Outsourcing was first recognised as a business strategy in 1989 and refers to the practice of hiring external parties to undertake activities traditionally performed in-house. Over the years, the types and methods of outsourcing have evolved tremendously. It is now perceived as an indispensable solution for businesses to compete effectively.
As more businesses adopt this business approach, here are the reasons why you should start outsourcing now.
Traditionally, outsourcing was a way for businesses to reduce costs and increase their value margins. By delegating tasks to external vendors, companies can alleviate labour costs involved in hiring, onboarding, training and development. They can also better manage expenditure as prices are pre-determined and detailed in engagement contracts. Should prices be no longer competitive, companies have the option to switch providers and source for alternatives.
Outsourcing can likewise lower overheads for businesses. Fixed operational costs are converted into variable costs when resource and infrastructure related expenses are transferred to external vendors. Companies can then expand without heavy restructuring and achieve the same results with a lower outlay.
To maintain complete control of the business, business owners may make the mistake of donning multiple hats simultaneously. However, dividing limited time across a variety of tasks is counterproductive.
Resources can be freed and re-invested when less critical operations are entrusted to external agencies. Mundane, repetitive, and time-consuming processes such as accounting, payroll, and customer support are commonly contracted out. In doing so, companies can set aside functions that are difficult to manage while they continue to reap its benefits.
Business owners need to prioritise their time and direct capabilities towards core activities that generate the most value for their business. Focusing on these core areas will allow internal teams to concentrate on strengthening the business model and move the business forward.
Experts have extensive knowledge in their trade and can contribute well-defined workflows, communications methods and proven best practices for business processes, quality, and delivery. Businesses should consider engaging professionals to take over selected activities and employ their expertise to streamline processes to achieve significant efficiency gains.
Working with a reliable and competent outsourced partner provides businesses with peace of mind when they know they can rely on their providers to handle tasks effectively. It will also relieve the workload for in-house staff and eliminate time wasted on assignments unfamiliar to them. Outsourced partners are also likely to be the most updated with industry and regulatory developments.
Outsourcing enables businesses to manage risks by reducing uncertainty. Often, companies experience disruptions and delays amidst periods of employee turnover and struggle to find replacement staff. Similarly, there may be instances where they face talent shortages when there is a sudden surge in demand for specific skillsets. In these cases, outsourcing is a viable alternative to ensure business continuity.
With years of experience, an outsourced partner can also help a business identify potential pitfalls and the suggested course of action to avoid them. Companies can then put in place risk management measures and plan for such situations. Risk is also distributed as the outsourced party shares responsibility for the assigned tasks.
Companies can leverage a broader knowledge base and have access to world-class capabilities when they outsource. Without internal resource limitations and local labour market restrictions, companies can tap into the global talent pool to find the right team at more competitive prices. This opens up endless possibilities for businesses to explore.
Some companies may also outsource to gain access to new market areas. It may involve shifting part of their operations to the relevant markets or tapping on the network of local partners to study local market conditions and establish a stronger presence in the country. Such insights will be valuable for expansion plans.
More than ever, businesses are faced with unavoidable ambiguity and unforeseen disruption and industry shifts. Outsourcing allows companies to remain fluid and adapt to changes as they can expand or downsize swiftly. The same applies to cyclical or ad hoc demands where it is not cost-efficient to hire a full-time staff. Companies can overcome these seasonal fluctuations if experienced workers are readily available.
With such arrangements, companies can experiment with new strategies or take up new opportunities without high-risk costs associated with in-house hires. Third-party firms can be engaged to manage projects while employees learn beside them and acquire new skills. These will build on the companies’ capabilities and be beneficial for sustainable growth.
While there are numerous benefits to outsourcing, businesses must bear in mind its potential downsides. Common challenges include lack of control, communication issues and differing quality standards. However, these can be mitigated through careful vendor selection and alignment of clear business objectives.
Overall, the advantages of outsourcing outweigh the disadvantages as businesses can focus on their core growth activities while enjoying cost savings. Essentially, companies should determine the value an outsourced partner adds and how it can provide ammunition to rise above the competition.
Advenz specialises in managing the non-core business functions of our clients by providing professional services in accounting, corporate secretarial, tax and business support. Jumpstart your business with us today!