor is in a different country.
7. Possible Conflicts of Interest
If the contractors a business is using are offering similar services to their competitors, more often than not, there is a possibility for conflict of interest. Can the vendor provide services completely unbiased of customers? Will it effect your business with the vendor? Answering these questions thoroughly can help you consider if you want to outsource jobs or keep it all in house.
Measuring Success
It is important to not only consider outsourcing both pros and cons, but to have a consistent manner in which you measure success. To accurately measure if outsourcing certain jobs is helping your business or hurting it, you must consider the time and money invested into the project. Do you have a positive return on investment (ROI)? With both hours poured into the project on your part and money spent to pay the freelancer accounted for, was the profit from the project worth the initial investment?
Time, as a business owner, is an asset. The time spent on executing tasks that can be outsourced is the time that could be spent on completing or meeting business goals. This understanding will provide insights into how to measure a company’s performance and the effects of outsourcing. The bottom line is: time is valuable.
Reasons to Outsource
As a business grows and workload increases , it is vital to decide where one wants to direct his or her energy. The role of a owner or director is to gain foresight and dedicate time to what projects would make the most significant impacts. A survey by Deloitte in 2016 showed that most companies outsource to save money and focus on essential business goals.
Noting this, you should be able to tell that it is necessary once you start noticing any of the following reasons for outsourcing:
- Tasks are becoming arduous: when minor tasks are beginning to take more time than usual, it is time to consider outsourcing. To build your business successfully, you need to make processes and operations more efficient and more comfortable.
- Responsibilities are taking attention away from high priority tasks: It is easy to notice this. If the work isn’t necessary for day to day operations, you should think about outsourcing it.
- There is a simpler and better way to do it: there is a solution technology provides for nearly everything. If adopting a software or tech resource will reduce the weight of business procedures, then you should consider that.
Outsourcing Services That Make Sense
Outsourced areas depend on the nature of the company and their needs, but the main three are marketing, business operations, and finance.
- Business operations: for administrative tasks, hiring a virtual assistant is one investment every business owner should consider. Unlike other roles, admin work can be managed remotely. Other business operations you can outsource are recruitment, cleaning, and time management
- Marketing: many companies already outsource their branding and design. For social media marketing, Search Engine Optimization (SEO), and other digital marketing needs, it is always advisable to have a professional company manage your internet campaigns and awareness. You will find that even some marketing agencies outsource their work with a small internal team in one location.
- Customer support and service: Many startups prefer to outsource customer service and support, especially to experts in another time zone. This allows them to provide 24/7 service to their customers.
Before You Outsource:
- The best solution is more important than the best price
- Share risk
- Make sure your professional goals are aligned
- Ensure clear communication from the start
- Use detailed and updated legal contracts
- Create proper documentation to clearly state your requirements and expectations
Taking the bold step may seem scary at first, but once a business owner takes the plunge, he or she may come to find the outstanding benefits to outsourcing for the business. Understand the facts and make an informed decision to better your business.
