Pros and Cons of Outsourcing

Pros and Cons of Outsourcing Do you have projects you’d like to complete but not enough time to devote to them personally? Outsourcing is the process of contracting work to third parties, such as online contractors or staff from business separate from your own.

As the world becomes more connected, outsourcing has grown from a process used only by businesses in certain industry to something that anyone – from a CEO to an independent professional – can do.

Since almost any type of work can be outsourced, there are several pros and cons to outsourcing. In this guide, we’ll look at the advantages and the disadvantages that a manager can expect when they outsource a project.

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Why outsource?

You’ve heard the old saying: “time is money.” When you have limited time to build a website, develop a new product, or carry out a task like customer support, it can be more cost effective to outsource it to an external contractor or business.

Businesses have been outsourcing work for decades, although the term itself only caught on in the 1990s as the Internet made connecting with other professionals a far more straightforward process.

In this guide, we’ll look at the advantages of outsourcing projects and tasks using the Internet, either via online platforms and marketplaces or through contracts with an outsourcing agency or independent professional.

Outsourcing saves money

Does your business have more work coming in than it can handle? One of the easiest ways to increase your productivity – and thus, your profits – is to outsource tasks to contractors at a cheaper rate than what you’d pay your employees.

For example, if your staff are paid $40 an hour and often perform work that could be completed by staff paid $15 per hour, you could outsource the less costly work to an external contractor and increase your staff’s productivity.

This lets your internal workforce dedicate its time to completing the tasks that best suit their skillset and compensation, while the easier tasks are completed at a more affordable rate by skilled and capable outsourced contractors.

This benefit of outsourcing capitalizes on the concept of opportunity cost. If you’re spending $40 per hour to complete work that could be done at $15 per hour, you’re costing your business $25 per hour in resources by not outsourcing effectively.

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Outsourcing lets you scale rapidly

Have you just received a large order from a new customer? If your business needs to rapidly scale its productive capabilities, outsourcing lets you access qualified people without the need to hire additional full-time employees.

Many businesses experience large fluctuations in their demand from one month to another, or before certain events. For example, a flower delivery company probably takes in more orders prior to February 14 than in the days after.

By outsourcing certain aspects of your business to independent contractors when a large order is received, you can scale your output massively in a short time period without having to go through the long, slow, and expensive hiring process.

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Outsourcing lets you access talent

What are your skills? Can you develop web applications, design beautiful business cards, close million-dollar deals, build profitable advertising campaigns, plan events, train employees, and still manage your business at the same time?

No one can do everything, and outsourcing lets you access a pool of contractors who have skills that you don’t possess. From web developers to personal assistants, most outsourcing is done to access talent as well as save money.

For example, you might want to develop an iPhone app for your business. Without the specific skills required to build an app, you would need to spend hours – maybe even weeks – going over guidebooks and online courses on app development.

Using outsourcing, you can instead hire a professional to complete your app at a far lower opportunity cost than doing it yourself. This is one of the biggest benefits of outsourcing – it lets you access advanced, qualified talent with very few barriers.

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Outsourcing systematizes your business

The best businesses are built around systems. They have systems for selling their products to customers, systems for research and development, and systems built from the ground up for efficient yet effective customer support.

Outsourcing can play a major role in developing systems for your business. One of the most frequent uses of outsourcing is in customer support; large businesses and small businesses alike often outsource support to external call centers.

This allows your business to focus its internal human capital on tasks that are more focused on the bigger picture. Instead of worrying about customer support or other processes, your team can focus on larger, more important strategic decisions.

Why not outsource?

Outsourcing isn’t always the best decision a business can make. While outsourcing various aspects of your business can have huge benefits, there are also many large disadvantages to outsourcing that can negatively affect your business.

Over the last decade, many businesses that rushed to outsource key aspects of their business like customer support and development have taken them ‘in house’ due to the negative aspects of outsourcing.

In this section, we’ll look at what can go wrong when your business outsources parts of its operations without the right amount of planning, or when the wrong processes are outsourced instead of being kept ‘in house.’

Outsourcing makes quality control difficult

When you hire an employee, they typically pass through a complex process of tests and interviews designed to assess their suitability for the job. When you outsource, it’s easy to bypass this process in order to save time and money in finding staff.

If you outsource without thoroughly testing the people or companies you’re going to be working with, you’ll often encounter low quality work that doesn’t represent the type of image your business wants to project.

Sometimes this is the fault of the outsourcer – many outsourced professionals aren’t as skilled as their counterparts within your business – and sometimes it’s due to the wrong amount or type of information being provided to the contractor.

When you outsource, it’s important to have some sort of quality control system put in place to insure that the work you’re receiving from your contractors – be it web development or customer support – is of a high standard.

For outsourced call centers, this could mean ‘test calling’ pretending to be one of your own customers in order to assess the outsourced contractor’s performance when faced with a problem. For development, it could mean using simple tests to assess their performance before assigning the contractor to bigger tasks.

Outsourcing can be expensive

Sometimes outsourcing can cost more than working on projects and tasks within your business. That’s right – although outsourcing’s biggest benefit is its cost, it’s actually more expensive for businesses that don’t approach it properly.

For example, an outsourced web developer may be available for a $20 hourly rate, while a developer within your business is paid $50 per hour. At first glance, using the contractor seems like a more cost-effective decision.

However, the contractor may take three times as long to complete your project as your internal employee would, increasing its total cost. This makes it more costly, even though the hourly rate charged to contractors is lower.

Just like the solution to quality control is testing your outsourced contractors to see if they’re carrying out your projects and tasks properly, the solution to hidden costs of outsourcing is testing contractors on small projects when you first hire them.

For example, if you’re outsourcing web development, you would want to assign a short 10 or 20-hour project to assess your contractor’s productivity before using them for a large, important project that requires several months of work.

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Should you outsource?

Whether you run a business, work within a department, or work as an independent professional, you should outsource when it’s cost-effective and strategically smart to do use external contractors.

However, it’s important to be aware of both the pros and cons of outsourcing before you start outsourcing important projects en masse. Without the right management, outsourcing can often create more headaches than it solves.

Enroll in our course, The Outsource Profit Machine, to learn more about outsourcing and how it can help make your business more productive, more efficient, and much more profitable.