Outsourcing is on the rise and will continue to be one of the most important solutions a company can use for decades to come.
Why is outsourcing crucial?
The simple answer is because it’s where the experts are — outside your organization. For many businesses, it’s just not possible to hire a teams of people from varied backgrounds with a multitude of skills and expertise you need. As a solution, businesses are choosing to outsource to experts outside their organizations. These professionals often provide businesses with much higher-quality work because they have the flexibility and opportunity to choose their lifestyle, office style, and work style.
Let’s take an in-depth look at what outsourcing means, why companies outsource, what kinds of jobs are outsourced, and what all of this means for the future of business success.
What is outsourcing and how does it work?
In simplest terms, outsourcing is a business strategy. Companies choose internal staff to complete core business functions, such as directing the company vision. However, businesses can place any other activities in the hands of external contractors, partners, and outsourcing companies. It’s up to individual organizations to decide what outsourcing means to them and how they’ll implement the strategy.
In the not-so-distant past, companies outsourced low-level tasks to unskilled workers. Meanwhile, employees had to be willing to relocate, work full-time, and dedicate their career to a single company. Nowadays, outsourcing is a powerful tool used to expand the hiring pool and attract talent from all over the world. This means new workers don’t have to relocate. Plus, signing bonuses and other incentives have become less important for attracting and locking in the right candidate.
Furthermore, most outsourced positions are limited to the actual hours a company needs. This ensures the company only pays for what it needs. At the same time, this allows workers to create a more flexible lifestyle and to partner with multiple employers at once.
Why do companies choose to outsource work?
With so many options of what to outsource and who to outsource to, organizations have a myriad of reasons to reach outside the standard employee–employer relationship. Why companies choose to outsource is worth examining further.
Reducing costs is one of the most significant factors when a company decides to outsource. Any company can find ways to control operating costs and reduce expenses by 10 percent if they take the time to examine inefficiencies.
In fact, you can save a whopping 20 to 30 percent of costs with outsourcing. For instance, you can save on payroll (since you only pay for hours worked and skip employee taxes), reduced overhead (due to home offices), and reduce in-house training needs.
Another factor is time saved due to outsourcing smaller tasks and time-consuming, unskilled tasks. Many C-suite level leaders and managers get bogged down by overflowing inboxes and basic administrative work. Professionals are finding they can save their brainpower to invest where it matters. These time and energy savings are a powerful way to scale and keep top-level employees engaged by allowing them to do what they love.
Access to Top Talent
With outsourcing you can capture and utilize world-class talent, which means you are more likely to succeed. By taking advantage of the best you can afford, you can benefit from the advice of experts, academics, scientists, thought-leaders, and more. Better yet, you don’t need to put in the effort of retaining these experts to continue working for you. Instead, you just pay for access — whether for a few hours or a full 40-hour week.
You’ll also be able to refocus and gain forward momentum. When you have in-house staff, company culture can be difficult to manage. In fact, managing employees can even be a drain, as it can distract you from your core business strategy.
Less Risk of Micromanaging
You can trust outsourced works to stayed focused on their tasks, leaving you free to guide the company. You’ll be able to ensure your company stays on track to meeting its goals, watch for key opportunities, and detect potential threats long in advance of them becoming a serious problem.
It should now be obvious why companies choose to outsource work. These benefits make it clear that early adopters were onto something decades ago. In fact, it’s a wonder that the trend didn’t take hold sooner.
How companies find outsourced talent
Some companies simply convert existing employee positions to independent contractors. Others use the practice to fill skills gaps or reduce workloads for employees. In any case, you have a variety of options where to find talent.
Small businesses often contract freelancers for specialized tasks, whether for one-off tasks or periodic work. You can find freelancers on job boards, through word-of-mouth recommendations, and on freelancer platforms, such as Upwork or Fiverr.
An alternative is to work with an agency that specializes in pairing you with outsourced talent according to your needs. These agencies often take your company culture into account to ensure the workers you receive are a good fit. Some agencies specialize in particular type of work; for example, you could eliminate the need for in-house supply chain management by outsourcing manufacturing, compliance, and shipping to an agency with expertise in your industry.
Most-commonly outsourced activities
More than one-third of all small businesses already outsource at least one business process. Plus, as of 2019, more than half intend to outsource one or more business processes in the future.
Small businesses often outsource specialty work, such as copywriting, digital marketing, and graphic design. Plus, many former attorneys have abandoned their law firms to serve small businesses in the form of an outsourced legal department. One of the most common ways small businesses scale, though, is with the help of virtual assistants.
Small businesses are not the only ones using outsourcing for growth and cost savings. Long before small businesses were capitalizing on outsourcing, large companies were using outsourcing for a variety of tasks and activities.
Like many retailers, Nike outsources its manufacturing. This has helped the company win a 47-percent market share.
Alibaba, GitHub, Google, IBM, Lexmark, Microsoft, Slack, WhatsApp, and other tech giants outsource their software development.
For decades, big corporations have been outsourcing security, customer support, and finance, such as bookkeeping and accounting. These departments continue to increasingly be based outside the organization for companies of all sizes.
Pros and cons of outsourcing
The many reasons companies choose to outsource are clear. Nonetheless, every company considering outsourcing should consider the pros and cons of this practice.
We’ve already looked at cost savings, time savings, access to world-class talent, and the chance for your organization to focus on its core competencies. Additional benefits of outsourcing include increased efficiency, flexibility in staffing, and better operational control. Finally, companies that outsource can invest their resources in developing the core internal staff, rather than the entire workforce.
Outsourcing does have a few downsides. Managing dispersed teams presents a real challenge. Things like quality control, communication, idea generation and collaboration, company culture, and loyalty may all suffer unless you actively work on these areas.
For instance, physical distance from your workforce and less oversight can mean that quality diminishes. You’ll need to keep a close check on the work your outsourced talent produces to ensure it meets your standards.
The lack of face-to-face communication and different time zones can pose a challenge, particularly if you are converting from a traditional work environment to a dispersed workforce. Utilizing the right tools and resources and developing good communication habits is crucial.
Idea generation and collaboration are no doubt some of the most significant losses when a team no longer has an in-person hub, such as a break room, cafeteria, or company gym. Some of the most brilliant ideas and solutions are generated in relaxed environments where staff can blow off steam, chat about challenges and wins, and think critically together. This is a top reason why some organizations, such as Aetna, Bank of America, Reddit, and Yahoo!, have recalled reduced outsourcing over the past decade.
Finally, there can be a negative impact on culture and loyalty when companies fail to engage outsourced talent. Unfortunately, engaging workers and keeping them motivated can be challenging.
In a traditional setting, all of these considerations can be tough to manage, but the effects are amplified when managing a dispersed team. Outsourcing, particularly when talent works less than full-time, can also lead to problems with loyalty. Outsourced talent may end up working for multiple clients — including competitors.
The bottom line: why companies choose to outsource
Companies never make the decision to outsource lightly — the risks and benefits of outsourcing are significant. Nonetheless, outsourcing does bring opportunities that can catapult a business into success: giving it a greater market share, allowing it to scale, and revealing new revenue opportunities. If you decide outsourcing is the best strategy for you, spend some time exploring the various tools and resources available. One great resource is our guide to what you should outsource. Check it out now!