You’ll often find that along with the excitement of business growth comes a new set of challenges. Just like the early days of your startup, you might encounter hurdles like managing a scaling workforce, maintaining quality, adapting to market changes, hiring and retaining talent, etc.
While it may be tempting to continue taking on every task by yourself to continue raking in profit, you’ll eventually struggle to reach your business goals and burn yourself out in the process!
This is why plenty of successful businesses, whether it’s a company of five or an enterprise of thousands, turn to outsourcing tasks their owners may find cumbersome but necessary. But not all reasons why business owners outsource are because of problems, though—often, it’s one (or all) of the reasons listed below.
What Is Outsourcing?
When you outsource, you hire a third party to complete tasks that are typically done in-house—by you or your own employees or staff. First seen as a formal business strategy in 1989, it’s become a popular approach for companies looking to be more efficient and cost-effective.
Two sub-industries drive the global outsourcing market: IT and business process outsourcing.
IT outsourcing includes cloud computing services, web hosting, network management, and cybersecurity. BPO can include HR services (e.g., payroll), marketing, customer service, and the like. Other tasks that businesses often outsource include accounting and financial services, logistics, and administrative tasks.
1. Cost Efficiency
About 59% of companies that outsource do so to cut costs—and for good reason. No matter your niche or focus, the market is getting more competitive by the day, so it’s only natural businesses would look for ways to cut costs and increase their value margin.
Labor Cost Savings
By delegating tasks to external providers, businesses can significantly reduce labor costs:
Lower Wages: By outsourcing tasks to countries with lower average wages, companies can achieve significant savings on salaries. Hiring a fully loaded in-house will cost you 2 to 2.5 times more than the average base wage. With offshore outsourcing, most outsourcing companies will save you 30–70% while still paying your workforce a living wage.
Say you want to hire a software developer. The lowest-paid software developer in the US may set you back $96,790 annually. In the Philippines, it’ll cost you ₱410,734 (or around $7,000) per year.
Benefits Savings: Companies avoid the burden of providing employee benefits like health insurance, paid leave, and retirement plans when outsourcing. In the US, these can account for a significant portion of overall employee compensation, reaching 30–32%. The table below shows the average breakdown of the total compensation of a private industry employee:
Table from Care
Reduced Recruitment and Training Costs: Money isn’t the only aspect of your business you’ll free up when you outsource—your time and focus too. While the salary and benefits of a new hire are often top of mind, the hidden costs associated with recruitment and training can be equally substantial. Outsourcing can significantly reduce these costs by shifting the burden to the outsourcing partner.
Internal HR teams spend considerable time screening resumes, conducting interviews, and following up with candidates. In the UK, one position can attract around 250 CVs—so imagine the hours they will need to sift through all resumes to find the best candidate.
You’ll also need to get the proper resources and materials as well as dedicate a significant amount of your time to make sure your new hires learn the ropes well. Outsourcing partners ensure their staff is fully trained and ready to hit the ground running, minimizing disruption to your workflow.
Operational Cost Savings
Outsourcing also eliminates various operational costs associated with in-house teams:
Office Space and Equipment: Businesses save on the cost of renting office space, furniture, and equipment needed to accommodate additional staff. Outsourced teams typically work from their own facilities, which means businesses don’t have to invest in setting up additional infrastructure. They also won’t need to worry about maintenance expenses, like janitorial services, utilities (electricity, water, internet), and office supplies.
Many specialized tasks also require specific software or app licenses, which can be expensive for small- and medium-sized businesses. Outsourcing providers often have access to volume discounts on software licenses, allowing them to use the latest tools and technologies without incurring additional costs to the company budget.
Software and Technology Costs: Outsourcing allows businesses to access specialized expertise and advanced technology without the hefty investments required for in-house development. Outsourcing partners often have their own state-of-the-art technology and infrastructure, enabling companies to benefit from the latest advancements without the associated costs.
This is particularly beneficial for tasks like IT services, where the cost of maintaining up-to-date hardware and software can be substantial.
Management Overhead: Managing in-house teams requires salaries for managers and supervisors. Outsourcing eliminates this overhead cost.
2. Scalability and Access to Global Talent
If it feels like finding a needle in a snowstorm may be easier than filling a role with the right person, that may be the case. Today, around 75% of employers are finding it difficult to get the talent they need.
Outsourcing unlocks a global talent pool, allowing you to tap into a broader range of skilled professionals than you could find in your local market. This can be especially beneficial for niche skills or specialized roles that may be difficult to fill locally.
Better Access to Individuals with Diverse Skills and Expertise
A small business might not be able to afford to hire a full-time, in-house team of specialists in digital marketing, cybersecurity, or data analytics. But by outsourcing, they can gain access to top-tier experts who provide high-quality services.
A notable example is how companies outsource their cybersecurity needs to specialized firms that can offer advanced threat detection and prevention strategies, ensuring robust protection against cyber threats.
Further, companies with a diverse workforce (including ethnicity, skills, gender, and all dimensions of diversity) constantly outperform those with less-than-average diversity scores.
Improved Scalability
Plenty of outsourcing arrangements are flexible, meaning businesses can scale their workforce according to project demands. This flexibility is crucial in managing the risks of overstaffing or understaffing and avoiding fixed labor and operating costs.
For instance, during peak seasons or large projects, businesses can quickly scale up their workforce by outsourcing without the long-term commitment of hiring permanent employees. Conversely, during slower periods, they can scale down without the financial and administrative burden of layoffs.
Amazon often does this during peak shopping periods, like Black Friday and Christmas. They scale their workforce by hiring temporary staff through outsourcing firms, ensuring efficient handling of the increased order volume without long-term labor commitments.
3. Focus on Core Business Functions and Goals
Every successful business has a core set of skills and resources that differentiate it from competitors. These core competencies are the “why”—why should a customer choose you over someone else?
In the process of growing your company, you or your in-house staff may find yourselves being stretched too thin or torn too many ways—you’re not just focusing on creating the most waterproof shoes in the world, you’re also thinking whether the digital marketing strategist you’ve hired is actually reaping results.
Outsourcing allows you to free up internal resources from tasks that are not central to your core operations, such as IT support, customer service, and administrative work. By delegating tasks such as IT support, customer service, and administrative work to external experts, companies can focus on what actually drives business—their product or service.
Boosted Productivity Through Focused Teams
“Great at multitasking” is a phrase we’ve often seen on CVs (sometimes even on our own). But juggling multiple tasks at once actually reduces overall efficiency. Outsourcing eliminates the need for internal teams to constantly switch context between core tasks and non-core administrative functions. This allows them to stay focused on their areas of expertise, leading to the following:
- Improved attention to detail. When employees can devote their full attention to a task, they are less likely to miss critical details or make mistakes. This can lead to higher quality work and fewer rework requirements.
- Enhanced problem-solving. Deep focus allows for better problem-solving and critical thinking. Employees can delve deeper into complex tasks, analyze situations effectively, and develop creative solutions.
Companies that outsource non-core tasks also often report higher employee satisfaction and engagement, as employees can focus on tasks that align with their skills and interests. This alignment not only boosts morale but also enhances overall productivity.
Employees can also deepen their knowledge, refine their skills within their specialized fields, and create more innovative solutions, which all ultimately benefit the company. These employees are also more likely to feel valued for their expertise and have more opportunities for growth, making them more likely to stay longer in the company.
Conclusion
The biggest companies in the world, from Microsoft to Apple, outsource. These businesses recognize the long list of benefits outsourcing brings them—and you will too, once you explore the possibilities. Make sure to look for an outsourcing company with a proven track record and transparent communication about their capabilities.
At BPO News, we’re experts at connecting businesses with the ideal outsourcing partners. We’ll help you find a company that aligns perfectly with your goals, empowers your internal team, and maximizes your business’s full potential. Contact us today to get started!
