If you’re not outsourcing some aspect of your business perhaps you think outsourcing is only for those companies that are lacking something. In fact, a study has shown that 85% of the best long term performing companies, outsource strategically. Whether it’s accounting, human resources or payroll outsourcing, you need to know about it.
Is outsourcing right for your business? Are the benefits worth the cost? Learn more as we take a look at the pros and cons of outsourcing.
The Case for Outsourcing
Outsourcing is not something to engage with lightly. There are advantages but there are disadvantages, or at least risks too. Understanding the risks is the key to avoiding them and leveraging the benefits.
The case for outsourcing may start with a perceived need to reduce costs. This may be one of the key advantages but it’s far from the only one.
Cost-Effectiveness
Outsourcing a business activity such as human resources or accounting can deliver savings. This comes primarily from the economies of scale that an outsourcing service can leverage.
If you are to provide a full-service human resource service in-house, you may have to buy and maintain an HR record and payroll system. It’s likely that there will be times when there are redundancy and under-utilization. At other times, people and systems will be stretched.
Maintaining the service for one business is therefore expensive and wasteful on people, investment and other resources. This is more efficiently done by an outsourced service because they have multiple clients and can, therefore, benefit from the economies of scale.
Staying up to Date
Regulation and fashions in business change frequently. It can be difficult and expensive to keep up. Making errors, not complying with statutory regulations and not keeping up with the expectations of stakeholders can be expensive. Litigation, reworking, and loss of reputation can all result from out of date practices.
An outsourced service provider has to make it their business to stay up to date. Their specialization means they worry about following the progress of regulation change. They also maintain the education and skills of their people.
Pooling Experience
It can be difficult to learn from the experience of others. New recruits bring some outside experience. Professional associates can help maintain the expertise of their members.
These are limited forms of organizational learning. Outsourced service providers have practical and recent experiences from many different businesses. This experience is invaluable if you want to follow the best practices in your sector.
Access to Experts
The outsourced service provider can help educate your people. As experts, they can add to your organization’s ability to respond to problems without you having to maintain in-house expertise.
Speed of Response
Recruiting and training your own people takes time. A much quicker way of responding to an urgent need is to outsource. This flexibility can be a source of competitive advantage, especially for smaller organizations.
Stay Focused
Your business’s core activity needs your undivided attention. Having to also handle non-core activities such as human resources or accounting can be an unwanted distraction. Outsourcing allows you to focus on what’s important to you.
The Pros and Cons of Outsourcing Come Down to Managing Risk
The case for outsourcing is strong but there are risks.
There can be a sense of a loss of control. Unclear or unspecific contractual terms can lead to conflict and loss of confidence. Different organizational cultures mean communication problems and clashes of values can arise.
Like any delegated task the key is to delegate effectively. The skills of supplier management come to the fore.
Select an outsourcing provider who you can truly partner with and is compatible with your company culture. Be clear about your expectations. Enshrine this in your suppler agreement or contract.
Is Outsourcing Right for You?
Check out the pros and cons of outsourcing. Consider whether you can handle the risks. Can you afford to ignore the potential benefits?
Talk to us about outsourcing by making contact here.
