Outsourcing and Your Business
Outsourcing is an established way of doing business today, allowing companies to maximize their budgets and resources — and generate better products.
Also referred to as subcontracting, outsourcing simply means acquiring a product or service rather than producing it in-house. Outsourcing is suitable for just about any industry. In the administrative field, for instance, a variety of activities can easily be farmed out to a subcontractor, including word processing, data entry, transcribing, research, contact management and event planning.
Outsourcing is extremely common practice within human resource (HR) departments. In fact, two-thirds of HR departments outsource at least one activity, according to research by the Bureau of National Affairs, Inc. and the Society for Human Resource Management. The top five outsourced HR activities are employee assistance/counseling, flexible spending account administration, pre-retirement counseling, outplacement services and pension/retirement plan administration.
Weighing the Outsourcing Option
When deciding whether outsourcing is a viable option, a company should consider all of the issues involved. Should the projects be kept in-house because they’re critical and employees need to know how to do them themselves? Also, does the company have a sourcing plan, staff members to oversee contracts or a philosophy that supports the outsourcing initiative? If it does, outsourcing may be ideal for your business. The bottom line is every business is different and companies should carefully weigh the benefits of outsourcing.
Benefits of Outsourcing
Many companies that choose to outsource do so because they don’t have or can’t attract the people skills they need. Subcontracting gives them access to a much greater pool of resources. It also enables companies to cut cost by 10 to 30 percent, depending on the industry. They can purchase services on an as-needed basis, instead of maintaining a full-time employee. This allows them to avoid paying employee-related expenses such as salaries, unemployment taxes, paid vacation and sick leave, insurance — which results in a lower overhead.
In another aspect, outsourcing can help a company focus on its core business, creating a competitive advantage within its industry. Subcontracting also affords the business the chance to get the best job possible from the people it hires. By using a third party supplier, a company has more room to be critical of the kind of services provided. If the work is done in-house, company ties may interfere with the final product.
Outsourcing also offers a wide variety of other benefits, including:
Faster setup of the function or service
Acquire innovative ideas
Increase commitment and energy in non-core areas
Improve credibility and image by associating with superior providers
Greater flexibility and ability to define the requisite service more readily
Less dependency upon internal resources
Greater control of budget
Greater ability to control delivery dates
Increase flexibility to meet changing business conditions
Purchase of industry best practice
Generate cash by transferring assets to the provider
Gain market access and business opportunities through the supplier’s network
Turn fixed costs into variable costs