In today’s fast-paced and ever-evolving business landscape, companies are constantly seeking ways to enhance their competitiveness, boost productivity, and remain agile.
One strategy that has garnered significant attention in recent years is outsourcing – the practice of entrusting certain business functions to external service providers. While outsourcing can bring a myriad of benefits, it also raises important questions about communication and the future of a business.
There are so many areas of a business that can now be managed externally, from manufacturing, payroll, accounting, marketing, and even HR outsourcing. Let’s take a top-level look at the pros and cons of outsourcing any area of your business.
Table of Contents
Advantages of Outsourcing
No Financial Overheads
One of the most common reasons for outsourcing is the financial flexibility that it affords.
Firstly, there are no long-term fixed commitments of a salary. However, depending on the business, you could also mitigate the need for premises and other long-term overheads.
Secondly, when working with outsourced partners, your business may also want to consider scalability. If you are in a phase of growth, working with an outsource team may mean you do not have to worry about the time taken (and cost) to recruit, you may be able to flexibly increase your retainer or agreement with the outsourcing partner, quickly.
Fill Skills Gaps / Access Expertise
In many industries, the best talent chooses not to work for a dedicated company.
For example, marketing, PR, or human resources outsourcing. In these industries, it’s very common to work for an agency that then works with other clients. Alternatively, these are just a few examples of industries where consultancy is popular when you reach a certain level of experience and expertise.
As such, depending on the area or tasks within a business being considered for outsourcing, the organization may be able to access a greater level of expertise or a breadth of knowledge. For example, working with an agency may offer your company a range of skill sets and access to all the knowledge in that company – but for the cost of just one employee.
Additionally, you must consider the flexibility outsourcing affords for plugging specific skills gaps. A popular use for outsourcing is project-based work – for example software development or HR initiatives. Any company can temporarily (and on their terms) bridge this gap, without taking on any full-time team members.
No Need To Hire
Hiring – just like outsourcing – naturally has its own pros and cons lists. On the disadvantage side, there are overheads (already discussed), but also recruitment costs, benefits packages, lack of flexibility (i.e. you can’t fire people without cause), equipment and office requirements, and so on.
All of these can be remedied by outsourcing areas of your business but are particularly lucrative in industries/roles that have higher salary and equipment costs.
Internal Learning Opportunities & Efficiencies
Outsourcing does not require a business to completely transition a whole department to an external supplier. It could be a partnership, consultancy relationship, or just part of the function is outsourced.
As such, by outsourcing you are introducing new talent, potentially greater expertise, and other perspectives into your organization. This is a learning opportunity for more junior team members but also could be a space that fosters innovation and creativity.
By introducing another organization’s ways of working, new efficiencies in processes may also be uncovered, freeing up internal resources and propelling the business forward.
Disadvantages of Outsourcing
When you choose to outsource work within a business, there are a couple of potential communication risks. Firstly, if you choose to outsource internationally, you could invite some greater risks introduced by language barriers and timezone differences.
Alternatively, working with another external company may lead to a lack of communication and updates on work in progress. This could mean a duplication of efforts/man hours or a change in your business’s ability to deliver output or work.
Perception of Outsourcing
This is less of an actual disadvantage of outsourcing and more of a consideration of how to manage your business decisions.
Generally speaking, announcing that you are going to start outsourcing an arm of your business, or even some responsibilities can spread fear. It can lead existing employees to worry for their jobs and the future of the organization, i.e. is all the work being moved overseas?
To ensure this does not negatively impact your company’s future, you will need to communicate this decision carefully. It’s imperative you inform teams of the scope of the outsourcing responsibilities and reassure them of your business’s future plans. Your HR team should be able to support this.