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The pros and cons of outsourcing

Whether you’re looking to boost efficiency, cut costs, or both; outsourcing work may be the perfect solution. Outsourcing has become hugely prevalent across a number of sectors in recent years, and it’s only getting more and more popular. However, it’s important to understand the risks that may come with business outsourcing.

What is outsourcing?

Outsourcing is a business practice wherein certain processes or services are ‘outsourced’ to a third party. For example, a retail company may outsource its customer service department to a third-party customer service provider, or a marketing agency may outsource content projects to freelance copywriters.

There are three main types of outsourcing; onshoring, nearshoring and offshoring. Onshoring is outsourcing work to a local, but lower-cost external resource. Nearshoring is outsourcing to an overseas resource in a nearby or bordering region or country – like contracting a manufacturer in New Zealand, for example. Offshoring means outsourcing work overseas, typically to a country where the costs will be significantly lower, like using an external copywriting agency in India, for example.

While business process outsourcing offers a number of potential benefits, it also comes with risks – so let’s explore some of the pros and cons of outsourcing.

Advantages of outsourcing

Outsourcing certain areas of your business and operations can be used to reduce costs. Rather than hire a full-time employee or a team of full-time employees to undertake niche duties, it can be far more cost-effective to utilise an external resource on a case-by-case basis instead. Perhaps you need graphic design work done every few months; it would be counterproductive to hire a full-time designer if they’re only going to be working on a handful of projects a year.

Through outsourcing, you can establish a more efficient workplace. By outsourcing particular tasks, you can free up resources and give your in-house team more time to focus on the work they do best. Third-party providers also tend to get the work done quicker; by outsourcing you can save a lot of time as well as money.

Outsourcing can afford you access to skilled, expert resources that you may not have in-house, or that might be too costly to hire full-time. Perhaps you need a coder who is proficient in a complex programming language, but any local resources are too expensive or simply don’t exist – in today’s digital working environment you can easily outsource the work to an overseas contractor at a fraction of the cost of doing it in-house.  

If you’re a small business with growth in sight, outsourcing can be a more sustainable way to explore new avenues, expand operations and improve cash flow while maintaining a smaller in-house team.

Outsourcing can offer a more flexible work environment. If you’re offshoring to a country in a different time zone, for example, you can set the job before you finish work one day, and it could be ready for you when you start the next day.

Disadvantages of outsourcing

There are certain risks that come with subcontracting external resources. When outsourcing, you have to accept that you’ll be giving up a bit of control. Once the work is in the hands of a third-party, there’s not too much you can do to ensure that it’s completed on time, for one.

Of course, both parties will sign a contract and agree to the terms and conditions of the job, but it can be a lot harder to track and monitor progress from afar, especially if you’re dealing with different time zones or language barriers.

If you’re outsourcing something like customer service, you won’t really be able to control the quality of service provided by the third-party company, at least not in real time. If you’re outsourcing content, you may end up receiving low-quality work that needs to be redone in-house, while still being obliged to pay the external resource.  Of course, nobody knows your product or service quite like you do – so when you’re outsourcing you may find it takes time to really refine the work to suit your standards.

With that in mind, you’d benefit from having an individual or team in charge of managing external vendors – but this of course will take time away from more focused work.

You’ll need to keep all your stakeholders in mind when choosing to outsource work. Some clients may not fully understand what outsourcing is, or may be under the impression that outsourcing results in lower-quality work. Clients may feel as though you’re pawning off the work they’re paying you to do.  

An increase in outsourcing may also cause concern for your full-time employees, who may feel their job security is at risk if suddenly a lot of work is being given to third parties who cost less. Some may view outsourcing as solely a cost-cutting measure that undervalues the dedication of full-time employees – which might impact employee retention.

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