It’s a practice that’s becoming more and more popular in the business world these days—contracting with an outside party or another business to take care of certain tasks and processes instead of hiring or assigning employees and staff. It’s called outsourcing, and it can help your company grow and save money when it’s done correctly and for the right reasons. It offers a few other advantages as well.
Outsourcing Lets You Focus on Core Activities
The back office operations of a company tend to expand during rapid growth periods. This expansion might start to consume your human and financial resources at the expense of the core activities that made your company successful in the first place. Outsourcing these activities can allow you to refocus your in-house resources on the activities that make you profitable without sacrificing quality or service.
Example: A company lands a large contract that will significantly increase the volume of purchasing in a very short period of time. Consider outsourcing purchasing responsibilities. Your personnel are now free to focus on the contract itself.
It Can Save Costs
Sometimes it’s just not cost-effective to expand operations internally. This can apply to equipment or your location.
Example: If the growth of your business has resulted in an increased need for office space, outsource some simple operations such as telemarketing or data entry to reduce the need for space.
It might cost far less than expanding your base in a pricey location, if that’s even possible, and it would be more efficient and less expensive than relocating.
It Can Promote Efficiency
Outsourcing can be a good option when the functions of your back office are complicated in nature and the size of your company prevents you from accomplishing them at a consistent and reasonable cost.
The overhead costs of performing a particular back office function can be extremely high. Consider outsourcing those functions that can be easily moved.
Example: A small doctor’s office wants to accept a variety of insurance plans. One part-time person can’t keep up with all the different providers and rules so the task is outsourced to a firm that specializes in medical billing, often at a cost that’s less than what it would have required to hire additional, skilled personnel or train existing personnel.
You Can Keep Operational Control
Operations that are incurring costs that are running out of control 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 to you.
Example: An information technology department might have too many projects, not enough people, and a budget that far exceeds its contribution to your organization. A contracted outsourcing agreement will force management to prioritize their requests and bring control back to that area.
It Offers Staffing Flexibility
Outsourcing allows operations that have seasonal or cyclical demands to bring in additional resources when they’re necessary.
The outsourcing company can then be released when things slow down again.
Example: You might have an accounting department that is shorthanded during tax season and auditing periods. Outsourcing these functions can provide the additional resources you need for a fixed period of time at a consistent cost.
It Provides 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 to the company.
Example: Your human resource manager is on extended medical leave and her two administrative assistants are about to leave for new jobs in a short period of time. Outsourcing the human resource function would reduce risk and allow the company to keep operating while the manager is unavailable.
It will give you ample time to make sure you hire the right new assistants.
It Lets You Develop Internal Staff
A large project can require skills that your staff simply does not possess. On-site outsourcing of the project, where you effectively bring in contractors to operate at your own location, can provide you with the people who possess the skills you need. Meanwhile, your people can work beside them to acquire the new skill set.
Example: A company must embark on a replacement/upgrade project of a variety of custom-built equipment. Your engineers don’t have the skills required to design this new and upgraded equipment. Outsourcing this project and requiring the outsourced engineers to work on-site allows your engineers to learn and perfect their own skills.
The Bottom Line
There’s a reason outsourcing has become such a popular option. It can get your business through a temporarily tough time. It can save you money. And it’s not one-size-fits-all. You can work with a single independent contractor or commit to a contract with a large, outsourcing company, depending on your needs.