Outsourcing Pros and Cons In a Nutshell!
Last update: 22 February 2023 at 01:09 pm
Many companies see outsourcing as a way to reduce and control the costs of day-to-day operations. By outsourcing certain tasks, you can free up time and focus on your core functions. There are many benefits that can be summed up in two words: increased productivity. Let’s take a closer look at the pros and cons of outsourcing so you can make a more informed decision about whether your company should outsource certain tasks.
What Is Outsourcing?
According to the Oxford Dictionary, outsourcing refers to the process of obtaining goods or services from an external or foreign supplier, especially in place of an internal source.
It’s important to note that it can involve individual tasks or even entire departments that support the business operations with their services.
Now that we’ve established what exactly outsourcing means, it’s time to move on to some specific examples. This way, you can start thinking about what business functions you might want to outsource.
Example 1: Re-branding support
A bakery chain is going through a re-branding process. At the same time, the business owner is focused on the online part of this process. But they have hit a roadblock. Creating its own corporate identity and applying it to all its channels seems like a lot of work and goes far beyond its core business: providing its customers with quality bread and baked goods.
The bakery does not have employees with the necessary skills to help the owner. In this situation, it would be advantageous for him to partner with a graphic design agency to successfully complete this project. This way, resources (time and money) will be used as efficiently as possible.
The outsourcing company will help them create a corporate identity guide, give their website a fresh look, and get the company on track. All of this is to ensure that they have consistent branding across all of their channels in the future.
If the bakery wants to make changes in the future, the company can rely on an outside graphic design firm. They use less staff and have the flexibility of an external help desk.
Example 2: SEO Consulting
An English entrepreneur makes fresh tomato sauce from homegrown cherry tomatoes. Her product is appealing to her customers, but she needs help with brand awareness to attract new buyers. So far, the entrepreneur has invested in online advertising, but this has not been effective enough.
She wants to optimize her search engine optimization (SEO) to help her business rank higher in Google results. This will help her stand out from other similar businesses and generate more sales in the long run.
Her problem? She does not currently have the budget to hire a full-time employee to handle this business function and drive more traffic to her website.
As a small business owner, outsourcing this specific project makes sense. An outside SEO consultant can organize a full SEO audit, take direct control over the website edits, and give her a workshop. That way, she can start her SEO efforts at any time. After all, she wants to see results as soon as possible and be sure she is using the right approach.
Outsourcing Pros and Cons
As you can see from the two examples above, there are some advantages to outsourcing some of your business operations. However, there are also potential drawbacks to this decision. We want to help you understand the big picture before you make the final decision for or against business outsourcing.
Let’s take a closer look at the pros and cons of outsourcing. In the end, we want you to be able to see whether or not the pros outweigh the cons.
The Advantages of Outsourcing
Let’s start with the various benefits of hiring a third-party company to take care of certain functions of your day-to-day operations.
1 – Outsourcing Helps with Cost Savings
Probably the most competitive advantage of outsourcing is the fact that it saves you some money by helping you reduce costs. On the one hand, this may be due to the fact that the external service provider specializes in a particular task and does not need to expend internal resources. On the other hand, external partners such as agencies can draw from a larger talent pool.
This means that if an employee is unavailable, there are other colleagues who can step in. Doing this with an internal team would require hiring several specially trained and experienced people at the same time, which is not a cost-effective decision.
In addition, you would need to set up specific software or infrastructure for certain things. These additional investments are completely eliminated when hiring a third-party organization. The outsourcing company is responsible for providing its team with the necessary tools and equipment.
2- Outsourcing Saves Time
Onboarding new employees is a very time-consuming task. It takes time for the new employee to become familiar with the company’s internal procedures and to know who to contact when they have questions.
You can save this time by hiring an outsourcing company. Typically, an initial meeting is sufficient to exchange key information and documents. The agency will then take your project directly from you.
3 – Outsourcing Gives You Security
A great advantage of working with an outsourcing company is that you benefit from their expertise on several levels. At the same time, it gives you more security in handling tasks. If there is a bottleneck, several people can step in.
Finally, quality plays an important role in outsourcing. Professional service providers often focus on a specific topic or area in which they have expertise and years of experience.
This guarantees expertise and quality of service and allows your own employees to focus on their high-value tasks and your core business.
The Disadvantages of Outsourcing
Now that we’ve discussed the many advantages of outsourcing over hiring in-house staff, it’s time to look at the main disadvantages of outsourcing.
1 – Outsourcing Makes You Dependent
One of the biggest weaknesses of outsourcing is that it makes your company dependent on another company. Expertise and experience are not gained by your internal team, but by an external one. In other words, if the quality falls below expectations, it falls directly back on your company.
This dependency and lack of knowledge transfer creates a number of risks for your organization. As a business leader, it’s best to consider these risks when looking for a partner. Your business outsourcing contracts should definitely cover these incidents.
2 – Outsourcing Does Not Make Sense For All Fields Of Expertise
Startups and young companies outsource work for many departments. At least in the beginning. They do this to save time, reduce costs, and get up and running quickly.
But outsourcing does not always make sense. This is especially true for companies that deal with sensitive customer data or confidential information. Is it worth the risk?
Outsourcing carries a number of risks, and the hidden costs of a potential security breach can quickly outweigh the benefits of outsourcing.
Another consideration is the effect of outsourcing on the internal work environment. For many employees, personal interaction with colleagues is a positive part of their daily work. If this communication is outsourced, the atmosphere and motivation of your teams may suffer.
Therefore, it is important to consider internal structures and business units before finalizing outsourcing.
3 – Outsourcing Can Be Time-Consuming And Labor-Intensive
Outsourcing is supposed to save your company time, money, and effort, but the opposite may be true and the workload may increase.
Some business units need to interact intensively with each other. Outsourcing certain services within these business units may result in sending email after email or making endless phone calls to external service providers. This is not good for either the employees or the external service provider.
When Does Outsourcing Make Sense?
There is no single situation in which outsourcing makes sense. The answer depends on your individual situation, projects, and needs. But, in general, the benefits outweigh the cons of hiring an outsourcing company.
However, there are a few tips to keep in mind.
The 20% Rule
In general, the savings you achieve with an external service provider should be at least 20%. If the savings are less than that, outsourcing may be costing you more money than it is saving you. Therefore, successful outsourcing must deliver savings of at least 20%.
Many companies looking to expand internationally use the services of an external service provider to enter a new market.
Offshore outsourcing, or offshoring, means moving your company’s operations not only to a different service provider but to a service provider in a different market. It could even be in a different time zone.
Relieve The Pressure On Your Internal Team
If you can see that there are areas of your business where your staff is stretched to the limit and teams are unable to keep up with the workload, outsourcing may be a wise investment.
This can be as simple as setting up a mailing list for the PR department, IT support, or sorting goods by category in the warehouse.
Who Should I Outsource To?
When it comes to outsourcing a project or even an entire department, you usually have a choice between a freelancer or an agency. Keep in mind that when it comes to larger projects or an entire department, it makes more sense to hire a specialized agency.
Let’s take marketing as an example. Sure, you can hire a freelance copywriter to write your ads and website copy. But finding and executing a strategy, planning a campaign, and analyzing its impact is not something a single person can do.
That’s where a marketing agency comes in. They will work with you to develop a strategy and take the right actions. This way, you can be sure that outsourcing will be successful.
Finding The Right Vendor
Finding companies you can trust and feel good about outsourcing is not easy.
On the one hand, you need an outsourcing partner whose services can support your business where it is needed most. On the other hand, your company’s unique needs and requirements play an important role in your decision.
A good way to make an informed decision for or against a particular agency is Sortlist. We list agencies that have been reviewed by us and rated by other clients.
These testimonials are always visible and will help you develop the necessary confidence in your potential partner’s abilities. This way you can invest in building your external network with a clear conscience.