How can small and medium companies benefit from outsourcing

Outsourcing a process means hiring an independent third party to perform a business function or a set of processes that internal employees might have performed otherwise. Outsourcing of non-core functions is a tried and tested method and is recognized as a long-term strategy for success. 

As businesses across the globe are still struggling to cope with the changes in work environment due to the pandemic, many have turned to outsourcing business processes to stay competitive while levelling with efficiency and quality. As per the latest survey, 37% of small businesses across the globe use outsourcing services to handle at least one of its business processes. 

Why do organizations outsource?

One of the primary reasons for small size organizations to outsource work is to get the task done quicker. For organizations with limited number of staff to manage the support functions, outsourcing the work to a third party helps in achieving the task quicker. In addition to the aforementioned points, most companies across the globe cite these additional reasons to outsource:

• Lack of expertise for a few business processes

• Cost effective option compared to lateral hiring

• Ability to focus on core business functions

• Timeliness and better quality output 

How to decide whether a function should be performed in-house or outsourced?

• Identify the core strength areas of the organization staff

• Identify recurring activities and the cost incurred for performing these tasks by lateral hires

• Perform a cost-benefit analysis on outsourcing vs hiring or in-sourcing

• Calculate the additional expenses to be incurred in terms of office space, software to be used, office equipment and furniture, training and development costs etc. to perform the task in-house

• Identify the risks involved in outsourcing - like reduced quality by outsourcing to inexperienced third parties, threat on confidentiality of sensitive data, threat of misuse of intellectual property etc.

Key business processes that can be outsourced

Benefits of outsouring business processes to a third party

• Focus on strategic and core business functions  - Management can free up their time from recurring activities performed by teams like Finance and Accounting, Payroll, IT, Admin activities and invest the time in core business functions and activities, which will enable the company in its growth and expansion

• Cost savings - Outsourcing helps the entity in reducing operational and recruitment expenses and thereby to release the available additional working capital on other investments

• Less infrastructure facility requirements - Companies can reduce the requirement of additional office space, equipment etc. by outsourcing a few support functions to a third party

• Usage of latest technology without investing in it. Investment of hefty amount in technology advancements and upgrade to the latest technology platforms is not required, as most of the outsourcing companies always maintain the most up to date and relevant technology

• Access to world-class skills and experience - Third party vendors who are specialized in providing certain services like IT management, Compliance Management, Finance and Accounting etc. would have expertise and experience of years and from different sectors, which ensure quality of services

• Better knowledge base, resulting in improved quality and innovation. Outsourcing companies usually have skilled resources with the required level of experience

For any company, be it a start-up, SME or large entity, these three areas always find a place in the top ten business goals - improved profitability (reduced costs), technology advancements and employee upskilling. All three can be achieved by using the expertise of a third party for at least one of your business processes.

Outsourcing is a great way to manage the roles and responsibilities within a business function at reduced costs. Partnering with skilled manpower and latest technology platforms by outsourcing will boost the growth of small and medium businesses.