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Outsourcing can reduce costs, increase efficiencies, and help businesses to focus on their core strengths. It has become increasingly common - especially for small to medium-size businesses - as a way to reduce overheads and increase free cash flow.
Read further for a brief overview of outsourcing and some of its benefits to see if outsourcing is the right choice for your business.
What is Outsourcing?
Outsourcing is a business practice in which an organization hires another party to provide services, handle operations or complete tasks, on a full or part-time basis, instead of directly performing them itself using its own employees.
There are 3 types of outsourcing:
1) Onshoring - outsourcing to a company within your own country
2) Offshoring - outsourcing to a company overseas
3) Nearshoring - outsourcing to a company in a nearby or bordering region
In developed countries, offshoring is the most popular choice, as companies look to leverage the skills of less developed/developing countries at a lower price. However, if you choose the right partner for offshoring, you can often save costs, while improving quality of work and efficiencies.
Why Outsource?
Companies which outsource are trying to leverage the expertise of the third-party providing the outsourced services. As the third-party is often a specialist in its field, it is able to execute faster and more cost-effectively than the hiring company could. This allows the hiring company to focus on their key competencies and improve their core business.
Sometimes, outsourcing is not done by choice but out of necessity, as the company is unable to hire its own employees with the unique skills required to perform the job in question.
The Cost Benefits of Outsourcing
On average, outsourcing can save you between 30% and 50% of the current cost of performing the same tasks in-house. The most commonly outsourced services are those which require a large degree of human involvement, and which are complex and time-consuming.
Some examples are accounting and bookkeeping, IT, customer support, legal services and sales. When compared to employing staff directly, outsourcing also does not come with the additional complications and costs associated with office space, IT setup, employment agreements, and company contributions and benefits, which often add a significant amount to the total cost-to-company per person, especially in markets with high labour costs.
Increase Efficiencies
Efficiency is important for every business, but it is particularly crucial for fast-growing companies that don’t want to lose their edge. If outsourcing is executed correctly with experts that understand your business and its goals, it can free up valuable time for core activities and allow the cost savings to be reinvested into your business.
Outsourcing as a Strategic Tool
Outsourcing can also be used as a strategic tool for companies, which provides a competitive advantage by delivering products or services faster than competitors, or shifting resources instantly to areas of the business which are of higher importance at that point in time. This often provides invaluable workload flexibility.
Companies that offer outsourced services can also act as a key partner, advisor and consultant, as their expertise in the chosen field will offer new insights into your business, allowing you to improve and grow.
Key Takeaways
- There are a lot of potential benefits to outsourcing.
- Companies can save costs, increase efficiency, focus on core strengths and grow faster by outsourcing correctly.
- It is important to choose the right outsourcing partner so that you achieve the greatest benefit.