Can your company possibly benefit from outsourcing some of its work (or employees) to another company? Do you need to conduct at least some of your business operations through external help? Let’s examine the concept of outsourcing. And how a small business owner may benefit from outsourcing some of its tasks.
Outsourcing: The Definition
Outsourcing is basically hiring another company (a third party or agent) to handle services, or perform tasks that would normally be done in-house. It is a contract or agreement to seek for external help to perform some internal operations on behalf of a company. This could occur out of necessity.
The Wikipedia online page that explains outsourcing, pointed out a common example. That is, where a public or government corporation hands over some of its services to private firms on contract. This is called privatization.
Another typical example involves the use of web-based cloud storage and software provided by another company (such as Google or Microsoft). This is a sensible alternative to setting up expensive databases and hardware/software facilities within a company. Several modern companies in need of a robust information system or data center, now pay for external cloud storage facilities by outsourcing it to a reliable provider. It easily eliminates huge maintenance costs in the long run.
Outsourcing is fast becoming a popular service in the corporate world. However, it is necessary to examine the overall effect of outsourcing on a company before proceeding with it. If carelessly handled, outsourcing may negatively impact an organization’s company culture. It could affect the morale of the employees due to poor understanding. Or standard office tasks may become a bit more complex due to the outsourcing arrangement. So for a company to embark on outsourcing, it is critical to weigh its benefits against the possible downside as regards that particular company.
The Origins of Outsourcing
Outsourcing is a practice that began sometime between the 1970s and 1980s, pioneered by the Kodak company. In 1989, Eastman Kodak reportedly entered into a contract with computer giant IBM to build and manage its data center. Along the line, hundreds of workers from Kodak were transferred to IBM’s Integrated Systems Solution Corporation (ISSC). The Kodak-IBM outsourcing contract which took place at such a massive scale and yet succeeded, prompted many other companies to follow suit.
Advantages of Outsourcing
So briefly, why would any company consider the outsourcing arrangement? Some of its observed benefits in both small-scale and large organizations include the following:
- Lower cost of labor and more savings. A business owner is only required to hire and keep a few critically-needed, permanent employees in the office. Some workers may be rendered redundant because they perform duties that are infrequent, or not so labor-intensive. Such workers may be handled as ‘transient’ workers. Their services may only be brought over through outsourcing, and for a cheaper pay (than if they were permanently employed by your company). There is also cost savings in not having to buy and maintain so much office equipment. When you can as well ‘borrow’ equipment (and space) from a dedicated third party provider for significantly less cost.
- Opportunity to access a broad range of skilled/talented workers from other parts of the country (or even across the world). Including skilled workers that are difficult to find within your environment. And that without remaining unduly tied to them on a long-term basis.
- Opportunity to focus on the core competencies of a business. Your employees can better handle the more important aspects of your business. thus boosting efficiency of operations. More qualitative work can be done in less time.
- Highly useful for small businesses with limited office space, or no standard physical location to keep so many workers or physical assets and/or equipment.
- Ability to start new projects on time. An established outsourcing firm already has the resources (and trained staff) needed to commence an assignment on ground. Such consultants can start and complete projects in a short time, compared to a business owner.
- Reducing business risk. An outsourcing consultant is there to help a small business handle and minimize the risk of handling any project.
Disadvantages of Outsourcing
- Problems with communication. You may have to face barriers such as how stable is the internet connection; different time zones; or which method of communication is preferred (especially online).
- Enforcing quality may be a challenge. The expected quality of work should be made clear to the consultant in the first place. Even at that, there are cases of failure to meet the required standards..
- Lack of control. Like it or not, some of the control over your company information, staff and operations must be ceded to the consultant handling them. You cannot fully monitor what they do (right or wrong).
- Outsourced employees may feel undervalued and disconnected from the company. You can mitigate against this by discussing the arrangement with the affected staff to get their support.
What Services or Needs CAN be Outsourced by a Small (or even Big) Business?
- ICT services, equipment and specialized staff
- Customer support jobs
- Legal services. Hire lawyers on contract, only when needed
- Human resources (recruiting) tasks
- Data entry operations. Populating spreadsheets and databases with large volumes of important company data can be outsourced to a third party.
- Marketing (e.g. digital and physical advertising, setting up marketing campaigns, and monitoring the results)
- Accounting and tax calculation functions
- Web design and hosting. You can get an external web consultant to create, update and maintain your website for you.
- Virtual assistance. Common office maintenance tasks such as handling customer queries, servicing orders, email and calendar management, scheduling meetings and appointments, and travel arrangements can easily be outsourced.
What services CANNOT be Outsourced?
Certain aspects of a small business (or any business for that matter) should be protected by all means, and kept within the standard office (and/or by select persons). Such things involve information and equipment that are highly sensitive or confidential. You can all them company secrets.
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