Many businesses struggle to describe when it is best to outsource or hire an employee. Outsourcing can allow your company to gain support from some of the most experienced professionals in your industry – which would otherwise have been unaffordable if hired as in-house employees. On the other hand, hiring staff provides a team of dedicated and reliable people supporting your business objectives wholeheartedly. Both outsourcing and hiring have pros and cons – ultimately, it will be down to the company to calculate the costs, risks and rewards.
Companies mainly follow two methods to acquire the skills needed for their business – hire more staff or outsource to an expert. The outsourcing route comes in many different forms, such as freelancers, agencies, contractors, or suppliers.
How a company decides to fill the skill gap will depend on its circumstances. In addition, business and staffing requirements will inevitably change over time as a company develops. With experience, a company will learn when to outsource a role or keep it in-house.
Knowing when to outsource can be a challenge as any form of hiring tends to be time-consuming and stressful – not to mention expensive. Below we explore how you can find a successful balance between in-house employees and outsourced workers.
WHICH PARTS OF YOUR BUSINESS CAN YOU OUTSOURCE?
It is worth holding onto tasks that are essential to your competitive advantage in-house. To figure out what is vital to your business success, you will need to take a deep look at what aspects of the company you consider to be core areas.
The most common jobs businesses outsource include the following:
- IT services (such as database management and data storage)
- Accounting (functions like bookkeeping and payroll)
- Marketing (expert SEO and content writing)
- Design and creative work
- Website design, development and management
- Customer support services
- Product manufacturing
- Distribution and shipping
Use outsourcing to fill knowledge gaps and give your business a competitive advantage. Although there is the option to outsource a function so that an external provider entirely manages it, there are situations where you may just outsource some of the tasks. For example, there may be an influx in work, or there are mundane tasks you do not want to complete yourself.
You ought to also think about time constraints. For example, customer service can be a time-consuming and arduous task. Outsourcing to a third-party call centre or live chat agent can save your business time while tending to customer needs. It is essential to recognise areas of your business where outsourcing can help.
THE ADVANTAGES OF OUTSOURCING
Depending on your circumstances, it can make complete sense to outsource. Hiring staff (whether full-time or part-time) is costly and comes with additional expenses. Depending on the skill set or level of the position, it can also take months for an employee to join the company due to notice periods or relocation. There are similar drawbacks in upskilling existing staff as some may not want additional responsibilities or are simply unable to pick up the skills fast enough.
Outsourcing allows you to have a new function up and running with minimal delay – often within days. This set-up is ideal for start-ups and small businesses which cannot take on staff. In addition, by hiring external professionals, companies can increase and decrease capacity at short notice – staying in line with fluctuating demand.
For those having to watch their staff budgets, outsourcing can provide an opportunity to hire an experienced provider, which would have equated to the cost of a junior staff member. In addition, working with top professionals can help your business explore new areas and learn from industry experts.
Another advantage of outsourcing is the periods when you are unsure whether a function is required or not within the company. Again, it is possible to outsource to test the waters, and if successful, the role may warrant the budget to bring the function in-house.
THE DISADVANTAGES OF OUTSOURCING
In-house staff bring a sense of workplace community and dedication to the job. However, businesses need to be aware that providers are not employees, meaning they are unlikely to have the same level of commitment to your business. This is one area that some companies struggle with when they mistakenly outsource all their business functions.
Outsourcing may not be the best option if you can do it better in-house or have a strategic reason to hire someone. It may be that you need to stop outsourcing if the volume of work within the outsourced function becomes less cost-effective than if you move it in-house for a full-time employee to do.
One of the main stumbling blocks businesses experience with outsourcing providers is communication. It can be challenging to effectively communicate if they do not have a system set up. In addition, if the provider makes a serious error, it can also be hard to respond as you are complaining as a client instead of the position as a boss.
For those who like continuity and building strong working relationships, outsourcing may feel unsettling. The staff at your provider may change a lot, or the work may be carried out by a range of people you have no influence over. This can have an impact on quality and negatively affect your business.
If a function is central to your business, try to bring it in-house as soon as possible. Then, you have more control over those you hire. In addition, there are a lot of benefits of working closely with people in your essential functions, and you will be able to identify ways to strengthen your business further.
HOW TO CHOOSE WHETHER TO OUTSOURCE OR HIRE
Some businesses fall victim to the notion that outsourcing means the job will be done more effectively and at a lower price. Although this can be true, it is not always the case. Forecasting the total costs will be essential to deciding whether it makes financial sense to outsource or hire.
There will be other factors that will also influence your decision. For example, if you are a new business, you may want to initially outsource most of your business functions to figure out which ones should be brought in-house as your business grows. To figure out how essential each role is, consider its importance in terms of your business strategy and operations.
If a function is of high strategic importance, it indicates it will likely give your business a competitive edge. For example, if your company makes posters, the design and creative function would be at the core of your business strategy.
For a function to be of high operational importance, it helps the business run smoothly, and without it, there would be disruption. So for the poster company, the printing and distribution of their products are of high operational importance (but not strategic as it is not a unique selling point).
As a general rule, try to keep a function in-house if it has both a high strategic and operational role. For example, the poster company would ideally have a designer in-house. However, as the printing and distribution are of high operational significance but minimal strategic importance, meaning this area could be outsourced.
Every business is unique, so you will need to closely look at each function and measure the level of operational and strategic significance. Although challenging and time consuming, it will help identify the functions that can be outsourced or made in-house.
THE PROCESS OF HIRING AN OUTSOURCING TEAM
Once you have identified the areas of your business that can be outsourced, you will need to find the right people for the job. Look for the following skills when looking for an outsourcing team member:
- Industry experience and technical expertise: To verify an outsourcing provider's level of experience, find out how many assignments they have actually undertaken and how complex those projects were. The outsourcing partner should also be certified in the crucial areas of the role – such as the software needed to complete the work. They will also need to show evidence of technical competence to guarantee that your company gets the best support and service available.
- Client references and samples: A high-quality outsourcing provider will have feedback and reviews from their current and past clients to share with you. If you are keen to get a direct reference, ask if you can reach out to an existing client to get details of the service quality and any difficulties they have encountered with the provider.
- Communication and client management system: If you operate in a different time zone to the outsourcing provider, you will need to ensure that both your working hours coincide to some extent. You should agree on a single interface for all your queries to avoid miscommunication.
- Determine costs: If possible, agree on a fixed project fee as it can result in significant savings. If this is not possible as the role is varied or the workflow will fluctuate, investigate and estimate any hidden costs which may arise – such as implementation or amendment fees. Learning how to manage a budget in business is crucial when outsourcing.
- Infrastructure and technology: Outsourcing providers often come with excellent software to support infrastructure and technology processes. They may even have some ideas to streamline some of your operations to make them more efficient and cost-effective. Check what a technologically prepared service provider can better assist your company's needs and requirements.
Figuring the right direction for your business will come down to a thorough evaluation of company needs. Try to highlight the mundane tasks which have no major role in your competitive advantage and consider outsourcing these jobs.
It is worth considering that when you come across exceptionally talented individuals who are an excellent fit for your organisation, you may want to consider hiring them – especially if you see their potential to have a significant strategic impact.
FREQUENTLY ASKED QUESTIONS (FAQS)
What does outsourcing mean? Outsourcing is the business practice of hiring a third party to perform tasks, operations or provide services for a company. Some companies will hire an outsourcing provider to take on an entire department (such as IT or Accountancy). Others may need an external expert to look after a specific part of a function.
Is outsourcing more expensive? Whether outsourcing is more expensive or not will come down to the function and business circumstances. It often makes sense to outsource for new and small businesses as they will not need to cover employee expenses like laptops and phone bills.
Do companies have to pay VAT on outsourcing? VAT has the potential to be costly for those using outsourcing providers as it is payable on most services. Therefore, businesses should consider VAT's impact on their bottom line and seek advice to reduce costs.
Is offshore outsourcing ethical? For companies that aim to run a global business with a social conscience, you may be wondering whether offshore outsourcing is ethical. Some see outsourcing work as providing job opportunities where there were perhaps none. However, this is only ethical if coupled with fair wages.
Does outsourcing affect the global economy? Outsourcing does affect the global economy as it provides an influx of new money – driving economic growth. In addition, if the labour costs are lower when outsourced, it can also result in the company enjoying higher revenue and adding to their local economy.