Outsourcing and Leveraging External Resources: Can It Work for Your Business?

Outsourcing extra work is a common move for companies experiencing rapid growth. There is an ongoing debate on whether insourcing is better than outsourcing. But, small and medium companies generally benefit a lot from outsourcing workloads and processes.

Few companies can afford to complete all the processes in-house. Outsourcing tasks to partners, contractors, or agencies helps companies focus on their business. As a bonus, outsourcing also helps to reduce costs.

Let’s cover what it is, give you some outsourcing examples, and cover the pros and cons of leveraging external resources for your business.

What is outsourcing?

Outsourcing is a business process of delegating tasks by hiring a party or company to manage those responsibilities. The outside company takes on work, performs services, or manufactures goods. It frees up a lot of time and resources, as an in-house staff would have to perform these instead of focusing on core tasks.

Advantages of outsourcing in business

Outsourcing is typically used as a cost-cutting measure. It was a recognized, and widely used, business strategy in the 90s. By outsourcing, companies save on overhead expenses. They can also save on new technology or equipment costs.

More recently, companies are outsourcing time-consuming tasks that eat up the core team’s time. Outsourcing smaller, complex, or continuous day-to-day tasks can improve efficiency and productivity. It may also give some companies a competitive edge. By outsourcing, they can complete the workload faster than by hiring people in-house.

What are some of the outsourcing examples?

Some of the most outsourced examples include:

1. Information Technology

Companies that need IT services often face high costs for developers' salaries, and necessary tools, and equipment. Outsourcing IT is a cost-effective solution for creating an IT infrastructure in your business.

When outsourcing IT, you gain an experienced and well-trained development team on your side. Plus, you don't have to go through a costly and time-consuming process of finding developers, designers, project managers, and so on.

2. Accounting

Ensuring that everything is by the book when it comes to accounting in your organization can be a tedious task. It is not surprising that this is one of the most commonly outsourced tasks.

Companies can outsource their bookkeeping, financial auditing, and reporting. By hiring an accounting firm, companies can also outsource tax preparation and filing.

Accounting is an essential part of your organization, and it requires a dedicated team to manage it. You can solve it by hiring an experienced outside team for a fraction of the price you'd have to spend for an in-house team. Plus, you no longer have to stress about whether your financial transactions are legal, accurate, and safe.

3. Customer support

Another one of the most outsourced business aspects is customer support. This includes outsourcing support provided via phone, chat, or messages to another organization.

Customer support is the key to the success of your business, but hiring the right team in-house can be costly. It's why companies often choose to outsource it.

By outsourcing support, companies can provide high-quality, specialized help to their customers. Depending on the situation, hired third parties may even provide support in customers’ native language or time zone. At the same time, it frees up the core team’s time to analyze customers' questions and feedback and use it to improve their product or service.

4. Human Resources

Employee-rich businesses, especially those that hire globally, often outsource HR activities. They choose to rely on either an Employer of Record or a PEO.

Both an EOR and a PEO help with payroll and compliance. They can also assist with workplace safety and culture. Outsourcing admin tasks around their employees allows businesses to focus on deliverables instead.

5. Advertising and marketing

Another of the most commonly outsourced aspects of a business is advertising and marketing. Outsourcing these activities to a marketing agency is one of the most cost-effective ways to create a customer base and credibility for your business.

Outsourcing marketing means the experts will take on creating and fulfilling marketing plans. They can perform market research for your business. You can also count on them to research your competition or create a brand awareness strategy for social media.

What are the disadvantages of outsourcing?

While it’s much easier to outsource than to hire, train, and onboard employees, there are a few disadvantages to outsourcing you should be mindful of.

Most notably, finding the right partner to outsource tasks can be tricky. This is especially true for tasks that may require you to share sensitive data or information. You need to vet and choose the right partner. They should have the expertise, and also straightforward systems for communication and support.

If outsourced tasks deal with sensitive information, you should make sure their security setup is top-notch. When you outsource tasks, you are essentially giving up control over those aspects.

For example, if you hire an unreputable global payroll provider, you risk data breaches. It’s important to find a provider you can trust to complete the tasks quickly, securely, and accurately.

What is a real-life example of outsourcing?

Outsourcing is not a new or uncommon practice. You can find real-life examples of outsourcing in almost every successful business nowadays.

For example, Google is one of the most famous that relies on outsourcing. It has outsourced phone support, non-core IT projects, and admin work for years.

Apple is another real-life example of good outsourcing practices. Apple famously outsources a large part of its manufacturing processes and the supply chain. It has long-standing relationships with outsourcing companies, some of it spanning for a couple of decades.

It's easy to understand the benefits of outsourcing manufacturing. It's good to know that many software-based companies outsource their workload, too. WhatsApp, Slack, and Skype are popular communication platforms that have relied on outsourcing to grow and scale. Skype and WhatsApp both relied on European developers to work on their platforms, rather than hiring people in-house.

FAQ:

What company is an example of outsourcing?

Almost every successful company has relied on outsourcing at one point or another. Famous brands such as Apple, Google, Amazon, and Nike are all great examples of outsourcing.

What are the three 3 most common outsourcing types practiced by companies?

The three most common types of outsourcing are:

1. Project outsourcing

Companies outsource projects when they have one or more projects to complete, but don't have staff they need to complete them in-house. In this instance, the outsourced team takes on a project and completes it in full.

2. Professional outsourcing

Companies often go with professional outsourcing when they need professional help. This may include help with managing tasks that need specific expertise, or a specific license. Of course, companies can hire or train employees, and acquire these licenses. But, hiring another company to outsource a one-time specialized project is more cost-effective.

3. Process-specific outsourcing

Small and medium-sized companies often choose to outsource specific processes. This can include outsourcing the hiring process. It can also include data analysis and research, or outsourcing legal processes.

Why is outsourcing negative?

While outsourcing has been a key factor in the growth of some of the most reputable companies, it has also been heavily criticized. Experts worry that outsourcing to reduce costs is the same as the exploitation of workers from poorer countries. Some worry that it can remove opportunities for the domestic workforce.

In some cases, outsourcing aspects of a business can also harm company loyalty, and may reduce the company’s customer base.