Strategic Outsourcing: Is It Right for Your Small Business?
Nov 5, 2022 /By Becton Loveless / No Comment
A growing business faces many challenges. Establishing a unique brand, delivering high-quality products or services, and building up a reliable base of customers all take time, effort, and money. For small business owners, wearing every hat in the organization is impossible. Trying to juggle everything at once is a recipe for dropping the ball, which can drag your business down.
Adding more staff with diverse experience to the payroll is only sometimes the best choice. In some cases, long-term investment in better personnel is the right decision and will pay dividends in the future. However, some critical aspects of doing business could require an entire team to execute correctly—not to mention the tools and technological infrastructure they may need to operate.
So what’s a small business owner to do? Recognizing that you can’t do everything at once is the first step. The second step? Stop thinking of “outsourcing” as an inherently harmful concept and start contemplating leveraging opportunities for strategic outsourcing instead. What is this strategy all about, and what does it have to offer to your business? Let’s take a closer look.
What is Strategic Outsourcing?
Strategic outsourcing is about making smart decisions on how much work you keep under one roof. In brief, this term refers to strategic choices about how, when, and where to turn for outside help with a critical business process. From payroll and accounts payable to sales, marketing and more, there are many companies whose business is helping your business. When you don’t have the time or opportunity to cultivate talent and experience, outsourcing strategically lets you tap into the work already done by others.
Outsourcing gives small businesses a way to instantly connect with the same expertise and experience available to many of the bigger players in an industry. New technologies, which might be expensive to procure and deploy independently, are within easier reach through partnership arrangements. Staying ahead of the trends is simpler when you have third-party support whose entire job revolves around providing high-quality service to business partners such as your team.
Outsourcing strategically requires identifying the areas where you have weaknesses that would be easiest to address through additional support. You might choose to offload some key business processes, or you may need help managing the complexities of today’s information technology environment. For some businesses, outsourcing product manufacturing can be a source of value when done correctly.
This approach can prove highly advantageous for a growing business, but there are pitfalls you should know about. What are the advantages and disadvantages?
The Key Advantages of Outsourcing
First, we’ll review the benefits of strategic outsourcing for businesses. Some companies will have the opportunity to experience all the advantages; others may only experience some but to a greater degree. For example, reducing operational costs is one of the most common reasons businesses choose to outsource. Depending on your needs, outsourcing can be an excellent value, or it might not yield the extent of savings you desire. It all comes down to your specific needs.
Cost is far from the only reason companies outsource, and it would be a mistake to say it’s the sole benefit most C-suite executives want to see. There are other excellent reasons to outsource, including:
- Saving time on repetitive and highly involved processes. Offload important tasks that consume too much of your team’s energy to others and gain the opportunity to improve performance and boost bottom lines.
- Improving compliance and risk management. Even industries without extensive regulations still have rules to follow and business risks to manage. Working with carefully-selected teams of outsourced experts opens the door to more effective risk management.
- Make better use of company resources. Seek help from others with more experience to see how you can do more with what you already have.
- Honing a competitive edge by drilling down on what you do best. When you strategically use outside resources to improve key areas of the business, you gain the opportunity to rededicate yourself to doing what built your brand in the first place. While others bog down, you can sprint ahead.
- Engaging with the global economy through 24-hour availability or diversity in knowledge. Conveniently find the expertise you need without a lengthy and expensive hiring process.
The Leading Drawbacks to Outsourcing
Although the right partners and a sound strategy help unlock positive experiences with outsourcing, there are better solutions for some scenarios. There are some drawbacks businesses should be aware of before they explore an outsourcing program. Ultimately, these negatives are divided into three categories: quality, costs, and control.
Choosing a reputable third-party service provider is essential for guaranteeing quality outcomes. Outsourcing has a long history of associations with poor or low-quality work, stemming partly from public perceptions around the massive waves of offshoring in the early 2000s. Indeed, the risk of experiencing mistakes or just bad work still exists in offshoring today. Spending time researching solutions, vetting providers, and overseeing outsourced work all contribute to mitigating this risk.
Costs are another concern. While you might aim to save money when outsourcing, poor planning and low process visibility can lead to mounting hidden costs. Nuanced agreements between your company and a third party can be challenging to interpret and might leave you on the hook for expenditures you didn’t anticipate. Again, doing your due diligence can negate or eliminate this risk.
Finally, there is the risk of losing touch with important aspects of your business by outsourcing them. Losing control over fundamental work can be frightening and daunting to even the most seasoned businesspeople. Identifying outsourcing candidates who place a high value on accountability and communication should be a priority of your strategy. By staying involved and aware of the “big picture” situation, you don’t have to sacrifice much control.
When and Why Should Your Small Business Outsource?
When is the right time to make a move in this direction? Spotting the signs that indicate outsourcing is a smart strategic decision could be as easy as scrutinizing your books—but sometimes, there are other reasons to outsource. Consider the significant scenarios that might display the perfect conditions to change how you work, and remember that more than one could apply to your business.
It may be best to consider outsourcing when you want to:
- Get back to the basics of your core competencies. When the business grows, and your duties expand, you can lose sight of what made you successful in the first place. Let others lighten your load while you return to the company’s mission.
- Lower costs. Avoid additional payroll expenses without sacrificing flexibility when you shift space in the budget to more cost-effective third-party providers.
- Spend more time on the strategic direction of the business. When key decision-makers get stuck with routine administrative tasks, no one’s doing their best work. Let other professionals handle those tasks while the “A” team assembles to plot the company’s future.
- Simplify management. Is your org chart feeling bloated and chaotic? Streamlining management by reducing the number of tasks handled in-house can save you time, money, and headaches.
- Boost the quality of your outcomes. Are internal teams simply not achieving the results you need from a particular department? Additional outside help could be the solution.
- Transform processes for tomorrow’s work. Outsourcing can give you a quick leg up on the competition when you access more advanced technology and modernize your workflows.
The Most Commonly Outsourced Services
Where do today’s companies see the biggest improvements in their operations due to outsourcing? Let’s consider what services companies most frequently request help with while looking at the pros and cons of doing so.
Payroll
Making sure your teams get paid on time and that you’ve correctly calculated payroll taxes is essential for daily operations and annual tax filings. Unfortunately, it often consumes a considerable amount of time every one to two weeks—so outsourcing payroll is a move made by many companies. What should you expect?
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Accounting/Finance
Do you need help to stay ahead of your cash-flow situation or understand whether you’re taking advantage of early payment discounts from vendors? Outsourcing your accounting can be a massive relief, especially for business owners who aren’t accounting savvy.
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Marketing
Marketing is an extremely popular set of services to outsource for many reasons. First and foremost, however, is the knowledge gap: professional marketers can help you in ways that staff in-house might not be able to do. The right third-party marketing team can give your brand a big visibility boost, but you do need to choose wisely.
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Sales
What if you could rely on a crack sales team 24/7 instead of worrying over metrics and pushing managers to drive up their numbers every day? An effective sales team is the engine that drives many companies, but maintaining it yourself can be too much to handle when you want to focus on product innovation or manufacturing. What are the upsides and downsides of sales outsourcing?
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Customer Service
Every company deals with customers, and that inevitably means customer complaints. However, good customer service also creates positive experiences for buyers when they might initially be unhappy with the business. CS can consume many hours and much attention in a company, making it a prime candidate for outsourcing.
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SEO
Are you standing out online? Is your brand reaching as far and wide as it should or could? SEO is a pillar of today’s marketing strategies but requires in-depth knowledge of an ever-changing industry. Many companies don’t have time or space to hire a dedicated SEO expert, so what are the benefits of turning to a third party?
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Human Resources
HR has many aspects ideal for outsourcing, from compliance to risk management. Managing your people is essential, but some HR tasks consume too many resources and require too large a team for you to handle alone. As always, there are ups and downs to know.
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IT
To say technology changes at a rapid pace would be an understatement. Staying competitive today demands a highly stable IT environment regularly incorporating the newest tools and cutting-edge technologies. Could an outsourced IT team give you the flexibility you need to stay ahead of the curve?
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Shipping and Logistics
It may be more common to outsource logistics work than to keep it in-house. Moving materials and completed goods from Point A to Point B is hardly simple—and you might need extensive warehousing for inventory you don’t have. Be sure you know the potential pitfalls when working with third-party logistics providers.
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Manufacturing
Outsourcing manufacturing can lead to some of the biggest cost savings a company can see, but it requires considerable oversight and proactive involvement in the process. The benefits can be as much of an impact as the drawbacks, so you must weigh your options with care.
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Conclusion
Strategic outsourcing has the power to transform the parts of the business weighing you down in one way or another. Like everything, it comes with some drawbacks, and balancing the needs of your business with the benefits of outsourcing is a critical process. It’s your job to watch for the signs that say third-party assistance would be a boon to your business.
Are you struggling with high costs in a department you can’t wrangle under control? Outside expertise could be the answer to slashing costs and boosting productivity. Do you spend too much time on work unrelated to what your business does best? Refocus on the core of what you do by relying on outside professionals to support your work.
Outsourcing is also worth your consideration when you need to leave administrative tasks behind to refocus on strategy or to prepare to scale your business for rapid growth. Think of outsourcing as a way to support your business cost-effectively during key stages of its life. With the right partners backing you, your teams and, ultimately, the business as a whole can do what it does best. Will outsourcing be an opportunity for you to take your small business to the next level?
