What are the Advantages of Outsourcing?
Outsourcing has become a strategic tool for businesses of all sizes. In recent years, many businesses and entrepreneurs have been using this strategy because it provides several advantages.
So, if you are still hesitant or thinking if outsourcing is a good strategy for your business needs, let’s dive further into the advantages of outsourcing.
What is Outsourcing?
The act of contracting an outside party to produce items or carry out services that were previously completed internally by the company's personnel is known as outsourcing.
Companies typically engage in outsourcing as a cost-cutting strategy. Businesses can drastically cut labor costs by outsourcing.
When a business engages in outsourcing, it seeks the assistance of external, unaffiliated entities to carry out certain activities such as hiring virtual assistants.
To accomplish the work for less money, virtual assistant services usually set up separate remuneration schemes with the business or company that wants to acquire their services.
In the end, this helps the business or company to cut labor expenses. And this is just one of the advantages that outsourcing provides.
The Advantages of Outsourcing
1. Lower Labor Costs
The initial thought that springs when we talk about the advantages of outsourcing are how it lowers labor costs. Outsourcing specific responsibilities to a third party or independent contractor can help cut down labor costs. The outsourced agency hires professionals and is in charge of their compensation, incentive schemes, and training. Outsourcing enables your company to align its labor costs with its core employees.
Outsourcing can also help you save money on machinery. Rather than purchasing new equipment, relocating, or changing it, it may be wiser and more cost-effective to outsource to a third party.
2. Larger Talent Pool
Other than lower costs, a larger and more experienced talent pool boasts of being one of the advantages of outsourcing. Outsourcing to independent contractors or agencies allows you to tap into a larger talent pool. Depending on the place where they are located and the number of vacant and demanded positions, these third-party agencies have access to candidates across the world. The contracting agency will also have its own headhunters who will look for the best aspirants for the jobs.
3. Internal Staff Development
This may not be a common motivation to outsource for many, but internal staff development is among the advantages of outsourcing. A major project may necessitate the acquisition of skills that your team does not currently have been trained for. Thus, here comes on-site outsourcing, in which you bring in outsourced professionals to work at your office, allowing your current employees to work alongside your outsourced experts and develop new skills.
4. Increased Efficiency
Lastly, this may be one of the more common answers when asked about the advantages of outsourcing, but an increase in efficiency is a very significant result of delegating tasks to an external organization. Outsourcing allows you to offload non-essential activities to focus on more highly specialized tasks. Transferring these functions to third-party contractors that specialize in those processes can result in increased overall productivity, efficiency, and benefit. Your company can improve its efficiency by focusing on hiring, coaching, amenities, and other assets within your business model. Instead of allocating resources to an in-house unit to do the same tasks, outsourcing reduces costs for specific reports and invoices demanded from the contractor.
Different Outsourcing Services
1. Professional Outsourcing
Professional services can also be outsourced across a variety of niches such as information technology, technical support, legal, accounting, purchasing, and other specific services. Most business owners gravitate to outsourcing these professional services because it is highly cost-efficient — they can save hiring and training costs and essentially reduce your business’ overhead costs. You can gain access to a pool of highly trained and competent human resources simply by paying for the service they provide.
2. Manufacturer Outsourcing
Manufacturer outsourcing is normally a bit industry-specific. A company can outsource the manufacturing or installation of different parts of its product to several third-party contractors. However, the main concern among business owners with this type of outsourcing service is the possibility of a disruption in the production line, hand-in-hand with quality assurance. Nonetheless, although manufacturer outsourcing can substantially impact operations, it can also lead to significant cost benefits and production time reductions.
3. Process-Specific Outsourcing
Outsourcing services may be specific to certain processes or operations. Several companies who have sought this type of outsourcing service have found it to be more cost-effective to have distinct parts or components be made by other companies. This streamlines the manufacturing process, lowers the overhead costs, and shortens the time it takes to build a unit.
4. Operational Outsourcing
Compared to other industries, the manufacturing sector utilizes operational outsourcing more — how manufacturing functions as a whole allow for the delegation of operational activities to external organizations more conveniently. For example, by outsourcing operations to third-party companies that specialize in specific equipment, you will be able to gain an advantage as they can provide the machine maintenance, repair, and operation for you. In addition, housekeeping, landscaping, property maintenance, and management are other examples of operational duties that you can also outsource.
Reasons for Outsourcing
1. Outsourcing Saves you Money on Staff
The most common reason for corporations to outsource is to save money. In fact, cost reduction was identified by 59 percent of organizations polled as to their rationale for outsourcing. The reason is quite simple. You can stick to lesser budgets by outsourcing jobs to skilled specialists and just charge according to the tasks required. This is almost always less expensive than employing full-time staff. Hiring a freelancer is a preferable option because they normally just demand an hourly fee for the services that they do, resulting in an obvious reduction in costs. Furthermore, hiring a freelancer is as simple as posting a job ad on an online job-finding platform and just waiting for applications — no additional training costs required for you, no tedious interview procedure, and no additional cost as they are already trained and experts.
2. Outsourcing Ensures your Business Tasks are Handled by a Specialist
A lot of companies only contemplate the possibility of outsourcing when they hit their maximum, meaning they rely on it solely to deal with job overload. However, one of the key advantages of outsourcing is not having instant access to an extra pair of hands; rather, it's more about how capable those additional hands are.
When you are outsourcing tasks and responsibilities, you are entrusting it to a professional who can devote their complete attention to it. You could be a brilliant businessman, but it doesn't entail that you're also an excellent copywriter, web designer, or IT expert. Outsourcing permits you to dedicate your time to what you do best as you just need to delegate specialized duties to the experts.
3. Outsourcing Saves you Time
Menial administrative tasks, email marketing, social media management, invoicing, and content creation may be small tasks. Still, they hold as much importance in maintaining brand identity and awareness and are just as crucial to keeping a business afloat. However, you cannot be expected to do all of those by yourself, especially if you are looking to scale your business. Thus, taking these responsibilities away from your hands allows you to concentrate on planning, expanding, and improving your company. You'll also save time on project management because every work you outsource is now under the responsibility and authority of a specialist. Outsourcing the aforementioned tasks, among others, eliminates the need for lengthy preparations and review sessions, ergo, saving you a lot of your time.
Is Outsourcing Worth it?
Although outsourcing has certain advantages and disadvantages, many experts think that the risks are minimal. Many firms must cut expenses in order to stay afloat, especially during a recession, and by outsourcing some manufacturing and business operations, organizations can thrive and scale up in the long run.
The importance of outsourcing stems from the benefit that it allows you to minimize expenses, manufacture products at lower rates, optimize corporate resources, and provide value to your customers —- ultimately, it comes improves your competitive advantage. Outsourcing enables the most cost-effective alternative to be chosen. Thus, outsourcing is worth it.
Experience first-hand the benefits of outsourcing in your business by delegating some of your tasks to our virtual assistants here in SmartVAs. We can help you free your time as we have competent and seasoned virtual assistants who are experts in a variety of areas such as web development and design, social media management, podcast management, search engine optimization, administrative operation, digital marketing, and more. So, book a discovery call with SmartVAs now!
Frequently Asked Questions:
1. Is outsourcing always cheaper?
There may be instances in which outsourcing can be expensive. But most of the time it is the best way for businesses or companies to cut costs.
However, whether outsourcing is always a cheaper choice is dependent on different factors. For example, businesses can tap the expertise of other individuals such as IT support or billing.
While they may charge a bit higher than usual virtual assistants, they are experienced in that field which makes their work of high quality. Businesses don’t need to train or explain what they need to do further because these VAs can do work with minimal supervision.
2. Why is outsourcing popular now?
The rising popularity of outsourcing can be attributed to several important elements that are in line with the changing demands and dynamics of the contemporary corporate environment.
It is highly driven by its ability to provide cost savings, access to global talent, operational flexibility, and enhanced focus on core activities.
Moreso, businesses or companies that leverage outsourcing will experience improved efficiency, manage risks, and stay competitive in a continuously changing global marketplace which is a vital strategy for achieving growth and success.
3. What are the 4 factors to consider before outsourcing?
It is important to weigh several considerations before choosing to outsource any business activity to make sure the choice is in line with the objectives and requirements of the organization.
Here are some of the factors you need to consider:
Expertise and reputation: take into account your outsourcing agency's experience and standing. Read customer reviews or visit their website to verify this. Make sure they'll live up to your expectations by looking at their past performance and assessing their ability to support the goals of your firm and stay up to date with current trends.
Cost-benefit analysis: evaluate the direct costs, and indirect costs like time spent on communication or potential rework, and calculate potential savings, including technology costs.
Risk management: Your company's data will be utilized to complete the tasks that have been outsourced. Make sure the outsourced company has robust security procedures in place. If necessary, you can also require the company to sign a Non-Disclosure Agreement or include a confidentiality language in the SLA. This guards against possible data leaks for your business.
Cultural and operational compatibility: be sure to evaluate the cultural alignment between your business when outsourcing. These include communication styles, work ethics, and business practices. The outsourcing company should also be compatible with your own processes.