Outsourcing is the contracting out of non-core business activities to a third party by means of a contractual agreement. Outsourcing helps firms to concentrate in their core competencies.
There are many service providers – firms or individuals - who specialize in executing specific tasks.
An example is firms which use call centers to service their clients. In such a case calls are forwarded to an agency’s call center and the trained staff will handle the calls according to agreed instructions.
This is suitable for firms that have a lot of customers’ enquiries and those that handle arrears or collection of debts.
Outsourcing is a strategy used by many large firms. However, smaller firms and entrepreneurs have realized that outsourcing can be a competitive advantage which enhances growth, productivity and profitability of their business.
What tasks can be outsourced
It is not unusual for firms to outsource their IT support and bookkeeping activities to another firm. Or, many firms may have one-off projects that do not require full-time employment and prefer to find an external freelance individual to perform the specific task.
Any non-core business activity that can be performed outside a firm’s premises can be outsourced to third parties.
Core activities are essential strategic tasks that improve customer value and add profits to a firm.
These activities should not be outsourced. Examples include decision making, risk management, vision and strategic planning of a firm.
Non-core business activities involve tasks that do not add value to customer and do not enhance profitability such as routine daily tasks: payroll, marketing campaigns, IT support etc.
Here is a list of some business tasks that can be outsourced to third parties:
- Internal audit
- Tax preparation
- Financial Statements
- Budgeting and Business Planning
- Financial Analysis and Forecasting
- Financial Planning
- Investment Advice
- Risk analysis
- Business Plans
- Tax advice
- Audio editing
- Video editing
- Audio and Video production
- Virtual Administrative Assistant:
- Internet Research
- Article submission
- Newsletter publication
- Content writing
- Social media and blog updates
- Data entry
- Event and travel planning
- Email handling
- Powerpoint presentations
- Excel documents
- Word processing
- Copywriting and Proofreading
- Call centers
- Sales promotion
- Email marketing campaigns
- Google AdWords
- Market research
- Public relations
- Creative design
- Marketing promotion
- Website development
- Advertising banners
- Design and printing of marketing materials
- Design of banner
- Cartoon design
- Logo design
- Photoshop design
- Flash developers
- Website design
- Web hosting
- Android and iPhone application designs
- Software Programming and Testing
- Shopping Cart Setup
- Script Installation
- Plugin Installation
- HTML Coding
- Joomla installations
- Wordpress installation
- Search Engine Optimization (SEO)
- Human Resource (HR)
- Recruitment of skilled staff
- Employee contracts and Handbooks
- Performance management
- Appraisal management
- Development of staff
- Culture development
- Change management
- Mission statement
- Employment Policies
- Team building
- Policies and procedures related to staff
- Performance reward
The outsourcing process
When a company is established and decides to include outsourcing in its employment strategy should decide upon the following:
Find a service provider
Making a contract
Annual review of outsourcing agreement
Why many companies choose to outsource their activities
The reason is that outsourcing can improve growth, productivity and profitability of a firm while reducing its costs.
For example, it would cost much more money and time to hire high-skilled professionals for each of your business function.
On the other hand, the employment of a person includes not only the salary but also time spent on recruitment, social insurance and employers’ contribution, vacation days, sick leave etc.
When outsourcing, all employee related expenses are transferred to the third party.
Some other firms choose to outsource to reduce workload on current employees, freeing them time to focus on their development or other important business tasks.
Others seek ways to minimize their costs and they use outsourcing to free up cash, time, facilities and staff and use these resources in core business activities.
As a result, they use a combination of traditional employment and outsourcing in their everyday business function.
They also use outsourcing for jobs which do not require full-time staff because it is difficult to find someone to work only 2-3 hours a day.
On the other hand there are one-off projects that a firm may choose to outsource because it cost much more money and time to employ and train staff just for a limited period than to outsource the specific task.
The benefits of outsourcing
Eliminates Operational costs and capital expenditure such as equipment, technology and infrastructure.
Reduces Labor costs: It is usually - but not always - cheaper for a firm to outsource in relation to traditional employment because employee related costs are transferred to the third party.
Saves you time: There is no need to train people for a specific task since the service provider is already specialized to perform the specific job.
Focus on core business: The management can focus on the core business processes such as business analysis and decision making.
Flexibility: The organization may adapt more quickly to rising or slowing demand without increasing significantly its expenses.
Savings on recruitment: No need to spend time or money on recruitment or training of people. The companies or freelancers have already the knowledge and expertise required to perform the specific tasks.
Best Quality in relation to Cost: You have access to educated, high skilled individuals who can offer you high quality in relation to the cost. This results to increased efficiency and can be an important competitive advantage to organizations.
The small may act as big: Allows small firms that cannot afford hiring many in-house employees with different specializations to access qualified people. As a result they have the same efficiency, expertise and offer high quality services or products as larger firms.
The drawbacks of outsourcing
Quality: Since you do not have control over the performance of the third party, the quality in some cases may not be as expected.
Risk of exposure of confidential information: When a firm outsources HR or payroll to third party there is a risk of misuse of confidential data.
Lack of communication with customer: There is no direct communication with the customer and it might be difficult to build long-term relationship.
Loss of control: The company loses control over the outsourced activity and the ability to take appropriate measures in case of weak performance.
Failure to deliver: If the provider fails to meet the deadlines agreed, this may result in delays and damage the reputation of the firm.
Outsourcing – Is it the best choice for your firm?
It is not a core business activity.
It is a job that wastes valuable time and energy of the management or the staff.
It is a temporary activity i.e. one-off project that requires temporary employment.
It is an activity which requires specific skills which cannot be found within existing staff.
It is cheaper to outsource than perform the specific activity in-house.
Entrepreneurs could consider outsourcing non-essential functions which wastes their time.Outsourcing is gaining ground all over the world because it is a strategy that generates results. It is a strategy that has worked for many firms and something that you too should consider.
So what do you think. Is outsourcing some non-core functions the best choice for some Companies?
This guide has been created by Anna Stylianou Freelance Administrative Professional.