Outsourcing is on the rise, and whether we like it or not, there is substantial growth predicted for this practice in coming years. The undeniable fact is that you need to understand what it is and how it can affect your business.
Now is certainly not the time to bury your head in the sand!
In our latest blog, our Virtual CFO explains the difference between outsourcing and offshoring. And then shares just some of the pros and cons of outsourcing.
What is the difference between outsourcing and offshoring?
An often-quoted distinction is that offshoring means getting work done in another country, whereas outsourcing is the practice of getting work done by an external organisation. The distinction may seem trivial, but there are major differences between the two.
When a company uses independent contractors or another company to perform services on its behalf (often in another country), the organisation is engaged in outsourcing.
Usually, the responsibility for the desired business outcome shifts onto the outsourced partner. A simple example of this is how all but the largest businesses outsource their tax compliance obligations to an accounting firm. The business does not have the in-house expertise to prepare and lodge the return, therefore engages someone else to do it.
In recent years, the trend has been to outsource entire business functions to specialists.
Outsourcing takes place in any industry and is widely utilised in customer service, administration, accounting services and legal firms: Basically, any task requiring a telephone or computer.
Currently, the biggest users of outsourcing seem to be within the Information Technology and Marketing industries.
Want to know a little more about outsourcing before discovering the pros and cons?
Read our recent blog on The Rise of Outsourcing.
The Pros of outsourcing
Because we are all about positivity at proCFO, let’s start with the pros!
Outsourcing can increase the speed of work delivery
Depending on where you outsource to, thanks to outsourcing, someone could be working on your business whilst you’re sleeping!
Your outsourced work doesn’t have to be concerned about employees having sick leave or holidays either and some outsourcing companies even operate on a 24/7 basis.
This means work continuation and little or no downtime, thus resulting in increased speed of work, output and delivery.
Outsourcing provides you with a global pool of expertise
When hiring an employee in Perth or your city, it’s likely that you only have access to a small pool of expertise and talent.
This often leads to compromise, meaning you might not be able to hire the exact candidate you’re looking for.
Outsourcing gives you access to a much wider range of expertise and talent from all over the world, as many Australian companies are discovering.
Need specialised help? It only makes sense to expand your search.
Outsourcing allows you to focus on your core business
When a business goes outside of their expertise, they may begin to shift their focus away from what they know best in order to gain knowledge and skills in ancillary functions and processes. This can waste precious time and money.
Outsourcing allows you to focus on your core business – what your business knows best!
Not only does outsourcing allow you to focus on your core business, it allows you to access capabilities that you may not have in-house and to strengthen existing capabilities – smart businesses understand this.
Outsourcing can lower company costs and increase profits
Outsourcing is widely known as a cost-cutting measure, in particular, labour costs.
Therefore, it’s common for companies to outsource to a country with lower labour costs.
Companies generally decide to outsource the production of goods and services if they think it can save them money and, by doing so, increase company profits.
Outsourcing also saves on recruitment fees, training and human resources, among other costs involved with hiring in-house staff, not to mention eliminating the need to deal with the overly complex Australian Industrial Relations laws.
Learn more on the 7 Tips to Save on Accounting Fees
The Cons of outsourcing
Like everything, there are cons to outsourcing. But savvy business owners can, and do, minimise the impact on their business.
Outsourcing can come with language barriers
The reality is, if you’re outsourcing to a foreign country, there is a high chance that English is the second language of the person you’re likely to be dealing with.
A language barrier or problem with communication has the potential to slow things down and cause ongoing issues.
However, you can list the fact that they need to be competent in English as a requirement and even ask to speak to the contacts prior to going ahead.
The global talent pool is so wide and diverse that you really don’t have to hire someone you can’t understand.
Outsourcing can have a negative impact on company culture
As a business owner, it’s easy to focus on the many benefits of outsourcing, without considering the impact it may have on your company’s culture.
And because statistics show that a positive company culture leads to a higher level of productivity, you certainly don’t want anything to jeopardize yours!
Outsourcing could lead to challenges in the daily workflow or confusion for employees. Some employees could even feel as though you are replacing them, which can be difficult to manage and lead to poor morale. So, you have to know How to Keep Your Company’s Culture as it Grows.
Simply discussing the option of outsourcing with your employees and pointing out the benefits, whilst ensuring they understand the process and your reasoning behind it, is likely to do the complete opposite – it could create a positive impact on your company’s culture.
Moreover, outsourced workers could even provide new insights and skills to your in-house employees, thus providing them with more interesting and meaningful work.
There are many more pros to outsourcing, but we only had time to touch on a few.
We will be writing more blogs on the topic of outsourcing in the future, so stay tuned!
Ready to take the leap into the outsourcing world? Contact our Virtual CFO at proCFO today to find out more!