More and more companies outsource various processes of their business. Large government organizations, for instance, outsource their HR processes and sometimes even finance department. Very often, social housing and social fund payments are actually outsourced. But what is outsourcing and is it something you should consider, or does it have too many drawbacks?
What Is Outsourcing?
Through outsourcing, certain essential parts of a business are placed in the hands of someone else. This means that an organization can release man power to do other tasks, without having to worry about having to have certain specialized skills.
Outsourcing [is] the practice of sending certain job functions outside a company instead of handling them in house. More and more companies, large and small, are turning to outsourcing as a way to grow while restraining payroll and overhead costs.
The most common area of a large business to be outsourced is the HR and Payroll department, with the IT department in close second. With smaller organizations, it is common for people to take on freelance workers to outsource an overflow of work to. For instance, a writer may move into becoming an editor by outsourcing writing jobs to other writers.
Obviously, outsourcing costs money, so the only way to make this system work is by ensuring that it actually offers value for money. And what are the advantages and disadvantages of outsourcing?
Benefits of Outsourcing
There are many benefits to outsourcing that you can consider. If there weren’t any benefits, nobody would choose to outsource some of their work. The biggest benefit, however, is that it allows you, or the staff within your organization, to focus on what can be classed as true core activities.
In rapid growth periods, the back-office operations of a company will expand also. This expansion may start to consume resources (human and financial) at the expense of the core activities that have made your company successful. Outsourcing those activities will allow refocusing on those business activities that are important without sacrificing quality or service in the back-office.
Besides this, outsourcing has the potential to be incredibly cost effective and to actually lead to savings overall. The overhead costs also get reduced, particularly for physical businesses who will have to house less staff and equipment. A business gains greater control over their operations and ensures they have flexible staff that is responsive to the right situations. Outsourcing ensures continuity is maintained and it also assists in terms of risk management. Last but not least, it helps businesses to develop their own staff, focusing on their training and making them more engaged.
Disadvantages of Outsourcing
At the same time, it is very important to understand that there are certain disadvantages to overcome as well. Knowing these will give you a clearer picture in terms of whether or not outsourcing is for you. The biggest risk of all is that confidential data is exposed.
When an organization outsources HR, Payroll and Recruitment services, it involves a risk if exposing confidential company information to a third-party.
It may also be difficult to synchronize the deliverables, because this type of work isn’t just across different teams, but across different organizations. There may also be some hidden costs that you hadn’t seen in your contract, which shows the importance of working with a good legal and financial adviser before you sign anything. Lastly, you may lose some of your consumer focus, because parts of this will be taken over by the other company.
To Outsource or Not to Outsource
The drawbacks of outsourcing are very real and it is important to take these into consideration. However, considering the amount of businesses and organizations of all sizes that do outsource should show that it is the way forward. The benefits, by far, outweigh the disadvantages. Furthermore, most of the disadvantages can quite easily be worked around.
For instance, the confidentiality issue can be resolved by including non-disclosure agreements in contracts and by having strong regulations on whistle blowing. Synchronizing the deliverable work is all about agreeing deadlines and having strong and open lines of communication. Hidden costs can be avoided by making sure contracts are reviewed regularly. In terms of consumer focus, if an organization works together with the outsourcing company as equal partners, these issues also shouldn’t arise.
Most financial experts, HR professionals and other workforce experts agree that outsourcing is a fantastic opportunity with amazing value for money.
Most entrepreneurs have great talents but many times they think they can do it all. That can really stall the growth of the business. By outsourcing the day to day back-office tasks, the business owner has more time to focus on generating income.
There are some important considerations to make, however. Firstly, it is important to work out when outsourcing becomes a good idea. For instance, as a one-man business, it may not be beneficial to outsource an IT department. Secondly, working it what to outsource is also very important. As a business grows, it is common to outsource more and more parts of the organization, but there is no need to start at the top and outsource everything straight away. Generally, it is best to outsource those tasks that require highly specialized skills and tasks that are very repetitive.
Lastly, finding the right company to outsource to is very important. You need to know that they bring that added value to your organization and that they will deliver on their promises. Furthermore, you have to be able to build a relationship of trust, since they will be handling much of your private and confidential business information.
DECIDE ON A LIST OF MANDATORY COMPONENTS an outsourcing solution must provide. […] Also consider visiting the service provider’s facility to see people using the solution on their turf. Define your requirements: do you want a 3PL to provide on-site personnel? Will it integrate its technology with yours? If not, how much access will you have to its technology? Creating a checklist of your solution needs will enable you to cut through the list of outsourcing providers quickly, without wasting time on vendors who cannot provide exactly what you need.