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Advantages And Disadvantages Of Outsourcing

Advantages and disadvantages of outsourcing

When you’re running a successful business, it’s impossible to do everything yourself. This might leave you wondering whether you should consider outsourcing certain parts of your business to freelancers or other businesses.

There are many advantages and disadvantages of outsourcing, from the new skills and opportunities that it can bring to your business, to the relevant legislation that you need to comply with. Weighing up these factors will help you to decide whether outsourcing is right for your business.

In this article, we’ll talk you through everything you need to know about outsourcing, so that you can make the right choice for your business.

What Is Outsourcing?

Before we discuss the pros and cons of outsourcing, it’s important to understand exactly what outsourcing is and why many businesses rely on this practice.

Outsourcing involves hiring freelancers, contractors or external businesses to perform certain business functions or processes. This could be your HR, your marketing, your accounting or your copywriting.

Whilst outsourcing isn’t right for every business, many organisations find that it helps them to save on costs and to gain a competitive advantage. For example, many small businesses with just a handful of employees may not be able to justify bringing on a full time employee to manage their HR needs, so outsourcing may be a more cost effective solution.

However, it’s important to be aware that there are risks involved with outsourcing, and these need to be carefully weighed up against the benefits in order to make a decision that is right for your business.

Benefits Of Outsourcing

There are many advantages of outsourcing, which is why many businesses choose to outsource certain business functions or processes to external contractors. Let’s take a look at some of the main benefits of outsourcing.

1.     Be More Efficient

If you don’t have the skillset within your business to perform a specific function, outsourcing can be an efficient alternative to hiring a full time member of staff. This is because specialist contractors or external companies perform the role on a daily basis, so have an expert knowledge of their field. This enables them to perform the function efficiently, whilst ensuring quality.

2.     Reduce Costs

One of the biggest benefits of outsourcing are the potential cost savings. You will often find that outsourcing a business function such as accounting or HR costs less than hiring a full time member of staff to perform the role. Not only that, but you’ll only pay for as much or as little work as you need, so you aren’t paying an employee for hours that you don’t need. This means that you can spend more money on other areas of your business.

3.     Focus On What’s Really Important To Your Business

Let’s face it, business functions such as accounting and HR can be distractions from your core business focus. By outsourcing these functions, you can free up time to focus on what’s really important to your business, such as building your brand, developing new products or services and making those all-important sales.

4.     Gain A Competitive Advantage

Outsourcing can provide you with access to infrastructure, facilities and capabilities that you may not have access to otherwise. This can give you an advantage over your competitors, giving your business the best chance of success.

5.     Increased Flexibility

When you outsource business functions, you enable your business to become more agile and flexible. This can help the business to adapt to constantly changing market conditions to meet challenges as they appear.

6.     No Need For Infrastructure Or Technology

Certain business functions require you to have specific software, hardware or equipment to perform the role effectively. When you outsource, the contractor is responsible for providing their own technology and infrastructure, meaning that the costs to your business are greatly reduced.

Disadvantages Of Outsourcing

Whilst there are many advantages of outsourcing certain business functions, there are also disadvantages that you need to be aware of. These largely involve the issues around handing control of a particular business function to a third party and the risks that come with this.

You’ll need to carefully weigh these up against the benefits of outsourcing to decide whether it is the right step for your business.

Let’s take a look at some of the key disadvantages of outsourcing.

1.     Quality Could Be Compromised

When it comes to running a successful business, quality is everything. If you’re relying on an external contractor or company, you can’t always guarantee service delivery. It might be that the quality falls below your expectation, or that it is delivered behind schedule. It’s important to set out your expectation in the contract and to have service level agreements that are adhered to by the contractor.

2.     Issues With Confidentiality And Security

Outsourcing means handing over direct control of a business function to a third party. For some businesses, this may raise issues with confidentiality or security. Before giving a third party access to internal business information, it’s important to consider whether a non-disclosure agreement is required. You should also ask the contractor to read and agree to any privacy, confidentiality and GDPR policies that your business has in place.

3.     Contractual Flexibility

Whilst outsourcing is often promoted for its flexibility, this often depends on the contractual terms. In some cases, you may find that the contract is too rigid for any changes to be accommodated, leaving you stuck with an agreement that no longer works for you. It’s essential to ensure that your contract allows for flexibility if there is a chance that it may be required at a later date.

4.     Lack Of Stability

Depending on your contract, you might find that there is a lack of stability when you outsource a business function. For example, if the contractor decides that they no longer want to work with your business, or if the third party company goes out of business, you may be left struggling.

5.     Offshore Outsourcing

Many businesses choose to outsource specific business functions to offshore contractors due to cost savings. However, this can bring new challenges, such as language barriers, different time zones and cultural differences. Not only that, but you’ll need to consider whether they will have access to sensitive or confidential information and the legal issues that this could pose.

Examples Of Outsourcing

Examples Of Outsourcing

Almost any aspect of your business can be outsourced to a third party, although core functions such as sales and product development are usually kept in house. The most common business functions to be outsourced include:

  • HR – Whilst many companies have a dedicated HR department, for smaller businesses with only a handful of staff, a full time employee may not be required.
  • Accounting and payroll – Accounting isn’t always easy, and this is one area where you can’t afford to make mistakes. For smaller businesses that can’t justify hiring in-house, outsourcing accounting can be a good option.
  • Marketing – Outsourcing marketing to an agency is a popular option for both small businesses and large corporations. This is because marketing agencies can offer specialist skillsets including SEO, digital marketing and design.
  • IT support – For small businesses, it’s hard to justify having a dedicated IT support team in-house. Outsourcing is a cost effective option that is chosen by many businesses.
  • Shipping and logistics – Unless you only serve local customers or you have a fleet of vans at your disposal, it makes sense to outsource your shipping and logistics. Whether you opt for a well-known national delivery company or a small local courier service, this is a popular option for many businesses, big and small.
  • Research – It’s essential that you keep up to date with market trends or you risk falling behind. If you don’t have the resources in-house, you might choose to outsource this research to an external company.
  • Website development – In the modern world, not having a website is not an option. However, many companies do not have web design skills in-house, and cannot justify hiring a permanent employee for the task.

The decision to outsource is never a straightforward one. You’ll need to carefully consider the capabilities of your business and where your weaknesses lie when deciding which aspects of your business should be outsourced to a third party.

Is Outsourcing Unethical?

Outsourcing can be a tempting option for many businesses as a result of the potential for cost saving and the flexibility that it can bring to your business. However, there are some ethical considerations that you should make before making the decision to outsource.

The biggest ethical concern with outsourcing is when a business is paying an external company to manage one of their business functions, but that external company is outsourcing the work extremely cheaply and pocketing the difference. So, whilst you may think that you are paying a good wage to an external contractor, it’s important to ensure that they are actually doing the work themselves rather than operating a ‘sweat shop’ model.

It’s understandable that outsourcing is a controversial topic, but when done correctly, outsourcing can be an ethical way to run your business.

Who Benefits From Outsourcing

Who Benefits From Outsourcing?

You might be wondering who exactly benefits from outsourcing. Is it the company, its employees, its customers or the external third party who actually completes the work?

The truth is, when outsourcing is done right, everyone can benefit from it.

The company itself can benefit from cost saving, as well as gaining access to the unique skillset of the chosen contractor. They also avoid having to invest in infrastructure such as hardware, software and technology.

The employees of the company often find that they are freed up to focus on their role, as they are no longer being asked to perform tasks that aren’t in their job description. This can lead to increased employee satisfaction, as well as productivity.

When outsourcing is ethical, the third party contractor will also benefit from the arrangement. They are able to do what they love on a self employed basis, without being tied into full time employment with a single company.

As your business is able to focus on what it does best, such as product development and sales, you’ll find that your customers also benefit from outsourcing. And, of course, the customer is always the most important part of any business!

Is Outsourcing Right For Your Business?

It can be hard to know whether outsourcing is the right step for your business. It’s important to understand that whilst outsourcing is beneficial for many businesses, that doesn’t mean that it’s the right thing for every business.

Outsourcing can enable your company to grow, by giving you the capacity to focus on what’s really important to your business. Whether it’s taking the time to really understand your target market, developing new products or services or working to secure those all-important sales, outsourcing can enable you to do these things.

However, it’s important to understand that there are some risks that come with outsourcing. This includes the potential for quality to be compromised, with deadlines missed or work falling below the expected standards. Not only that, but outsourcing could lead to problems when it comes to confidentiality in your business.

The most important thing is to understand the pros and cons of outsourcing and weigh these up carefully against the individual needs of your business. You can then make a decision that is right for your business, whether that means outsourcing or hiring an in-house employee.

In Summary

Outsourcing involves contracting a particular business function or process to a third party. This could be a contractor, a freelancer or an external company.

There are many pros and cons of outsourcing that you will need to carefully weigh up before deciding whether it is the right option for your business. After all, outsourcing is not the right decision for every business.

Hopefully this article has given you an insight into both the advantages and disadvantages of outsourcing, so that you can make a choice that benefits your business. If you are aware of the risks of outsourcing, you can work to mitigate these, helping to ensure the long term success of your business.



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