Top 6 Reasons Why Companies Outsource (And Whether It’s A Good Idea)

reasons why do companies outsource

More and more companies are turning to outsource in the current economic climate to help meet their bottom line. From manufacturing to IT to customer service, outsourcing is an avenue taken by many companies to cut costs, increase profits, and provide better service than they could offer by themselves. Before shifting or outsourcing any aspect of your company, make sure you know what you need and consider all your options. This article will explore the top reasons why companies outsource, and whether or not outsourcing is a good idea.

The top reasons why do companies outsource

Many companies feel that the rising labor cost, unemployment, and technology have led to the need for outsourcing.

In a presentation made by Nitin Goel, the founder of Boston Consulting Group’s newest venture, Reach Advisors, he cites reasons why some companies outsource jobs. He cites that in some cases, it allows organizations to improve internal service levels, while in others, the ability to move workers in and out of companies with higher demand helps to keep wages more consistent, increasing the value of the workers. He also mentions that the outsourcing of certain business functions can help the organization get better at certain tasks. Another factor is that it can help in a talent war, and allow for an organization to seek out the best available workers. Finally, Goel cites that there are some skills that are difficult to find in-house, and can help them to compete in a very dynamic market.

Cost saving

First and foremost, the primary reason why do companies outsource is to reduce their labor and operating cost. By offshore outsourcing, you can reap the benefits of lower costs without having to reduce the quality of your service or products. When hiring in-house, the cost of hiring an employee can be astronomical and this can eat up a significant portion of the company’s revenue. By outsourcing, you can decrease the number of in-house employees and the resources they use. This can include everything from office supplies, janitorial services to office space rental. For example, if you find it hard to find a qualified IT professional for your company, you could look into outsourcing that part of your company. Not only could outsourcing save you money, but it could also provide better service. In the retail industry, companies can outsource customer service for better service than they could provide by themselves. You can also outsource many areas of your business process so you’re able to focus on areas where you’re more knowledgeable. Perhaps you’ve experienced poor customer service in the past and you’re looking for a new way to keep your company customers happy. If you have people that process payroll, you could outsource this function to an HR outsourcing provider, eliminating the cost associated with payroll and all the overhead cost that comes with it. The same logic can be applied to other areas, like accounting, as well as business processes.

Gain access to knowledge and expertise

A common reason why do businesses outsource is to gain expertise. You may want to call in a remote team to help with a specific task or you may need to bring in a new approach to a business. No matter your need, you are likely to face challenges in this area, and hiring staff is a costly and time-consuming process. Some industries require specialized or specific knowledge in areas that companies cannot gain in-house. Often, companies make the decision to outsource expertise or talents that they cannot find in-house to save money and gain efficiencies. This may mean the difference between success and failure for the company.

Some companies want the benefits of outsourcing in certain areas of the business, while others want outsourcing to replace certain tasks that are part of their core competency. In other words, outsourcing can be used to expand or scale your business without adding additional staff or systems.

For instance, if you’re a medical firm and have a great IT department, but your legal team is really old school, you could use outsourcing to tap into new and expensive digital technology. While you may be capable of handling most of the legal work yourself, you could make more money and save in legal fees by outsourcing.

6 reasons why do companies outsource

Access to a diverse talent pool

When you want to increase your employee count, it’s very difficult to find talented candidates who are right for the job. Outsourcing can help you source a large number of skilled employees from a diverse pool, and not only are you more likely to find the right people for the job, but you can keep them happy.

Scalability and flexibility

It’s hard to be profitable for smaller companies in today’s constantly changing world. A business must have the flexibility to scale and grow, adapt, and be as responsive as the market dictates. If a company isn’t large enough to absorb the potential for large growth, then it might be best to outsource. This can allow the company to take on bigger clients and expand, without becoming too unwieldy to handle.

In order to adapt and react to the ever-changing market, more companies are turning to outsource as it allows them to keep up with and exceed demands. Not only does outsourcing provide greater flexibility for your company, but it allows you to scale your company according to your business requirements.

Outsourcing for innovation

Many companies still see outsourcing as simply about cutting costs. Some companies believe outsourcing to business process outsourcing companies means just finding cheap labor and exploiting that labor in order to bring down labor costs. While maybe that’s true, there are other reasons why companies choose to outsource. One reason is innovation. Companies outsource because they have ideas and are too small to bring those ideas to life and they don’t have the expertise. They don’t want to build the expertise and they want someone else to do it for them. Oftentimes, companies simply outsource to solve this problem.

Focus on core competencies

Another reason why do companies outsource is to free up their own staff to focus on more important tasks and projects.

Many times, outsourced projects are a way for companies to offload a portion of their daily duties that require management or administrative duties that are more ancillary to the core competencies of the company.

Businesses outsource work to outsourcing companies because they will be able to perform specific tasks more efficiently or quickly than they themselves can. Outsourcing is a great practice for many businesses as it allows them to concentrate on their core competencies, leaving the rest to specialist companies.

Just because you want to do something for your business doesn’t mean you’re qualified to do it. If you’re great at marketing, don’t try to write a blog post nor send your customer support emails. Instead, you should hire an outsourcing company that can do these functions and can do them well. You should focus your efforts on your core business and leave the dabbling to those who are more qualified.

A company’s core competencies will determine what they outsource in the first place. Knowing what you’re good at and what you’re not so good at will help you to decide what you need to outsource in order to provide good service. For example, a company that has a great sales force can outsource the human resource aspect of recruiting to an outsourced company. If the only areas they feel they need to have in-house are customer service, business development, and accounting, then those other aspects of the business should be outsourced and reallocated to employees with different skill sets.

Successful companies focus on their core business rather than trying to do everything themselves.

Is outsourcing always a good idea?

The reasons companies outsource differ, but all usually boil down to several factors. If you need to cut costs and provide a better service than you are able to by yourself, outsourcing may be a good option. This could be for a variety of reasons. If you are on a tight budget and your employees aren’t getting the work done, outsourcing may help you cut down on costs and improve efficiency. Outsourcing can help you provide a better service for your customers, too. You could also choose to outsource as a solution to weak employee management or a lack of experience. These are good reasons to consider outsourcing if you are struggling to get the work done. The problem of low employee productivity may also call for the outsourcing of certain parts of your company.

 

How to make outsourcing work for you

reasons for outsourcing

The right People

The key to outsourcing is having the right people on your team. You want to be able to communicate with outsourced staff and help them understand what their roles are going to be. Take the time to talk to each of them, and make sure you all agree on their roles in the company and their qualifications. This will ensure you have the right staff working on your side and not someone who isn’t qualified to do the job.

The right Partner

Before outsourcing a business function, you must first define what kind of work you want to outsource. You want to choose outsourcing jobs that provide the maximum benefit. Once you have that answer, you must then have a clear idea of how to evaluate the best partner for the job.

You need to carefully evaluate each potential partner for the role. There are thousands of outsourcing firms to choose from. You will need to carefully evaluate their credibility, reviews, and reputation.

Weigh the risk of failure with the benefit of successful outsourcing. Outsourcing, like any undertaking, has its risks, including, but not limited to, lower quality or delayed execution of the project. For this reason, ensure that the outsourcing partner has a strong track record of delivering on time, on budget and as agreed.

Conclusion

There are many reasons why companies choose to outsource, ranging from quality control to compliance with laws and regulations. Outsourcing can also save you money by eliminating several roles, rather than allocating the same person to both, and can free up the time you spend on administrative tasks that can be used for increased productivity. If you’re considering outsourcing an aspect of your company to improve the overall efficiency of your operations, weigh the pros and cons carefully, and only choose to outsource where the benefits outweigh the risks.

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