6 factors to determine whether you should outsource
Is it right for your business?
Times are gone when outsourcing was reserved for large companies and multinationals. Today, businesses of all sizes are joining the wagon, and all for the benefits, it offers.
To start with, giving out some functions to a third-party service provider leaves you with enough time to focus on the core business aspect-growth. Additionally, you get to leverage the vendor’s vast resources and expertise, putting you ahead of the competition.
However, outsourcing also poses some downsides such as losing control over business functions among others.
That being the case, the question always remains whether to or not to outsource. Here are 6 factors to help you figure that out.
1. Skills needed
Tasks vary in nature in so many aspects. One such aspect is the skills needed to tackle them. When you are thinking about outsourcing a particular task, first assess whether you have the skills to handle it. You may be lacking the skills in your team, but training your staff or hiring a new employee could also be a viable option.
But if a task is not a recurring one, training your staff for a one time job doesn’t make money sense. Likewise, such a task doesn’t merit hiring a full-time employee, and it is best outsourced. For instance, a graphic design job for a certain project requires specific skills that can be rare in a typical workforce. At the same time, it doesn’t merit a full-time employee. Deciding to outsource is ultimately the best decision.
Once you have identified a skill gap and have decided that outsourcing is the best option, you should adhere to your usual hiring standards. You don’t have to change your hiring standards just because you’re searching for a freelancer rather than a traditional employee. Freelancers can make or break your business. So the rigorous background checking and interviewing process you use when recruiting employees should also apply when looking for the right freelancers for your company.
The good thing about hiring freelancers is that you typically don’t have to limit your search to a specific location(s). You can find a person or company with the skills you need without narrowing your search.
2. Complexity of the task
Some tasks are so complex that handling them in-house can divert a big percentage of resources such as time and money. This could mean limiting these much-needed resources for other core business functions. The complexity could also come in terms of technicality in legal and tax requirements. Trying to handle such tasks indoors can easily lead you to legal and tax battles that can take years to resolve. Handing them over to an experienced third party not only frees up the resources but also saves you a lot of trouble along the way.
For instance, if you want to scale your business to other parts of the globe, you will need to comply with the legal and tax requirements in those countries when setting up an entity and hiring employees. If you’re expanding in China, for instance, outsourcing these functions to a China PEO organization. This organization is experienced in helping companies expand internationally in Asia. You can be sure to get human resources, immigration, tax, and legal solutions when expanding to this part of the globe.
3. Event Management
Event management is another task you should consider outsourcing. Events in your company can range from a team day out to a get-together party for your remote team to a workshop for employees. Outsourcing the entire event management task to a competent event organization company will save you both time and money. On top of the event organization, you can also outsource your event registration tasks to an outbound call center services company, which will effortlessly do all of the bookings and registering starting from your guests to other logistics.
Starting from preparations to implementation, event management can be not only difficult but also time-consuming. If you decide to perform this task by yourself, you’ll have to involve some of your employees, and this will definitely hurt the overall productivity of your business. A reputable event management company can save from the headaches that come with organizing events because they know the best food caterers, technicians, sound engineers, and other vendors in town and have established a good relationship with them.
4. Business reputation
As said earlier, there is a level of control that is diluted when you outsource part of your business functions. Some functions are so delicate to a business that if not done properly, you risk losing your unique proposition. Outsourcing such tasks should be done carefully to avoid any loopholes.
For instance, before outsourcing the customer service department, you need to make sure that your customers can’t tell that they are talking to a third party. Failure to do that can greatly hurt your relationship with your customers, which can be costly to fix.
Ensure your outsourcing partner has clear and effective communication. Find out whether they’ll provide you with a project representative or you’ll have to deal with several members of their team. Staff members of an outsourced partner must communicate and collaborate impeccably with you and your employees. So be sure to assess the professionalism and communication abilities of a prospective outsourcing vendor before hiring them. Be sure also to check their promptness to solve ongoing issues and take on new tasks and adjustments.
Always maintain a record. Remember disagreements may arise in the course of your collaboration. Ensure you and your outsourcing partner have agreed on the project scope, working program, and payment. All of these should be in writing. You should also have a record of all changes that happen and keep copies of email exchanges in a safe place.
5. Cost saving
Ideally, cutting labor and operational costs is one of the fundamental reasons why companies outsource. For instance, by outsourcing tasks such as accounting and tax, you eliminate the need to bring in a full-time CFO in-house. The freed-up capital can then be channeled somewhere else in the business.
Another way outsourcing can help you cut costs is by offering you a chance to make the most out of comparative cost advantages that are common in other regions. Contractors in the United States charge an average wage rate of $18 per hour. Their counterparts in India charge only $0.48/hour while those in the Philippines charge $1.01/hour. With such kinds of hourly rates, it’s obvious that cost savings are pretty huge.
An outsourcing vendor in the Philippines or India usually charges about $8/hour for basic tasks and up to $25/hour for technical services. Interestingly, this charge is inclusive of all typical business expenses like rent, bonuses, utilities, power, and Internet services. Basic tasks range from telemarketing to virtual help to data entry. Technical services include web development, event management, email marketing, and graphic design.
You can also cut costs by taking advantage of economies of scale. If you’re scaling up the amount of manpower you require, most outsourcing vendors may agree to reduce the hourly rate in return for volume. For instance, if you hired 10 individuals at a rate of $15/hour at first, the vendor may cut the rate to $12/hour if you are willing to scale up to 15 individuals. This shows that outsourcing can be an effective tool for expanding your business at a minimal cost.
6. Importance of the task to the company goals
While all business operations contribute to the overall goal of the business, some are core to realizing the vision of a business. Such tasks set apart a business from the competition, and should always remain at the heart of the business. A good example is the product design department. Outsourcing such a task puts your business at the risk of losing your value proposition to the competition.
You should also avoid outsourcing company culture and employee development. You must align these two things with your in-house team and company. Although industry best practices can prove helpful when it comes to employee development, you are the one who understands your staff members better than anyone else. You must provide opportunities for your employees to develop both at a personal and professional level. You can make training workshops and online courses as part of your employee development program. Succession planning is another area that should be kept in-house. Your company’s vision should stay between you and your leadership team. While an outside perspective is valuable, the decision on when and who should climb the leadership ladder lies with you and your leadership team. It’s also your job to keep your employees happy and loyal to your company. If you outsource this task, you’ll see a high employee turnover in no time. Employee retention must, therefore, be kept in-house and given the attention it deserves.
Business functions vary in nature in terms of contribution to company goals, the time required to perform them, resources to allocate, and frequency in which they recur among others. Assessing the nature of a function makes it easy to determine whether to handle it in-house or outsource. But you need to carefully vet whom you are outsourcing to. After all, it is efficiency and cost-saving that you are after and not loss of control.