Benefits of outsourcing – outsourcing can bring great benefits to companies, but there are also risks and challenges in negotiating and managing outsourcing relationships. From SMEs to large corporations, businesses of all sizes can use outsourcing to grow and expand their business while keeping costs as low as possible.
What is outsourcing?
Outsourcing is a business practice in which services or operations are contracted out to a third party instead of hiring new staff or assigning these tasks to existing staff. It is a popular way for businesses to reduce operating costs and streamline operations while completing critical tasks.
Outsourced tasks can be occasional, such as hiring an accountant to do taxes once a year, but they can also be a regular part of running a business.
Benefits of outsourcing
The companies that carry out outsourcing services may be independent consultants or other large companies. Regardless of the size of the company involved, outsourcing operational tasks can offer many benefits, including:
1. Keeping costs low
Sometimes the cost of purchasing equipment or the need for a new location is unaffordable. In these cases, outsourcing the operation is more cost-effective than expanding it internally.
If a business’s growth leads to an increased need for office space, simple activities such as telemarketing or data entry can be outsourced rather than moving to a new location. This can cost far less than expansion and is both more efficient and less expensive than relocation.
2. Driving growth
Some operations are associated with extremely high costs, but many companies still want to offer them to satisfy customers, expand the business model or be competitive in the market. Outsourcing can be a good option if the cost of carrying out these operations in-house is too high, would take too long, or would create inefficiencies in the business model.
For instance, a small medical practice may want to accept a variety of insurance plans, but one employee can’t keep up with all the different providers and rules. Outsourcing to a company that specialises in medical billing costs less than hiring additional professionals or training existing staff, while increasing the benefits to clients.
Companies in the growth phase often find that they would benefit from more staff but cannot afford the cost of hiring and supervising more full-time employees. This limits the growth potential and slows down the momentum the company has built. Some companies take the risk and hire new staff, only to find that the risk doesn’t always pay off. Instead of growing slowly, this can even reverse growth.
As it is cheaper to outsource than to build an in-house team and an outsourcing contract can be terminated without having to lay off staff, this is a great way to ensure that a company maintains steady growth while the core team focuses on internal tasks.
3. Full focus on key activities
In times of rapid growth, the back-office of a company tends to expand. This expansion can tie up human and financial resources at the expense of the core activities that make the business successful.
Another advantage of outsourcing is the possibility to keep focus on the important internal tasks of the company. Customer service, for example, is an important part of any business but can be time-consuming and distract key team members. Outsourcing customer service has two benefits. First, customers are provided with consistent customer service. Second, it allows internal team members to focus on their own tasks, which helps the company operate more efficiently and ultimately increases ROI.
Another benefit of outsourcing is the improvement of the company’s image. Modern outsourcing firms can be expected to represent the company with the highest standards. SMEs are often unable to provide comprehensive customer service. Outsourcing this aspect of the business gives the company a more professional image.
4. Preserving operational control
High-cost operations as well as departments that may have become uncontrolled and poorly managed over time should be considered for outsourcing. An outsourcing company can often bring better management skills to a company than would be possible without significant restructuring.
The IT department for example may be busy with too many projects, too few staff and a budget that exceeds its contribution to the business. An outsourcing arrangement with an IT service provider forces management to prioritise and bring projects and expenses back under control.
5. Allowing flexibility
During the course of a year, the number of staff needed may be fluctuating. Outsourcing gives the company more flexibility. It can increase its staff before a peak season without making a financial commitment to hire its own staff, whose costs take years to pay off. After the company has survived peak season, it can easily switch back to a fully in-house team. With an experienced outsourcing agency, outsourcing needs can easily be scaled.
Outsourcing allows companies or departments with fluctuating needs to bring in additional resources as needed. The outsourcing company can be recalled when the need decreases, so that the flexibility of the company is maintained.
6. Ensuring continuity and providing risk management
Periods of high staff turnover can bring uncertainty and volatility to a company. Outsourcing provides the company with a degree of continuity while reducing the risk that an inadequate level of operations could bring, even over a short period of time.
For example, a human resources manager may be on sick leave for an extended period and the administrative assistant changes jobs. Outsourcing the HR function reduces the risk and allows the company to maintain operations while the manager is unavailable. It also gives time to hire a new assistant without rushing the decision due to the office being understaffed.
7. Development of internal staff
On-site outsourcing, where contractors are brought to the company’s location, can provide employees with the skills they need while internal staff work alongside them and learn new skills.
This can be particularly beneficial for large projects that require skills that in-house staff do not have.
8. Benefiting from the best talent
Large companies can offer salaries and benefits that are usually far above what smaller companies can offer, so the best talent goes to the largest companies. This can limit the ability of companies to deliver the best results. There is also a risk that the best employees will be poached by larger companies that offer better incentives. Outsourcing agencies can recruit top talent to ensure customer satisfaction and competitive results.
9. Increasing brand loyalty
A well-trained customer service staff, backed by management with years of experience, provides customers with the quality of service that keeps them coming back. To move internally from no support staff to an industry-leading support team is almost impossible. The financial commitment and experience required to assemble such a team are often simply too much for companies. The professional services offered by an outsourcing company make clients feel valued.
10. Ensuring compliance
Even large companies can feel the financial impact of new regulations. Several industries have strict data protection and security requirements that can drive up the cost of maintaining staff.
A poorly trained staff can have serious consequences – staff that does not follow the regulations properly can cost the company a lot. Without the resources of a large company, it is difficult to assemble such an experienced staff.
When hiring an outsourcing company, it is important that it meets all relevant compliance standards. This will save the team and the company from the risk of potential lawsuits and other difficulties that come with non-compliance.
Conclusion – How outsourcing can benefit your company
Companies thinking about how to support their growth through outsourcing should focus on the value that a contractor’s expertise brings to their business. When outsourcing, companies should not just look at the cost difference between an external contractor and internal staff.
Companies often think of outsourcing only in terms of cost savings, but outsourcing can do more than that. As companies grow, outsourcing can be a way to innovate, change the industry and gain access to new skills that increase the company’s competitiveness in the marketplace.
Outsourcing offers companies the opportunity to innovate, grow and differentiate themselves from the competition – depending on the needs of the company, outsourcing can help to achieve the goals set.
InterGest South Africa outsourcing services
InterGest South Africa offers outsourcing services to international businesses entering African markets. With 20 years’ experience, we offer unparalleled support with a comprehensive range of services and extensive expertise in African markets.
From market entry through to the setup, administration, management of subsidiaries and sales organisation, we have the perfect and cost-efficient solution at any stage of your African venture.
To find out more about our outsourcing services, please visit our service page on the website or simply write us an email to contact@intergest.co.za. We are happy to offer you an initial, free consultation.
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