Outsourcing is the process of assigning a company’s business processes to an external agency in lieu of enhancing service quality, driving innovation or deriving benefits of lower labour costs.
The effects of outsourcing are subjective to the industry and the purpose for which the same was undertaken. Outsourcing is primarily undertaken to enable companies to generate better revenue recognition and to provide them with an added competitive differentiator. While done with the best of intentions, outsourcing has a telling effect on the quality of products and services delivered as a consequence of this, either enhancing or lowering quality. While there could either be an increase or decrease in the turnaround time while outsourcing, it could also result in improved or deteriorated customer service. Outsourcing can also result in easier management and better productivity based on how effectively the process is managed.
With the fear and concerns about COVID-19 still lurking, many businesses considered transitioning to Work from Home (WFH) for their employees. Although WFH was already being practised before the pandemic, some companies started doing it for the first time. Others were not yet willing to embrace the setup because of some important concerns like productivity and resources.
Some businesses believe that productivity and efficiency can still be achieved outside of the office. Though they may sometimes become overwhelmed with checking on remote employees from time to time while working on tasks simultaneously. This problem can quickly be resolved by hiring an outsourcing company.
If one lacks the experience of managing a remote team, outsourcing is the best option. However, it is worth noting that it is not for all. Before deciding if it will work for a business, one first needs to understand the advantages and disadvantages of outsourcing.
Advantages Of Outsourcing
Knowing the benefits of outsourcing would help to decide if this is something that could work for the business. Here are some reasons to give this a try:
1. No need to hire more employees
When one outsources, he can pay for the help as a contractor. This allows them to avoid bringing an employee into the company, which saves money on everything from benefits to training.
2. Access To A Larger Talent Pool
When hiring an employee, one might only have access to a small, local talent pool. This often means he has to compromise. Many companies have found that outsourcing gives them access to talent in other parts of the world. Thus If one needs specialized help, it often makes sense to expand the search.
3. Lower Labor Cost
Companies generally decide to outsource the production of goods and services if they think it can save them money and thus, by doing so, increase company profits. Every company has its own reason for outsourcing, the most frequently cited reason is lower labour costs. Companies might outsource to a country that has lower labour costs. While some might see the local job loss as a negative effect of outsourcing, the increased profits that can result are hard for companies to resist. Companies may also outsource to save themselves the expense of training and hiring all in-house employees or to scale their business. No one wants to trade quality for the price, but outsourcing often allows one to get the best of both worlds. By searching a global talent pool, it is easier to find the right talent at the right price.
4. Offer Staffing Flexibility
Outsourcing allows operations or departments that have cyclical demands to bring in additional resources when they are necessary. The outsourcing company can then be released when things slow down again, maintaining a company’s flexibility.
Paying a full-time data entry person, for example, may not make sense when one can have someone else do the same tasks for a fraction of the rate. Not to mention all the other savings that come with not having that person on the payroll or taking up a desk.
5. Tap into global scaling
Even outsourcing manufacturing can reduce costs but allows the connection with the contractor to tap into other potential customers and revenue streams. Possibly expand the product lines, increase distribution, eliminate warehousing, and not manufacturing in-house.
6. . More productive, motivated and happy employees
Contrary to what most businesses believe about the productivity level of remote workers, a study by Business New Daily revealed that remote workers put in 1.4 extra days of work per month compared to those working from the office. The work from Home model is the “new normal,” and more people are looking forward to working remotely.
A study entitled “Workforce Futures: The Role of People in the Future of Work,” revealed that 83% of employees believe that they do not need to be in the office to be productive. Remote workers feel healthier and have more family time without sacrificing their productivity.
Work from Home gives workers the feeling that they are being more trusted by their managers as they are allowed some degree of autonomy to do their job (like developing a working routine that better suits them).
Outsourcing also impacts the in-house employees’ motivation because they would not feel overwhelmed with their work. One of the many outsourcing benefits is that some of the tasks can be delegated to the remote worker to let the in-house employees focus on their primary responsibilities. This way, one would not have to feel the harmful effects of an overwhelmed employee.
7. Better work-life balance
With outsourcing, the employees get to improve their work-life balance. Remote workers do not have to commute to work, and the in-house employees do not have to work for long hours due to additional tasks. Instead, they can devote some of the time to other tasks such as doing household chores, exercise, and others.
In most cases, employees cannot get a quality life because they spend the day working and go home doing more work. When outsourced, the employees get more time for rest and recharging. Thus they become more motivated and as a result productivity increases.
8. Lower employee turnover
When they feel stressed and overwhelmed, it is understandable for the employee to quit their jobs and look for a less stressful job. Especially now with the pandemic and its aftermath, employee attrition can be prevented by allowing them to do some remote work. Studies revealed that companies offering remote work options saw 25% less employee turnover compared to those that did not.
Surveys revealed that 79% of respondents would be loyal to their employers if they were offered the option to work from home. On the other hand, 32% said they quit their jobs because they lacked flexibility.
9. Provide Continuity and Risk Management
Periods of high employee turnover can add uncertainty and inconsistency to any business. Outsourcing provides a level of continuity to the company while reducing the risk that a substandard level of operation could bring, even over a short period of time.
For instance, suppose the HR manager is on extended medical leave and her administrative assistant is leaving for a new job. Outsourcing the human resource function reduces risk and allows the company to keep operating while the manager is unavailable. It also gives the company the time to hire a new assistant without rushing the decision because the office is understaffed.
10. Reduce problems
Outsourcing allows the business to wash its hands from many problems that are difficult to control in-house, such as regulatory, unions, licenses, etc.
Problem areas Of Outsourcing
Despite the many benefits of outsourcing, one must keep in mind the potential problem areas to avert failure:
1. Lack Of Control
Although one can provide direction in regard to what needs to be accomplished, some control is lost when outsourcing happens.
There are many reasons for this, including the fact that often a contractor is hired instead of an employee. Since the person is not working on-site, it can be difficult to maintain the level of control one desires.
2. Communication Issues
Though not always, communication issues are one of the biggest potential drawbacks. Since communication is immensely essential to succeed in the business world, the question always lurks in the mind is whether that would be affected by outsourcing.
3. Problems With Quality
Despite all the benefits of outsourcing, the end result received should be of good quality just as one expects it to be. Anything less than that is a disappointment. Thus the expected quality needs to be discussed at the onset. A business is responsible to the customers regarding the quality of the product and/or service. Thus the best outsource company for the product or service should be opted.
Many companies outsource their manufacturing operation, then have another outsourced company that stores and picks/packs/ships the finished goods. Their delivery problems affect the overall company’s delivery. Customers don’t want to hear excuses regarding the timely delivery, nor with any mishap during the same. Thus this has to be handled carefully.
5. Impact of outsourcing on Company Culture
As a business owner, it is easy to focus on the benefits of outsourcing, all without considering the impact it can have on the company as a whole. If one plans on outsourcing, he needs to take steps to ensure that it does not have a negative effect on company culture.
A positive work culture leads to a higher level of productivity, and thus this should not be jeopardized. Outsourcing does not always have a negative impact on company culture, but one needs to protect against this before he ever takes a step in this direction. Thus discussing the decision with any employees who could be impacted is important.
How to Get the Most From Outsourcing
Businesses often think about outsourcing purely in terms of cost savings, but outsourcing can do more than just lower expenses. As a business grows, outsourcing can be a way to promote innovation, disrupt the industry, and access new skill sets that help to reposition the company in the market.
When considering how outsourcing can help to grow, one should not limit by looking at the cost of hiring outside contractors versus handling a task with the current staff. Focus on the value a contractor’s expertise adds to the company. Whether through expanding production, marketing the company more extensively, or disrupting the way your industry does business, outsourcing can provide an opportunity for a company to innovate, grow, and rise above the competition.
Thailand Business Consulting firms like Startup in Thailand take up full project management on behalf of their clients and execute it without their presence in Thailand. This is a classic example of business outsourcing wherein all backend business operations are outsourced to them by their clients and gives their clients an easy and focused opportunity to concentrate on business development.
As a Business Startup Specialist and the founder of Startup in Thailand, Andy Aditya is often hired as a Representative Director to assist business owners to execute their vision.
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