When Is the Right Time to Outsource?
Updated: Dec 5, 2022
Outsourcing project management can be a valuable way for small business owners to improve efficiency and increase the company’s bottom line by cutting back on functions they do in-house. Daily administrative tasks can be demanding and time consuming, especially on a team that does not have the time or resources to focus on developing a new program. The benefits can be considerable in cutting labor costs, expenses, and to focus on the core aspects of the business for greater productivity to gain a competitive advantage. For many, the decrease in costs is so substantial that the business thrives and expands much more rapidly.
Today, outsourcing is a common business practice for a company to contract an outside third party to manage operations, focus on a special project, perform tasks, or provide services that were traditionally performed in-house by the company's employees. Companies can outsource a number of different tasks or functions such as customer service, call centers, human resource tasks, payroll processes, and accounting. Companies can even outsource entire divisions or departments, such as sales, marketing, information technology (IT), and manufacturing.
Reasons to Outsource
Although the primary outsourcing strategy for a company is to save time, effort, resources, and money, there are other reasons to consider it. A contracted project manager can focus on specific tasks to do them better, faster, and more cost effective than hiring in-house staff. With efforts more targeted, outsourcing enables businesses to plan and execute more successful projects and campaigns they normally could not bring on board. This creates the possibility to take more risks on new opportunities to expand the business for increased net income. If a crucial project is at a standstill, or a deadline is quickly approaching, outsourcing some or all the responsibilities should be considered. A new start-up business entering the market and growing too fast to keep up with customer demand for a product or service can also use this approach. This tactic can continue to free up staff resources on a long-term basis. Outsourcing can result in specialized expertise, experiences, a new creative perspective, and additional resources required that in-house staff cannot provide.
Advantages of Outsourcing
Save Money on Labor and Operational Costs. The most obvious advantage of outsourcing is to substantially cut labor costs and operational expenses. Although a contracted third-party provider may receive a higher hourly rate, labor costs are reduced with no staff salaries and benefits packages offered to full-time employees with vacation/sick time and liability, health, and workman's compensation insurance. Staff requires overhead costs including a workspace, equipment, and other technology. In addition to fewer employees, not all contractors receive premium fees for services. Depending on the type of work and location, fees could be significantly lower for comparable work with in-house staff freeing up capital for other investments in the business.
Save Time and Effort for More Efficiency. One of the top reasons small businesses with a limited number of employees outsource work is to increase efficiency and get projects completed faster. Outsourcing frees up overextended in-house staff for other purposes and a better use of time. An entire workday can be easily spent on routine tasks such as answering emails, returning phone calls, customer service, bookkeeping, and other administrative tasks. These responsibilities drain energy, effort, creativity, and productivity. Using external resources for time-consuming repetitive functions where the company lacks resources allows top talent to focus on specific tasks and more important projects to increase efficiency and improve their quality of work and productivity. Outsourcing gives better focus to resources and project management ensuring the job is delivered on time.
Improve the Company's Core Focus. Outsourcing allows the company to focus on what matters – the fundamental core business processes by delegating time-consuming routine tasks. Creativity and new designs are essential but if valuable time is being wasted on mundane work, it is time to rethink the business’s strategy to create new products and services. Outsourcing non-core activities will save time and improve efficiency and productivity providing a better work-life balance. Cutting expenditures allows for investments making the most impact to focus on improving core capabilities and competencies. Innovations and product development are necessary for the business to stay ahead of the competition. This strategy will lead to faster turnaround times, decreased overall operational expenses, business expansion, and increased competition within the industry.
More Talent and Expertise. Businesses that outsource have an advantage in accessing a more diverse talent pool with more knowledge, experience, skills, expertise, and resources than internal staff to complete specific projects. Choosing an outsourcing company that specializes in the process will achieve increased productivity, greater quality, and a superior product or service. Some businesses outsource to expand and gain access to new markets by moving production or service delivery closer to end users for better-controlled costs and quality. Outsourcing can provide improved access to capabilities in other facilities otherwise not accessible or affordable giving greater leverage to supply chains. If your company is looking to grow internationally, outsourcing is an excellent alternative If you need a clearer understanding and more experience with a country’s different language, corporate and social culture, holidays, and time zone. Outsourcing can offer a unique perspective to assess the project impartially better recognizing the strengths and weaknesses of a current strategy. Unbiased insights are essential for evaluating risks and making business decisions to better facilitate the project. Outsourcing gives the flexibility to pursue a wider range of projects when no longer constrained by internal resources by combining talents and resources with other companies.
Disadvantages of Outsourcing
Even with all the advantages to outsource, it is not without challenges, so businesses must consider every component to make it work. Companies that outsource must effectively manage their contracts and ongoing relationships with third-party providers to ensure success.
Loss of Operational Control. Businesses that outsource can lose control of how tasks are monitored and performed. This loss of control over the day-to-day activities of the project could result in losing influence and authority over the development process, decisions, and the project's outcome. Solution: The level of control over the outsourced project is dependent on effective communication. It is important for the third-party contractor to keep the company updated on the project and to discuss key decisions with them by producing regular status reports.
Reduced Quality Control. Depending on the geographical location of the outsourcing partner, requirements and quality standards may differ among countries which could result in issues regarding the product or service quality. When outsourcing, policies and procedures will be harder to control so it can be a challenge to ensure that the third party is meeting those guidelines so the final product will meet the business’s requirements to their satisfaction. This could result in time, cost, and stress. Solution: Ensure that all company product and service procedures, policies, and quality standards are communicated clearly. Enforce strict internal processes and specifications to ensure the third party adheres to the highest quality and that the final product will meet all the organization’s needs, expectations, and requirements.
Potential for Security Risk. During the process of outsourcing, the company could expose confidential information and assets to the outsourcing partner. Depending on the nature of a project, trade and business secrets may be revealed. Solution: Exercise caution when outsourcing projects. The outsourcing firm must follow the company’s security best practices and sign a contract with a non-disclosure agreement.
Poor Communication. The communication barrier is one of the most common outsourcing challenges faced by companies that could lead to diminished quality of a project. Outsourcing communication issues are usually related to time zone changes, cultural differences, and language. Make sure that the outsourcing company employees speak English or another preferred language so both companies can communicate clearly. Solution: A difference in organizational culture and time zone differences can be solved with sufficient communication between the two companies. To bridge the communication gap, negotiate specific business hours and communication channels convenient for both the company’s staff and the outsourced partner.
Hidden and Unforeseen Costs. The main objective of outsourcing is to gain a competitive advantage in cost comparison to maintaining an in-house staff managing non-core business tasks. Before choosing any outsourcing partner, compare the cost estimate of your in-house staff and the price quoted by the company. Solution: Companies need to clearly define the outsourced project specifications, conditions, and obligations so the outsourcing partner can provide an accurate cost estimate. Be sure to read the terms carefully to thoroughly understand any unexpected costs.
Preparing for Successful Outsourcing of Project Management
For successful outsourcing, certain factors should be taken into consideration:
A strategic vision should be planned with clear goals and objectives.
There should be careful consideration in selecting an outsourcing partner with good management and relationships between both companies.
A concise and transparent contractual agreement between both parties is needed so all expectations and objectives are effectively achieved.
Any concerns, challenges, and complications encountered by either company should be communicated immediately to the other party.
The plan to outsource must be strategic and reviewed thoroughly to ensure the company’s integrity and reputation. Leadership support is imperative with all strategic objectives being clearly defined and approved by the company's senior management, articulating the benefits and disadvantages to all departments involved in the outsourcing process. Communication is key – frequent, clear, and concise communication between both companies is necessary for a successful outcome. When outsourcing is performed efficiently and accurately, business owners can have peace of mind at the end of the day that tasks are being managed proficiently and professionally without worry. With proper planning and clear objectives, outsourcing can be an effective means for small business owners to save time and money, improve efficiencies, and increase the company's bottom line.
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