Benefits of Outsourcing
In the late 80s and early 90s, outsourcing was used in light of increased labour costs and an increasing global marketplace1. In short, outsourcing is the practice of hiring a third party to engage in business activities on behalf of the company that would otherwise have been done by the company itself2. Outsourcing has been a prevalent strategy throughout the years but we’ve noticed even more so this past year following the disruptions of Covid. While many large corporations have already delved into this practice, there’s been a rise in usage among startups. This is in part due to the stalled business growth, lack of resources and capacities, and overall slowed economy because of the pandemic. While overcoming these setbacks, many small businesses have found the advantages of outsourcing and today we’ll be discussing the top reasons.
1. Increased Efficiency
One of the most important factors to success in any business is finding ways to minimize costs while maximizing efficiency. This includes outsourcing tasks that are not core to your business processes. “It’s more efficient to spend time doing whatever you’re good at3.” The more time spent on monotonous, time consuming tasks or tasks outside your skill set, the more time that is diverted away from your business’ core objectives. This mindset can hinder the growth of any business and inadvertently is time spent inefficiently. As said by Laura Lee Sparks, owner of Legal Marketing Maven, an outsourcing firm for attorneys, “by outsourcing the day-to-day back-office tasks, the business owner has more time to focus on generating income4.”
2. Cost Reduction
Aside from benefits relating to efficiency, a major reason to outsource are cost reductions. To put this in perspective, it is helpful to think of what outsourcing would look like on a personal level. For example, here is a useful rule of thumb: try to calculate what an hour of your time is worth as an individual, and then pay others to do anything that is less than that amount. Time is a non-renewable resource, and to spend time doing things that you are not good at or are not equipped for is an inefficient usage of time. Businesses outsource everything from general business processes to infrastructure and technology management, software developing, recruiting, content writing, data entry – essentially anything that can be done by someone else for a lesser amount of compensation than what the service is worth to the company itself. In a survey conducted by Deloitte, the top reason for outsourcing was found to be cost reduction, cited as the #1 reason for 70% of companies within the study6.
3. Specialization Benefits
When companies choose to outsource an aspect of their business, they are increasing efficiency by allowing themselves to focus on work that fits their own skill set. This can increase the rate at which the business grows. In a survey containing 529 small businesses conducted by Clutch, 18% said they do so to increase available expertise7. For example, if you were an executive at a growing company that specialized in software development and needed to hire 20 personnel that fit very specific requirements, it is important to consider all your options. Conducting these recruiting searches in-house would cost valuable time and resources, and the work offered to your clients would likely suffer in quality and quantity since some members of your organization are sidetracked with work that they are not specialized in. However, if you paid a recruiting company that specializes in hiring ideal talent for your organization, you will be able to reap the cost and efficiency benefits associated with outsourcing work to specialists. Additionally, you will end up with well-suited candidates to grow the organization further. This same concept applies to a variety of work, most prominently the IT industry as the technical knowledge and expertise it takes to perform work in this sector is esoteric in nature. Spending on IT outsourcing increased to 13.6% of the total IT budget of the average company, globally8.
Outsourcing has its place for both small and large businesses alike – the benefits that motivate companies to engage in outsourcing are difficult to overlook. Whether it’s the increase in overall efficiency, the decrease in costs, or the benefits to be found from specialization, consider outsourcing if your goal is to improve the operations and increase the growth rate of your business.