Let’s go back to the old adage — ‘Alone we can do so little, together we can do so much.’ We could argue that maybe self-sufficiency is a more important thing to learn and one must try to hone his or her skills until overall proficiency is achieved. But it is no surprise that this is better said than done and it is no surprise that indeed, there is power in joining hands.
You cannot be the best at everything but if you do know others who are masters in their domains, collaborating with them can lead to a successful and invincible association. That is how educational institutes work. Instead of hiring one professor who can teach both science and maths pretty well, they hire a different teacher for each subject; such that their mastery cannot be challenged and to ensure that students learn from the best.
In business, similarly, outsourcing is the way or agreement through which one company entrusts its own internal activities to an external vendor or company. This involves any functions that can be carried out from an offshore location. They can be operational or non-core functions like manufacturing, accounting, call-center support, etc. or business functions like inventory management, transaction and payroll processing.
The concept, though seemingly absurd, has gained popularity due to the wide array of advantages it poses.
1. Cost and time zone advantages
One of the biggest advantages of outsourcing is cost savings. Many times, it is not cost-effective to expand operations internally due to inefficient equipment or inappropriate location. It may be possible that your business has grown to such an extent that you require a bigger office. In such a situation, you could either outsource basic operations to reduce the need for space or expand or relocate your base to a different place. The latter can prove to be much more cost-efficient and less troublesome.
“If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business.” — Lee Kuan Yew
When outsourced, a job can be done in a satisfactory manner and at a much lower cost. A major reason for this is the difference in wages between western and many Asian countries. Outsourcing to India reduces costs by almost 60% due to lower labor operation costs and lower overhead costs. Another important aspect is round-the-clock efficiency due to different time zones across countries.
Suppose an American firm outsources to a Malaysian company. The firm manager might be done for the day but will wake the next morning with tasks completed by the Malaysian employees. This is how outsourcing keeps things running throughout the day.
2. Access to skilled resources and increased efficiency
When the functions of your back office are complex and difficult to achieve given the current size of your company, outsourcing can be a breath of fresh air since overhead costs pertaining to a particular back-office function can be extremely high. When you outsource your business needs, the partner brings to the table immense experience, tactful business practices, and expertise.
They can handle a complicated project with much more prowess and understanding of the subject area. Basically, outsourcing gives businesses the ability to develop new competencies and skill-sets that can be used as a competitive advantage. This boom in productivity and efficiency would make businesses more successful, more equipped to tackle challenges and helps them streamline cash flow.
“The important thing about outsourcing or global sourcing is that it becomes a very powerful tool to leverage talent, improve productivity and reduce work cycles.” — Azim Premji
3. Better services and focus on core areas
Outsourcing certain non-core business processes like administration and back-office operations, that tend to expand during rapid growth periods, helps you focus on other important aspects by saving time and energy. This is because the expansion might start to sabotage those core activities that form the foundation of your company.
“Do what you do best, and outsource the rest.” — Peter Drucker
Moreover, in case of certain cost-incurring operations that are going haywire or are poorly managed, outsourcing helps to overcome such difficulties by bringing better management skills to the table. It allows you to focalize your in-house resources on building the brand, providing higher value-added services, research and development.
In case a firm receives a contract that would multiply its purchasing volume by a number of times in a short span, it should outsource this function so that its personnel can concentrate on the contract itself. Outsourcing helps companies provide better and faster services in this way leading to high-quality deliverables and lesser time for products to reach the marketplace.
4. Save on Infrastructure and technology
Outsourcing eliminates the need for investments in technology, infrastructure, and people. These form a major section of the capital expenditure that is incurred in back end processes. This is because the outsourcing partner is given the responsibility of handling the business process and is hence, solely responsible for developing the required infrastructure as well.
If a business has outsourced its creative design department, it is not their concern if the latest software is being used or not or how many UX/UI designers are working on a particular project. Their only concern is to see if tasks are being completed on time and accurately. Everything else will be taken care of by the outsourcing partner. Similarly, if a tech company has outsourced its catering, it does not need to worry about whether the stove is working or not or if there is enough ice in the refrigerator. This will be handled by the caterers now since it falls under their domain.
5. Staffing Flexibility
Through outsourcing, you can pick the best people to deal with your core activities, manage your manpower and have flexibility in staffing. A large project might require expertise or skills that your internal staff does not possess. In such a case, it is a good option to bring in contractors who know the requisite workers or people with the required skill set. Your internal staff, in the meanwhile, can imbibe knowledge and skills by working with them to increase their proficiency.
“If you think it’s expensive to hire a professional, just wait until you hire an amateur.” — Red Adair
Moreover, certain functions in the company have seasonal or cyclical demands. Thus, external or additional resources can be employed when things are at a good pace and let go when not needed. This also helps save costs. As an example, an event management company might have a wedding department that is shorthanded for certain months of the year. Outsourcing a few of its responsibilities can help you with services during these few months at a fixed cost.
6. Continuity and Risk Management
Many times, due to one reason or another, the employee churn rate in some companies is quite high. This can cause instability and uncertainty. Outsourcing in such situations is a blessing since it helps maintain consistency and strike a balance because a substandard level of operation can jeopardize the overall functioning of the business.
As an example, if your account manager is on leave due to a family obligation for the next month and there is no one to take his place, it is wise to outsource this job since it will help manage the risk situation effectively for the time being. In this way, outsourcing helps your business sail through tough times.
Now, you know there really aren’t too many reasons against diving into this culture. Save time. Save money. Save energy. Increase your efficiency. Gain access to skilled resources. Cut down on your costs. Steer through sticky situations. Outsourcing has its set of disadvantages but as long as the advantages overpower them, it is a win-win. So, the next time you have a problem you think you cannot handle, outsource; finding it tough to keep the ball rolling, outsource; have too much on your plate, outsource…Getting the drift?