Have you started a business or are you thinking of starting one? This article will guide you through the pros and cons of outsourcing for small businesses so you can get more done and achieve great business success.
As you grow your business, one of the means to accomplish better efficiency at a lower investment is through outsourcing business tasks.
Outsourcing has become popular in recent years.
The main idea is to assign selected business processes to companies or subsidiaries that are usually from foreign countries.
These business processes and tasks that can be carried out remotely.
These tasks don’t require a person or a group of people to be physically present in the country where the business is being operated.
Take, for instance, writing online.
Your writers need not be in the same country as yours.
There are many professional writers who can write on your behalf from across the globe.
Same goes with customer support, hiring managers, marketing, and sales among others.
But, just like in any business, there are pros and cons of outsourcing, and this article will shed light on some of that.
Pros and Cons of Outsourcing for Small Business
Benefits Of Outsourcing
1. Lower Cost Of Labor
According to statistics, there are roughly 300,000 jobs that are being outsourced by the USA every year.
Each company has their reason for it, but the most advantageous of all is that you get to outsource work at a lower cost.
Getting outsourcing help allows an outsourcer to benefit and get the best of both worlds.
Apart from discovering new talents, you also get to pay for their service at a lower price.
2. Access To A Wide Range Of Talent
Hiring employees often sometimes involve a small number and are limited to geography.
But with outsourcing, it is a totally different thing.
You get to access a different pool of talents from all parts of the globe.
This is beneficial especially if you are just growing your company and you want to discover gems in the industry.
3. You Don’t Have To Hire More Employees
Outsourcing does not require the hiring of too many people.
You can also hire a contractor employee thereby helping you save money from training and other regular employee benefits.
4. Efficiency Is Improved
The best thing about outsourcing in business is that you have the power to choose which team or company will manage a specific skill or task.
Take for instance when subcontracting IT-related jobs.
You do not just assign to anyone who knows a thing or two about computers.
You choose a pool of IT professionals that are really skilled and reputable.
Outsourcing gives you access to a wide pool of skilled and qualified people.
These professional know their stuff so your business efficiency will be increased.
5. Outsourcing Allows You To Focus On Core Activities
Back office jobs grow during speedy growth periods.
This said expansion may have an effect on your financial resources at the cost of core activities that made your business grow.
When you know how to outsource, you begin to set your focus once again on your in house resources that generate profit.
You can outsource your back-office jobs and focus on your core activities.
Outsourcing can allow you to refocus your in-house resources on the activities that make you profitable without the need to compromise good customer service.
6. Outsourcing Simplifies
There are many reasons for outsourcing, and one of them is that you have a growing company and suddenly everything becomes more complicated.
These challenges are normal, but you have to do something about it.
Outsourcing is one of those sound solutions especially when the overhead costs of a back-office can be high.
Weigh up outsourcing functions that can simply be moved.
Take for instance a doctor’s clinic that is considering accepting a wide range of insurance plans.
Instead of training existing staff or adding additional personnel, it can be outsourced to a firm that is dedicated to medical billing.
This is definitely more practical than hiring new staff and spend time and money on training.
7. You Have Better Operational Control
Operations acquiring a lot of financial expenses that are almost out of control should consider outsourcing.
Departments that fail to deliver what is expected of them and those that have been managed poorly can be considered as candidates for outsourcing.
With an outsourcing firm, better management and control are possible.
The partner you outsource to works actively to retain your services as such works continuously to achieve the objectives you have set it.
The burden of management and control is shared with the management team of your outsourcing partner leading to better management and control.
8. Outsourcing Offers Stability And Risk Management
Do you know what sometimes adds to the inconsistency of a particular business?
It’s high employee turnover.
When this happens, outsourcing is needed in order to lessen the risk of substandard operation level.
Take, for instance, an HR manager is on extended leave and some members of the HR team resign.
Instead of risking human resources functions and operations, the business can opt to outsource.
This will help with the continuation of HR operations.
9. Outsourcing Is A Flexible Option
One of the importance of outsourcing is that it allows processes that have periodic demands to continue to make a profit and have resources when necessary.
When things take a slow turn, you can easily let go of the outsourcing firm.
This is ideal for functions such as tax and auditing seasons.
These functions are only needed for a particular period of time and you can have them outsourced at a lower and reasonable cost.
10. Outsourcing Allows For Creating A Pool of Internal Staff
Bringing in contractors for a project lets you get hold of people with good skills.
Because let’s face it, large projects can necessitate skilled people that might not be present in your current staff.
This is why you need to outsource and have them work at your location for on-site outsourcing until the project is finished.
In the meantime, you can still have your staff work beside them to help acquire a new skill or expand their knowledge for future projects.
These are some of the many benefits and advantages of outsourcing.
Outsourcing helps your business get through momentarily challenging times.
It also helps you save a lot of money.
And most important of all, outsourcing helps you become more productive and flexible.
Disadvantages Of Outsourcing
Of course, if there are pros/advantages of outsourcing business tasks, there will always be cons/disadvantages.
Previously, we talked about the benefits, so to somehow give a balanced perspective, let us examine some of the cons.
Some of the problems of outsourcing are the following.
1. Security Risks
This is a major consideration when outsourcing.
Since you will be dealing with people whom you have never met before, security might be at risk.
Outsourcing would mean exposing the company’s confidential information.
Some examples include customer’s personal data, employees’ payroll, and other personal information that should be kept private.
Before hiring an outsourcing firm, it is vital that you examine and evaluate them to make an assessment and mitigate this specific risk to your business.
2. Take Note Of Financial Ties
Deciding to outsource a specific work to a third party would also mean tying your company to the financial part of the outsourced firm.
Again, this should be well-assessed to avoid complicated problems later on.
When assessing, specifically take note of the outsourced firms’ financial stability, services, and how essential to your everyday operations the function of the outsourced firm is.
If your outsourcing partner fails due to the financial health of the company of their company, it will jeopardize the services they are providing for you.
3. Hidden Costs
Take note of hidden charges that may be charged to your small business.
Remember, any additional services or products that you will need from the outsourced firm that is not included in the agreed initial work will have additional charges.
If you’re going to review the contract, make sure you have a lawyer with you so that you’ll have someone to explain to you about business jargons as well the contract terms.
Note though that hiring a lawyer would also mean additional cost on your end.
These may take a toll on your finances, so you have to weigh your options carefully and determine which one is more economical.
4. Decision Making And Overall Control Issues
Outsourcing a specific task/s to a third party firm would mean signing out and agreeing on management control at some point.
The outsourced company will also have a “say” when it comes to decision making.
While the contract may cover service agreement, it oftentimes does not include management decisions and control.
The problem is, the outsourced firm may not be driven by similar factors that propel your company, thereby bringing about probable disagreements and conflict of interest.
5. Employees’ Morale
Outsourcing can be good for the business at some point, but you also have to look into the people in your company such as your existing employees.
Know if this decision will boost their confidence or damage their morale, especially if you have laid off some of them.
6. There Will Be A Shift In Timelines
This is another major drawback as there is always the issue of schedules and time frame.
Prepare yourself for some schedule conflict that may arise and possible delays since both you and outsourced company follow a different timeline.
Take for instance in business process outsourcing companies.
Most agents are hired from different countries such as India and The Philippines.
Living in the United States and having people from Asian countries would spell a different timeline.
To avoid this problem, make it a point that you discuss with the third party firm and have all subcontractors follow your own timeline.
7. A Possibility of Being Lost In Translation
It doesn’t matter whether you outsource someone just up the street or an overseas freelancer.
The thing is, you’re communicating via phone or email, and vital instructions might be lost in translation during the process.
Unlike when you talk to the person face to face, there is a constant conversation about the project, and when there is a need for some clarification, it’s easier to clear things up.
Miscommunication and misunderstanding could cause a great problem in the business if not taken into consideration.
8. Lack Of Focus On Each Project
Keep in mind that you’re not the only client of these outsourcing firms.
Their services are widespread and they could be dealing with a lot of projects, oftentimes rushed ones.
Outsourcing your work might not possibly get the kind of attention and focus you want in order to yield a better outcome.
Depending on the kind of work that you are outsourcing, but this lack of that attention could be damaging to your business.
9. Public Criticism Is Expected
If you’re outsourcing tasks overseas such as in writing articles, blogs, and eBooks, expect that you will run into consumers or followers that have opinions against outsourcing.
They may be right or wrong, but you have to be prepared for the public backlash.
They are inevitable and to be expected if you’re outsourcing your small business.
10. Denies A Team’s Competency
Just like in boosting morale among existing employees, outsourcing can also be an issue inside your business.
No matter your intentions, there will be people who will see outsourcing as something bad, especially for your employees’ welfare.
Others would think that you’re denying them of work that would develop their skills.
Just as they would always say, development begets development.
Thus, by hiring a third party subcontractor, you may not be playing the part in helping your community of employees grow and prove their part.
It is true that things could get really out of hand when you don’t analyze the pros and cons of outsourcing.
Therefore, it is a must that you take the time to weigh your options.
Can outsourcing be the key to your business’s success?
What are the possible drawbacks?
Will you be able to sustain having all the work outsourced?
All these and more should be considered.
Remember, you may be overwhelmed by different outsourcing options out there, but the pros and cons analysed in this article will help you achieve business success.
The decision is yours to make.
Because at the end of the day, it is for the benefit of your small business.
The pros and cons of outsourcing business tasks should guide you towards maximizing productivity.
However, the decision on what to outsource and what to keep for yourself or existing employees is up to you.
Take note of the risks to better prepare for whatever challenges that may come.