The value of outsourcing is something that most business owners consider at some point in their lives, particularly as the barriers between working remotely continue to fall away in an increasingly globalized workplace. As with many business decisions, there are pros and cons to choosing outsourcing and some companies will benefit more than others. Rather than focusing on the issue of labour arbitrage (i.e. doing the same task at a cheaper rate), the decision to outsource or not needs to be taken in the context of the business as a whole.
Bringing in a new function through outsourcing
If you need to add a brand new function to your business, you generally have two options. The first involves either training existing staff, recruiting new employees or a mixture of both. This is a slow process and is often quite expensive, especially if you have lots of positions to fill. The second option is to outsource the function to a company who already have the set-up and personnel to hit the ground running.
All sorts of functions can now be effectively outsourced, from call centers and IT departments to industry-specific production processes or specialist IT applications. Rather than providing the function directly, some companies outsource their training to an external provider who then has responsibility for preparing existing staff for their new roles.
Numerical & geographical expansion
Sometimes it is a surge in business, either organically or through a merger/acquisition, that raises the issue of outsourcing. Current support staff may be unable to cope with the demands caused by the increased workload and the business owner may benefit from outsourcing the work.
Geographic expansion is another area where outsourcing can be helpful, either as a stop-gap while full-time personnel are recruited and trained, or permanently in areas where it makes little sense to provide in-house staffing.
Technology & software acquisition
Sometimes outsourcing makes sense purely because of the specialist technology or software the provider has access too. Acquiring the same tools for the business might be much more expensive than outsourcing the work to an external company. For example, a company may want to upgrade their accounting systems or make use of high-spec graphic design and printing facilities.
The role of the Managed Service Provider
Managed Service Providers (MSPs) take on the responsibility for meeting a business goal (often, but not only, IT-related) and handle all aspects of recruitment and operation in line with an agreed Service Level Agreement (SLA). One of the benefits of investing in an MSP is that the business owner is protected from the risks of reduced commitment and inflated prices that can come with sole-service procurement. The MSP will ensure the business owner gets maximum value by using specialized recruitment management tools, reporting their results through comprehensive metrics. MSPs usually charge an initial set-up fee and a monthly flat-rate fee, making them easy to budget for.
When outsourcing doesn’t make sense?
Outsourcing is not always the right course of action for a business. If a function is already working very well and the costs are relatively well-managed, the risk of disruption for a modest financial saving may not be worth the effort.
Another area where the value of outsourcing may be reduced is where local knowledge plays an important part, including the ability to communicate fluently in a local language. In such cases, a business looking to outsource will need to be very selective and choose a provider that can provide the calibre of staff needed to minimize the effects of any such disadvantages.