As a new or emerging business, it behoves you to stay vigilant for efficient and effective routes to longevity, scaling and profitability in varying measures. Capital often comes at a long-term cost, whether equity to a venture capitalist or interest to a banking institution; as such, how that money is spent is of paramount importance.
There are numerous approaches to business growth that enable shrewd saving and efficient expansion, but one of the more common examples is something called ‘outsourcing’. Outsourcing is the contracting of work or business processes to a third-party organisation, who undertakes the work on your behalf. Consumers might encounter this most commonly in customer service, where call centres are frequently managed by third-party services on behalf of a provider or business.
Of course, outsourcing is a broad church, encompassing almost every central and ancillary process within a business. There are also advantages and disadvantages to adopting outsourcing as an option. What are those advantages and disadvantages?
The Advantages of Outsourcing
The leading advantage to outsourcing, particularly for newer businesses, is that outsourcing enables the business to re-focus on core processes – be they development or marketing. Outsourcing HR processes to a third party might free up administrative staff to draw up crucial frameworks for expansion and compliance, for example.
Greater Competitive Advantage
In many cases, the third party to which a business outsources is better-placed to provide a given service – something which can have a real impact on the business’s competitive presence. For example, a courier service might be able to offer same-day delivery, outpacing the in-house capabilities of direct competitors and edging you ahead in your regional market.
Outsourcing can not only be cheaper than building and managing your own in-house team, but also much more predictable in terms of price. Where hiring staff invites the risk of costly staff turnover, third parties offer packages at fixed rates that can be baked into longer-term budgets.
The Disadvantages of Outsourcing
Of course, in outsourcing any processes to another business, you essentially ‘black-box’ those processes; through being managed by another organisation, you lose immediate oversight of said processes. This can make evaluating performance difficult, and can lead to issues – particularly where customer service is impinged.
Lack of Security
The ‘black box’ that is a third party outsourcing company could also be something of a security risk. They are another link in the chain, and another opportunity for the breach of sensitive or confidential information – which, again, you have little oversight over.
Finally, outsourcing introduces another element of risk in the form of instability. Other organisations are not guaranteed to succeed forever, and you might find that your chosen organisation is due to fold mid-contract. This can introduce fresh difficulties, from cost issues to sourcing new alternatives, all of which can impact performance.