Are you a business owner or an executive looking to outsource some tasks for your company? If yes, before you do this, you should consider what firms should avoid when considering outsourcing. Some firms make the mistake of rushing into commitments or hiring without a plan. If you don’t want to be one of them, be sure to read on.
To help you make your outsourcing decision, in this article, we examine the factors a firm should consider before outsourcing and other details about it.
What Is Outsourcing?
Outsourcing is when businesses pay for third-party services instead of doing it internally to cut labor costs, expand operations, or other purposes. Services done by third-party companies vary and may include customer services, bookkeeping, marketing, and many more.
The main driving force determining whether a company will outsource work is if they badly need it but can’t afford it. An example is when a company needs customer services for their products but deems hiring people too pricey and risky. Outsourcing these tasks would help them cut costs and ensure the continuity of operations.
With outsourcing, firms can focus on more critical tasks and even obtain expert opinions on areas their business lacks.
Why Do Businesses Outsource Work?
Businesses outsource work depending on their current needs. Usually, it includes any of these reasons:
- To Hasten Growth.
As a company gains momentum, the need for additional staff becomes more apparent. However, recruiting and hiring new employees can be expensive. To solve this, companies outsource their services. This gives them the workforce they need without spending much on training and hiring in-house staff. - To Focus on More Pressing Tasks.
Outsourcing saves companies time and lets their internal staff focus on core company processes. It also helps employees achieve work-life balance as they won’t need to learn new tasks essential for completing company projects and objectives. -
To Comply With New Regulations.
Compliance with new laws and regulations takes time and costs too much money. To avoid overspending and achieve fast results, firms outsource services. This expedites their hiring process while easing concerns about legal compliance. The burden to comply with new regulations is passed to the outsourcing agency.
- To Benefit From the Expert.
Most outsourcing agencies are reliable and provide top-notch services. Because of this, they attract experts and talented hires. When you outsource services from firms with experts, you’ll save money as you won’t have to hire them directly and only pay for the results they deliver. - To Manage Risks.
Scaling requires you to hire more people. To set up an offshore office, you must also rent a physical space and spend money for compliance. When you outsource, you won’t have to do these. You won’t need to worry if you need to stop the services, as outsourcing is contract-based. - To Save Money.
Outsourcing helps firms cut costs on employee salaries, benefits, and training. When services are outsourced, you will only need to pay for the services.
Forbes also enumerates 6 Reasons Why Outsourcing Could Benefit Your Business.
5 Factors to Consider Before Outsourcing
To get the most out of outsourcing, the first thing you need to do is plan it thoroughly. To meet the desired outcomes, consider several factors before outsourcing.
Here are some factors to consider before outsourcing people:
1. Expertise and Reputation
You need to consider the expertise and reputation of your outsourcing agency. To check this, you can visit their website or check customer reviews. Evaluate their track record to ensure that they will meet your expectations. This will enable you to determine whether they can keep up with current trends while supporting your company’s objectives.
Rest assured, you will no longer go in blindly when searching for an outsourcing agency once you have checked both the expertise and reputation of the agency.
2. Payment Terms and Budget
Although one benefit of outsourcing is reducing costs, you should not base your outsourcing decision on just pricing. Outsourcing firms may bid low costs on the services you require, but you should still check the market price of these services. Don’t just choose the lowest price if you haven’t checked the quality of work they offer.
You can also propose payment terms to the outsourcing company. Most of them are open to negotiation. You can propose paying a small upfront fee or even paying the full amount only when the task is done.
Considering these factors when outsourcing prevents your firm from experiencing the ethical issues of outsourcing.
3. Contents of Service Level Agreement
Since outsourcing time and materials is contract-based, you need to ensure that the contents of the Service Level Agreement (SLA) are clear. All language in the SLA should be specific to guarantee no unforeseen legal concerns. This will also prevent miscommunication for the whole duration of your contract.
An SLA is a binding agreement that holds both parties accountable. If you’re not sure how to be specific about the roles and expectations, you can consult with a legal professional for guidance.
4. Security and Risks Involved
Your company’s data will be involved when accomplishing the outsourced tasks. Ensure that the outsourcing firm has strong security policies. You can also add a confidentiality clause in the SLA or make the firm sign a Non-Disclosure Agreement if needed. This protects your company’s data from potential leakage.
Since outsourcing may come with risks, hiring services from a company with established risk management plans is also important. This will help you mitigate possible risks in the future.
Some scammers pose as legitimate virtual assistant in hopes of breaching into your confidental data. For this reason, it’s important that you know how to spot and prevent virtual assistant scams during your hiring process.
5. Communication and Flexbility
Before you hire some help, you need to consider whether they are in the same time zone, speak the same language, or have a similar company culture. If they have these three, it will be easier to communicate throughout the project.
The outsourced company should also have seamless communication with you. Ensure they have a point person you can contact for urgent matters.
If the contractor or freelancer isn’t in the same time zone as you, ensure they’re flexible to coordinate with you. You might not get the best results from the outsourced task or project without proper communication and flexibility.
Outsourcing comes with risks, so prepare in advance to avoid any issues. Now that you know what factors a firm should consider before outsourcing, it’s time to consider the pros and cons.
Read more about the Factors a Business Should Consider Before Outsourcing.
What Are the Pros and Cons of Outsourcing?
The pros and cons of outsourcing include several factors on costs, productivity, and output quality, such as:
- Lower Labor Costs.
When you outsource services, you can cut employee wages, benefits, and even training costs. - Access to Expertise.
You’ll get access to a pool of experts without hiring them directly. Outsourcing agencies will let you consult with some of the best in the industry. - Increased Productivity.
In-house employees will have more time to accomplish more important tasks while your outsourced personnel works on others. This is an ideal way of increasing productivity in your firm.
Outsourcing Cons
- Slow Response Time.
Outsourcing services may not be available 24/7 or not in the same timezone as you. Sometimes, they take too long to respond when you have a query. - Quality Issues.
The quality of the output of outsourced services may not be the same as the one you’re used to. Sometimes they don’t meet your expectations of the project output. - Limited Control.
You won’t be able to see how the tasks are accomplished. Outsourced employees may handle tasks the way they’re used to. You’ll have no control then if they make mistakes along the way.
If you choose a competent and reliable outsourcing agency, you won’t have to worry about the cons. But in case you don’t, the disadvantages of outsourcing may have an impact on your company’s culture. So be sure to hire someone competent and reliable.
Forbes also listed some of the Advantages and Disadvantages of Outsourcing.
What Are Examples of Outsourcing?
Google, Skype, WhatsApp, and Slack are well-known firms that use outsourcing to ensure growth. For example, WhatsApp and Skype outsourced developers from other locations to cut costs.
Here are some examples of tasks that businesses may outsource:
- Accounting.
These services usually involve payroll, bookkeeping, tax planning and preparation, and financial auditing. - Information Technology.
IT services help firms improve their security and digital processes. - Legal.
Firms avail of legal services to get expert advice for contracts and how to comply with certain laws and legislations. - Logistics.
Businesses benefit from a logistics partner as they usually handle your deliveries. - Advertising.
Advertising services may include digital designs, content planning, and competitor analysis.
If your HR lacks manpower, you can outsource your recruitment process and reap its benefits.
What Is the Importance of Outsourcing in Globalization?
The importance of outsourcing in globalization is that it helps boost the economy where the outsourced services come from. This is because a country can’t just depend on its local economy for growth. When companies from other locations outsource from another country, they help sustain each country’s businesses.
Globalization or operating businesses internationally can be tied to outsourcing as most outsourcing agencies get their clients overseas. Outsourcing also builds connections among multinational corporations and firms.
6 External Factors That Affect a Business
Whether a business outsources people or not, there will always be external factors that are out of its control. These factors can affect businesses in one way or another.
Here are 6 external factors that may affect a business:
- Environment.
Businesses have no control over environmental changes. An example of this is climate change and extreme weather conditions. - Competition.
Businesses in the same industry compete against each other. When one or two businesses from the same industry progress, others must adjust their business strategies to keep up. - Political Climate.
If there are new legislations, businesses would have to comply with them. Consumer and employment laws affect businesses and would have to adjust their processes if required. - Social Situation.
Consumer behavior and spending habits affect a business. How a firm treats employees, as well as their business ethics, also affects their day-to-day operations. - Technological Progress.
Usually, when there’s progress in technology, businesses will also thrive. A business that makes use of such progress can improve its processes. An example is when they avail of machines to hasten the production of goods. - Economic Status.
A business may either boom or go bankrupt, depending on the economic climate in its home country. Inflation and consumer expenditure are examples of economic factors that affect a business.
Since the above are often unexpected, it’s safe to have contingency plans to counter the effects of external factors on your business.
Outsourcing Has Various Considerations
If you think you have all the factors a firm should consider before outsourcing, you might be ready to outsource projects or tasks. Don’t forget to thoroughly research the contractor or freelancer you’re hiring to avoid unforeseen mishaps. Cutting costs is usually the main driving force determining whether a company will outsource work. However, a firm’s needs or deficiencies should be analyzed first. Once you’ve decided, you’ll reap the benefits of effective outsourcing in no time!
