Outsourcing has become an enormous part of the modern business environment. And though this especially applies here in the wealthier countries, it’s also started to become a trend in many other places worldwide as countries which were the former sources of a lot of outsourced workers also start to outsource their own labor needs overseas.
In basic terms, outsourcing has become a global, highly competitive industry and business phenomenon –as this article makes clear. However, things have only accelerated in the field.
In order to compete effectively within this environment, you need to learn how outsourcing can benefit your online (or offline) business and begin to take advantage of this new trend’s benefits.
What is Outsourcing?
Before we get down to some concrete advice you can take serious advantage of, we first need a bit of definition here, so there’s no misunderstanding on all the diverse aspects of what outsourcing means. Basically, outsourcing consists of taking core processes and work tasks in your existing business model and transferring them to temporarily contracted outsiders. These outsiders can be whole service companies that dedicate themselves to a specific type of work or they can be freelance employees that telecommute with your office from anywhere else in the world. A nice detailed definition can be found right here.
Contrary to popular caricatures, outsourcing isn’t just about hiring foreign workers at slave wages so you can increase your business profits; for one thing, that’s more correctly called offshoring (a subset of outsourcing) and secondly, it’s just as described above, a caricature, with little bearing on actual economic reality.
In practical fact, outsourcing can just as easily involve moving a part of your business workload to a massive domestic corporation such as Oracle (instead of having to run your own server IT, for example) or it can include hiring freelancers and specialized services right inside your country but at a reduced cost simple because their scale economies let them do what would take you a whole ton of effort on your own at a price that’s much cheaper to you as an individual customer among many. Furthermore, there are the much smaller regulatory costs that come with hiring temporarily contracted workers since doing so removes the payroll duties and all the other labor related expenses that comes with a formal employee on staff.
Why Should You Outsource and When?
Now that we’ve made pretty clear what outsourcing is and what it means, we can take a good look at just how it can help you out and when to know what pass on to external service providers.
For starters, there are some basic reasons for outsourcing that you need to consider regardless of what sort of business you’re in and see if they apply to your situation. These include (but definitely aren’t limited to:
- Lower business startup and running costs (it’s way, way cheaper to rent a massive software server database from SAP or 37 Signals than it is to build your own from scratch)
- Upward or downward scalability (by outsourcing you can use and hire resources only as you need them without worrying about having to build extra for added need or scrap big systems when they no longer become profitable)
- Access to specific needs as needed without further cost (you can run a business with a certain core focus without worrying about accommodating extraordinary sudden needs because any such services are just a phone call or email away with an outsourcing service) This access to specific skill sets will also make your business much more flexible in adapting to a changing market since reconfiguring for new clients can depend on the same diversity of outsourced services instead of requiring you to rebuild from scratch for a new customer base.
- Delocalization. Possibly the biggest long term benefit of outsourcing is its ability to let you create a delocalized, highly lean business model that gives you the ability to relocate without uprooting and moving a whole staff and all associated hardware and software.
For some more detail on these sorts of things, you can read right from the horse’s mouth.
So now that you’ve got some excellent reasons to outsource laid out for you, how are you going to know when it would be an ideal choice? Here are a few key ways to know.
When to Outsource
In basic terms –though it won’t apply to all cases and should really be measured based on your specific entrepreneurial needs—you should outsource when some of the following essential things are going on in your business.
- The activity you’re thinking of outsourcing isn’t a core part of your business model and what it delivers: So for example, if your business is dedicated to software apps development and this is what you’re selling to customers, you might not need or want to run your own sales and customer service platform that you developed from scratch. Instead, you could send that part of the business chain off to a sales outsourcing company, like Acquirent.com for example, whose professional staff can handle every mechanical part of your business in a much more efficient way.
- Keeping a process in-house doesn’t give you a competitive advantage: This relates to the above point in the sense that, if a part of your business is something so general and simple that it doesn’t steal from your distinct intellectual advantage to outsource it, then you should probably not waste too much time on administering that system in-house. Good examples of this are business accounting, sales service, server administration and things like graphic design. All of them are pretty general and splitting them off to contractors won’t make you lose strategic strength. Exactly the opposite will happen in fact; you’ll free up money and time for focus on key growth strategies.
- Outsourcing will increase dollar ROI without diminishing your capacity to do something: If your business can outsource in a way that creates a higher marginal profit per dollar spent on administration and business processes than would be the case with in-house work, then you should absolutely outsource, but only if the value of your overall business structure and what you deliver to your customers isn’t getting diminished as a result.
These are the key indicators of when you might want to consider outsourcing. However, they’re not the only ones, many others can also be considered and many highly specific reasons for sending your tasks outside the borders of your own business might be the case in your exact situation. Basically, use the above as a loose guide for whatever business you’re running.
About the Author: Stephan Jukic is a freelance writer who generally covers a variety of subjects relating to the latest changes in white hat SEO, marketing, marketing tech and brand promotion. He also loves to read and write about subjects as varied as the idea of a location-free business, portable business management,and strategic marketing and advertising tactics. When he’s not busy writing or consulting, he spends his days enjoying life’s adventures either in Canada or Mexico. Connect with Stephan on Google+ and LinkedIn.
“If your business can outsource in a way that creates a higher marginal profit per dollar spent on administration and business processes than would be the case with in-house work, then you should absolutely outsource.”
Perfectly stated! There are many laborious tasks such as payroll and bookkeeping that can be outsourced to free up the internal staff’s time. Outsourcing such processes allows you to focus more on your company’s core competencies which can improve productivity.