Technology has revolutionised the way we do business. Thanks to the internet, not only is information just a few keystrokes away, but expertise can be harnessed from virtually anywhere in the world. Today, if you want to hire a person or team to do a job that doesn’t need to be physically based in your office, it doesn’t matter where they’re located. And you can often get exactly what you need for a lower cost and to a better standard than if you tried to replicate that role internally. So it’s no surprise that more and more businesses are outsourcing an increasing number of their functions.
What is outsourcing?
Outsourcing is contracting out certain functions and processes to third-party specialist providers, and businesses have been doing it for years. You don’t tend to do your own tax returns; you hire an accountant. You don’t pay a member of staff to drive a package to a client; you use a delivery company. When IT systems became essential to business in the 1990s and staff were issued with mobile phones, that technical and telecommunications provision and support was almost exclusively outsourced.
As technology itself has made it so much easier to work remotely, more and more non-strategic functions can be outsourced. Businesses now commonly use external third parties to provide, among other things:
- Sales & marketing support
- Graphic design
- Website management
- Social media presence
- Human resources
- Bookkeeping & payroll
- IT & telecoms
- Transport & delivery
- Manufacturing & stock control.
By contracting third parties to provide services to your business, you can tap into specialist skills and knowledge that it would take a huge amount of time and money to gain in-house. You can leverage their systems and network to access similar economies of scale that much bigger companies enjoy, which allows you to benefit from cost savings and efficiency gains that can give you a competitive advantage, even while you’re still in a relatively early stage of business growth.
Of course, it can be hard to let go of something you may have been doing in-house yourself for some time. Giving up direct control over something that’s essential to your business isn’t easy. But if you outsource certain functions and leverage other people’s time, effort, expertise and systems, they can take care of the things they’re best at, which allows you and your employees to spend more time focusing on the things that you’re best at.
As a business owner, you’ll understand the value of time. When I was a corporate lawyer, I was hugely overworked and there were never enough hours in the day. When I stepped away from that world and started my own business, far from gaining time for myself, I found I was even more swamped because there were so many different jobs that needed doing. It wasn’t until I nearly hit burnout that I accepted I must be doing something wrong and took steps to change my approach.
One key concept made a huge difference: leverage. Once I understood the different ways in which leverage can be employed and started putting the various strategies into practice, things turned around. It helped me systemise the business, I saw my profits grow and my life became easier. One of those strategies was outsourcing.
Anyone who’s running a business nowadays must incorporate outsourcing as a core strategic step and an essential part of their growth and scale strategy.
So, if you feel you could be outsourcing more functions but aren’t sure whether you can or should, read on, because chances are there’s a huge amount of profit and growth potential to be released. As the saying goes – do what you do best and outsource the rest!
“If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business.” – Lee Kuan Yew
7 key benefits of outsourcing
Companies used to outsource for two main reasons: they didn’t have the capabilities or resources to fulfil the function in-house and/or there was a cost saving to be made. But as outsourcing has grown, there’s been a shift in industry thinking and it’s now seen as a valuable tool in innovation and raising quality standards.
I see seven key ways in which outsourcing can add value to your business:
1. Reduces costs
Making savings on expenditure is a big reason why companies choose to outsource:
- Rather than employing permanent staff and incurring the cost of recruitment, training, a salary, holiday pay, national insurance etc., you can simply hire people to do jobs on contract as and when they’re needed. Depending on the job and where in the world it can be done, you could find that the cost of labour is also much lower than in the UK.
- If your business is selling a product, outsourcing certain elements of the manufacturing process could deliver significant savings, through lower raw material and labour costs.
- When you use the services of a company that specialises in one field, they’re likely to be able to do the work much more quickly than someone multi-tasking in-house could, meaning the overall cost of the job is reduced.
And you could get a double benefit: if you’re making savings through outsourcing, that may free up capital for you to invest in other areas of your business, which could result in increased revenue.
2. Solves resource and capacity issues
Your business might be small, but outsourcing allows you to tap into the potentially extensive resources of other, bigger, more established specialist companies. By using their people and services, your business can behave like a much larger company and deliver products and results to your clients at a level you couldn’t achieve working on your own.
3. Allows you to focus on your core business and strengths
Although many of the most time-consuming tasks in your business are necessary, they aren’t revenue generating. Small businesses, in which everyone tends to be fulfilling multiple roles, often suffer from the problem of mundane tasks being carried out by people who are essentially over-qualified and whose time would be much better spent on a high-value job.
Not only that, but when people’s time and effort is having to be split across a variety of tasks, productivity and quality tends to suffer.
So outsource the back-end elements of your business to experts whose own businesses are set up specifically to fulfil those tasks. That will free up you and your team to focus your time and energy on the front end, improving your services, developing and growing the business, and generating greater profits.
4. Gives you access to the talent, skills and expertise of others
A real beauty of outsourcing is that it opens up a global knowledge base and gives you the opportunity to leverage world-class skills and expertise that you would otherwise simply not have access to. Yes, you may have some excellent people in your business but your employees are likely to come from a limited local talent pool and you can’t be the best at everything yourselves.
Outsourcing to a company that specialises in the process or service you need can help you get things done better and more quickly than you could ever achieve in-house – potentially utilising the talents of the best in the business.
I’ve found this to be particularly helpful in the area of technology. It’s moving so fast that to keep recruiting and/or training people so that the business is up to date with the latest advances would be a full-time job in itself. So it makes absolute sense to outsource all things tech to a larger provider that harnesses global talent and has one focus.
5. Enhances the quality of your service
When you have the best people for every job, there’s no reason why you shouldn’t have a high-quality service. By outsourcing support functions to specialists and focusing the time and efforts of you and your employees on the more front-line, strategic aspects of business – including nurturing client relations – you should be able to excel in the quality of what you deliver.
6. Helps you innovate
Once you’ve outsourced the non-strategic elements of your business, you and your team have much more time to focus on developing new ideas and are likely to become more innovative. In addition, because the third-party providers you’ve outsourced to are specialists, they may themselves come up with innovations that benefit your business.
7. Enables you to be more flexible
The more permanent staff and in-house processes there are in your business, the longer it tends to take to respond and adapt to changes in the market. If there’s a downturn, you need to be able to cut costs and then, when things improve, you’ve got to be able to bounce back.
Outsourcing allows you to have short-term, flexible contracts with your partners, meaning you can easily make cutbacks then ramp back up on your workforce and production as necessary, without having to make redundancies then later invest in rehiring and retraining. The more functions you’ve outsourced, the more ‘agile’ your business can be.
Of course, there are potential pitfalls in outsourcing and business owners often have concerns about:
- A lack of control over outsourced tasks
- Communication problems
- Problems with quality.
Although all these can be issues, I’ve found that you can generally avoid them as long as you take the time to hire the right companies and set out clear expectations and processes at the start. Fundamentally, as with so much in business, successful outsourcing depends on good communication.
Some of my coaching clients have argued that outsourcing has a negative impact on staff morale and productivity, however I’ve always found quite the opposite. Outsourcing can take the mundane day-to-day tasks away from your employees, allowing them to become more engaged with the core business. They can learn and develop specialist skills and knowledge, enabling them to thrive in delivering what the business does best.
When staff feel more involved and more valued, they’re motivated to do better for themselves and the company. That results in a happier work environment, greater productivity and better profits. At the end of the day, by outsourcing the back end of the business, you’ve safeguarded the future of the company and the employment of its staff.
“No outsourcing the ‘soul’ of the company – let’s all agree to that. But most companies are more body than soul.” – Steven Pearlstein
How will my business look when I’ve outsourced?
Essentially, you should be able to outsource any business function that isn’t directly related to your expertise and competency. What you’re then left with is your company’s intellectual capital and a team of people who are all engaged in the core business and motivated to help drive it forward.
As such, your time should now be spent:
- Working on your business strategy and future income generation
- Meeting with clients and future prospects
- Building relationships with, motivating and mentoring your people
- Developing skills that are aligned with your core expertise
- Establishing yourself as a leader and authority in your field
- …taking some ‘downtime’ to focus on your own health and wellbeing and spending time with friends and family. Remember, that’s why you’re doing all this, after all.
Assuming you’ve realised what a good (and necessary) option outsourcing could be for your business, it’s time to make a plan of action. Take a look at every department and function, decide which would be better outsourced to a third-party specialist provider and start researching companies and agencies that might be a good fit.
“Master your strengths. Outsource your weaknesses.” – Ryan Kahn