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Advantages And Disadvantages Of Outsourcing

Advantages and disadvantages of outsourcing

The issue of outsourcing is an important discussion for every business that is growing and looking for additional ways to expand. A time comes when executing all your projects without professional external help becomes more challenging. You start considering whether to outsource and the potential benefits like cost savings and staying more competitive. Conversely, outsourcing is not for every business and balancing the strategy becomes essential. 

Weighing up the advantages and disadvantages of outsourcing is the first step to determining if it is best for the business. Outsourcing offers numerous benefits like having talented minds introduce insightful ideas and even help with completing legislation compliance.

This article evaluates the benefits of outsourcing, and the potential disadvantages and discusses common examples. Keep reading to discover if outsourcing is the right strategy for your business.

What Is Outsourcing?

Outsourcing is the process of hiring contractors, freelance experts or professional agencies to assist with completing certain business projects. The projects can range from marketing to registration and legal compliance issues, HR, accounting and copywriting.

With the proper implementation, outsourcing can be very beneficial in helping a business gain a competitive advantage. Imagine a small startup with very few employees. Having to onboard a full-time employee for their simple HR needs might be more expensive compared to temporarily hiring an agency to handle that.

There are risks of outsourcing and every business must carefully weigh them up against the benefits when making a decision.

Benefits Of Outsourcing

Learn about the advantages of outsourcing certain business needs to external contractors or professionals.

1. Be More Efficient

Outsourcing business projects can be an effective option when the task requires certain skill sets or levels of experience that are absent in your workforce. Hiring a professional to handle such roles is even more beneficial since that is their speciality. It is what they do regularly and are more likely to perform better and give the best results.

2. Reduce Costs

An often overlooked benefit of outsourcing in business is the potential to save costs. With outsourcing, the business hires a professional for a specific task and only pays for that. The personnel cost is cheaper when you imagine how much it would have cost to get a permanent employee for such a short-term role. That would mean the company pays for a lot of hours where nothing was done.

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

When it comes to productivity, certain business processes such as recruiting new staff can be distractions to the management. Rather than using important business time to vet through hundreds of qualified and unqualified portfolios, having a professional HR agency handle it is great. It allows you to focus on more important business functions like building the brand and developing new products.

4. Gain A Competitive Advantage

Outsourcing gives your business a competitive advantage as you hire the best of talented minds, facilities and project frameworks. Compared to your regular capabilities, there is a higher chance of success since specialised experts are in charge.

5. Increased Flexibility

Another benefit of outsourcing business needs is a more flexible working environment that is conducive to innovative ideas and growth. Market conditions are constantly changing including customer preferences. Therefore, having new but talented minds handle some of your projects can bring fresh ideas and suggestions.

6. No Need For Infrastructure Or Technology

There are usually a few business needs that rarely come up but require expensive infrastructure or technology. For small startups, outsourcing such projects can be cost-effective since the hired contractor uses their facilities and you do not need to buy.

Disadvantages Of Outsourcing

While there are many benefits of outsourcing business needs, there are also a few disadvantages including;

1. Quality Could Be Compromised

Consistency in the quality of products and services is very important when building a business brand. Customers will identify with your brand because of some particular product features or details.

When work is outsourced, there may be a chance that external support doesn’t reach the same high expectations. A good approach to avoid this, is to carefully use a framework that the hired contractor should follow and use the same personnel for as long as possible.

2. Issues With Confidentiality And Security

An often overlooked aspect of outsourcing is that you are handing over the direct control of a segment of the business to a third party. That poses the risk of a security breach or confidentiality issues.

There are many ways to mitigate those risks like including a non-disclosure agreement. Again, you should avoid changing the preferred external contractors unless it’s necessary.

3. Contractual Flexibility

Flexibility of outsourced contracts can be an issue if all important factors are not considered at the initial stage. While a rigid contract might seem great for protecting the rights of the external contractor, there must be careful negotiations to cater for some unexpected situations. This calls for proper discussions alongside careful vetting of the contractor’s work process.

4. Lack Of Stability

No matter the effectiveness of an external contractor, they could still leave within short notice. Compared to your permanent staff, an outsourced professional is on a temporary contract and their unprecedented exit can destabilise certain business processes. The third-party agency can also go out of business or fold up.

5. Offshore Outsourcing

While working with an offshore contractor could imply lower costs for quality services, there could be geographical and cultural challenges. Language barriers and odd time zones are some of these challenges that can affect communication.

Therefore, a balance must be reached if your company decides to hire an offshore contractor. Compare the values they add to your team to the demerits of them being “offshore” and less available or accessible like other staff during regular working hours.

The other consideration is how much access they will have to sensitive or confidential business information. Excellent security practices demand that you only allow contractors who might be available for the long term to have access to certain classified company data.

Examples Of Outsourcing

Almost any aspect of business operations can be contracted to a third party. There is no restriction even though some businesses prefer to keep sales and product development projects in-house.

Common examples of project types that can be outsourced include:

  • HR – contracting HR to a third party is usually suggested for small startups where hiring a permanent employee might not be cost-effective. Having a dedicated HR department only becomes necessary as the business expands
  • Accounting – issues involving the financial balance of the company account and tracking taxes should be avoided. Hence, businesses must have an accountant although the smaller startups can initially choose to outsource.
  • Marketing – for companies that don’t have a marketing department, outsourcing to an expert agency is an option. These specialist third parties usually have the best marketing strategies like SEO and digital marketing since it is their profession.
  • IT support – having a permanent IT support staff is difficult to justify for small businesses. That is because they likely have only a few IT support cases. Hence, outsourcing is the best financial option for such businesses.
  • Shipping and logistics – while the bigger companies can afford to purchase a fleet of vans for product delivery. The case is different for small businesses with a limited budget and lower product orders. They should consider outsourcing to reliable delivery services.
  • Research – research and development is another business aspect that can be outsourced. Every business that prioritises growth must be open to investing in the submission of new ideas from both internal and hired external contractors.
  • Website development – with online marketing strategies proving to be more and more effective, having a business website is essential. That also opens up the chance of outsourcing the development and management of the website to an expert.

The decision to outsource is never straightforward and is largely dependent on your business model, employee capabilities and competitive advantage you seek to gain. With correct planning, contracting necessary projects to a third party can boost overall business performance.

Is Outsourcing Unethical?

It all depends on how you investigate and do background checks on third-party contractors before signing deals with them. That is where many companies get it wrong. They do not properly interview the external agency for facts like their work process and who actually does the job.

You’d be surprised to discover that some external contractors also outsource your projects to a fourth party. This brings up the issue of ethicality, especially when the external contractor outsources your company projects at a much cheaper rate.

Before assuming you are paying a good rate to a qualified agency, ensure you determine whether they do it themselves or operate what we might call a “sweatshop” model. Outsourcing can be hugely beneficial but only when done the right way. Otherwise, your business might be compromising its quality without knowing.

Who Benefits From Outsourcing?

Who benefits the most from an outsourcing deal? Is it the company, its employees, customers, or the third party that performs the task? These are some questions that business managers often ask when deciding whether to outsource. The truth is everyone is supposed to benefit when outsourcing is done with due diligence! 

The company primarily enjoys cost-saving benefits since it avoids hiring a full-time employee for a seasonal role or project based work. There is also the advantage associated with having experts and the most qualified minds perform your business tasks.

Similarly, the employees do not have to perform responsibilities that do not match their basic job descriptions. That gives them the freedom to improve on their specialities and become more productive since third-party professionals handle such roles.

The next group that benefits from outsourcing is the customer. A company that outsources crucial responsibilities to external contractors stands a better chance to work with the latest industry updates. In addition, it also enjoys sufficient product innovation ideas and suggestions that improve its products/services to the customers.

Lastly, the third-party contractor benefits when the outsourcing is ethical. They are compensated fairly for their efforts and have the chance to do exactly what they love on a self-employed agreement. That indicates freedom to work on multiple projects depending on their capabilities.

Is Outsourcing Right For Your Business?

The question of whether outsourcing is right for a business is a very personal one. Outsourcing certain business functions is potentially beneficial but does your business have such projects that should be contracted out?

The other considerations are whether you have adequate personnel to perform every task and if the targets are met for completed projects. Having a “no” to any of those questions is an indicator that you probably need to outsource. It is all about being specific and knowing why you need a third party for the job.

As a company, it is also important to examine the risks involved with outsourcing such as compromised quality and missed deadlines that could cause customer dissatisfaction. Confirm if the external contractor would perform the task themselves or if they are going to outsource to another agency. Doing that mitigates the outlined risks and those associated with confidentiality.

Lastly, remember to give detailed and specific instructions to external contractors. You should not outsource without specifying expected results, deadlines for submission and accepted project standards.

In Summary

Outsourcing certain business projects to capable professionals or third-party contractors has its pros and cons. However, the benefits outweigh the risk concerns especially when proper research is done before outsourcing.

The first thing is realising that not every business should outsource. The decision should be personal and solely dependent on the specific business needs, employee capabilities and project expectations.

Every business manager should also ensure they outsource only to competent professionals and not those who would give out the work to cheaper or unqualified personnel. Otherwise, the business stands a risk of compromising quality and losing customers. It also reduces the chances of gaining any significant competitive advantage.

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