Outsourcing has been a hot topic since large corporations first launched massive outsourcing initiatives over a broad spectrum of industrial applications in the 1990’s. Outsourcing specific applications has many benefits as well as a few risks. To be clear, to ensure a successful outsourcing solution to an area of expertise the business does not have, a great deal of research and due diligence must dominate the selection process.
Outsourcing is a very viable business strategy. It can yield tremendous financial returns and allow a business to grow without distraction. Typically, SMEs outsource for services, like payroll and comprehensive insurance management, because they do not want either the responsibility or have enough time to oversee these necessities. Payroll processing is a type of outsourcing that has become basic for businesses of all sizes. With today’s mobile personnel, outsourcing payroll removes a big distraction from operations.
The NY Times published an interesting article about outsourcing. In the article, several advantages and disadvantages of outsourcing were identified.
Preserving Operating Capital
– Outsourcing is more than a cost-cutting strategy, but preserving operating capital is a serious advantage of the practice. Users can usually avoid large, unexpected expenditures and thus budget outsourcing payments. Additionally, most the cost of outsourcing is deductible as an expense of the business. As such, outsourcing payments are usually not taxed.
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– This is a compelling reason that businesses decide to outsource. Many SMEs do not have expertise in areas like marketing, research and development and distribution. External enterprises do specialize in provision of these services. If the business wants the job performed with professionalism and does not want to invest in operations that are part-time responsibilities, outsourcing to experts makes sense. Most often specialists have the proper industry technology to perform the work faster and more economically than the business.
Outsourcing Reduces Labor Costs
– Businesses can reduce the cost of employees by outsourcing. Paying a fee for the task that does not incur personnel taxes, future pay increases, health costs and other liabilities, like union issues, is very appealing to businesses of all sizes.
Get Off The Ground Faster
– Many startups and small businesses use outsourcing as a quicker way to get the job done. The theory that somewhere there is a business that can provide certain aspects of a project proves true most of the time. This can eliminate a number of training expenses and negate the effects of a loss of employees. If you want to get a new operation up and running, look for an outsourcing partner to handle elements of the project you cannot handle.
Direct Your Focus
– Knowing that certain necessary components of running a business are being handled by outsourcing professionals allows the workforce to concentrate on the mission at hand. Basically, it can lift most of the menial, distracting tasks businesses need to do off the shoulders or the workforce.
– All business operations and functions are accompanied by risk. Hire outsourcing sources that specialize in the provision of services. They will have the latest technology for their industry and know all laws that are needed for compliance. Being innocently non-compliant is a common fear of entrepreneurs.
By Level Playing Field
– Businesses large and small who are competing for contracts must look at outsourcing as a viable way to contain costs. It is no secret that China’s inexpensive labor force has helped global entities be competitive.
This is a list of the most outsourced business sectors:
• IT outsourcing
• Legal outsourcing
• Content Development
• Web Design and Maintenance
• Technical/Customer Support
Outsourcing does not come without risk.
Risks associated with outsourcing :
• Risk of exposing confidential information
• Scheduling conflicts for deliveries
• Hidden costs
• Lack of focus by provider
Experienced outsourcers know to oversee these issues. It is still much less expensive to oversee fulfillment than it is to handle it inside. The business should only use outsourcers in whom they have confidence. That is when the true benefits really surface.
Lewis Edward is one of the owners of The Office Providers which provide serviced offices, and any kind of office space for small businesses or even large corporationsSubscribe to our newsletter