Any business owner who has been in the game long enough knows that being an employer means wearing many hats. But that can become tiring, and those routine tasks can distract from your core business. That’s why it’s important for business owners to know when and how to outsource non-core functions of their business.
Outsourcing – contracting out services normally performed in-house – continues to be a major trend in the business world, since first gaining popularity as a business strategy in the 90s.
In the decades that followed, the practice picked up steam, becoming a critical strategy driving many of today’s top businesses.
Think Airbnb or Uber, which leveraged outsourcing to grow from small start-ups to billion-dollar disruptors in just a few short years.
In today’s economy, you can outsource nearly any part of your business you want. But should you? To help you decide, here’s our handy guide to outsourcing everything.
What are the benefits of outsourcing?
Outsourcing makes sense for businesses that need a scalable workforce, require expertise they don’t have or want to hand off time-intensive and repetitive business tasks.
Outsourcing is different from the often-controversial practice of offshoring: hiring vendors in another country to do the work. For the sake of this post, outsourcing is when an American company hires another American company to augment their business in an area that they’re deficient or need to shore up.
When approached strategically, outsourcing can save you both time and money by efficiently allocating resources and potentially helping to keep labor costs down; however, when implemented without forethought, it can impede and encumber an organization.
Outsourcing lets you ramp up staffing to take on a new customer or launch a new product, when it wouldn’t make sense to hire your own new employees. Or it allows you to hand off time-intensive functions, like payroll or HR, so you can focus on company’s core business.
Flexibility is another key benefit. You can choose to outsource as much or as little as you like, or contract for a set amount of time or on an ongoing basis, depending on your needs.
As a bonus, an outside contractor or consultant has experience working with a variety of clients, sometimes across many different industries. They can offer a fresh outlook on your business practices that you don’t get from someone entrenched in your company.
When can you outsource?
In general, it’s best to consider outsourcing for functions that aren’t the core of your business.
If you run a marketing agency, for example, it might make sense to outsource your accounting, so you can focus on bringing in new clients and creating winning campaigns. But you may wish to keep your creative strategy in-house, because that’s the core function or strategic differentiator and part of your unique customer promise.
Ask yourself these questions to determine whether outsourcing is a good fit for your company.
- Do you need specialized technology, knowledge or skills that are not in your wheelhouse?
- Are the tasks you’re considering outsourcing highly repetitive and time-consuming? Do they take away from your core business?
- Do you lack the staff or the operations capacity to complete the work in a timely or cost-efficient manner?
- Do you dislike the work in question, but it must be done? Are these necessary but often tedious tasks distracting performers from more value-added responsibilities?
If you answer “Yes” to most of these questions, outsourcing may be a good solution.
What can you outsource?
Human resources is a natural fit for outsourcing, because it requires deep expertise in subjects such as compensation, benefits, insurance and compliance. These topics have strategic and legal implications for the organization, and many business owners aren’t sufficiently up to speed on every nuanced detail. Also, human resources can be easily scaled according to a company’s needs.
Some businesses, when working with a professional employer organization (PEO), may utilize a PEOs all the services offered, from recruitment to strategic consulting services. where others choose to outsource a limited piece of HR such as payroll and benefits.
But HR is just the tip of the iceberg. Here’s a sample of some other business functions ideal for outsourcing:
- Accounting
- Administrative support
- Call centers
- Catering
- Legal services
- Marketing and public relations
- Manufacturing
- Packaging, mailing and shipping
- Printing services
- Technology (web and app development, tech support and maintenance)
- Transcription
- Transportation
- Travel arrangements
How can you make outsourcing seamless?
Whatever tasks you choose to outsource, it’s important to approach this practice strategically and with your employees and customers in mind.
From your employees’ perspective, outsourcing should make their jobs easier, not harder. It shouldn’t be just another thing to manage. Key employees should be free to focus on essential tasks.
And from your customers’ perspective, outsourcing should not detract from their overall experience with your company. It ideally adds value. In many cases, the customer may never notice the contractor’s behind-the-scenes work, but they appreciate the result: better service, better products or a smoother running business, in general.
For example, owners of a growing pediatrics practice may outsource medical billing. Due to the ever-changing medical insurance practices and policies, this might help cut costs and allow increased focus on their core business.
Or perhaps a company wants to collect honest customer feedback on their services. They could outsource the feedback collection – to keep it objective.
Choosing the right outsourcing partner is key. Aim for the best, not the cheapest.
What should you know before you hire?
Due diligence is critical when selecting a contractor or vendor. Read their reviews and check out work samples. Speak to their customers and service/product delivery team members, not just sales and leadership.
The vendor or contractor should be an information source and partner with access to the latest industry practices, regulations and trends. That could mean user-friendly accounting software or next-generation manufacturing materials.
Look for a true partner who can provide in-depth insight and direction on how to focus your resources as your company evolves. Their aim should go beyond just supplying a service. They must make your company better, whether through identifying new opportunities, providing industry data or suggesting operational improvements.
Seal the deal with a solid contract to set clear expectations outlining the scope of your business dealings. Once you have positive results, you can contract for longer time periods and larger projects in order to economize the rates.
When communicating with your employees about the decision to outsource, emphasize how the selected organization will contribute to the success and growth of your company.
Handling the transition to outsourcing can be tricky. Some employees may feel hesitant to hand-off responsibilities that are normally done in-house. Managers may lack experience managing workers remotely. Ease anxieties by creating a detailed plan outlining how employees and the organization will work together, including internal oversight roles, responsibilities and scheduled operational check-ins and reviews.
Some companies establish a single point of contact for the individual or company providing the outsourced services. For example, an HR manager is a liaison for a PEO. It may also be helpful to include the organization in periodic meetings with your management team to keep everyone on the same page.
As time goes on, evaluate the relationship from time to time to see whether it’s adding value or it’s an unnecessary layer of complication to your business. If that’s the case, it may be better to bring the work back in-house.
The outsourcing model can be a major resource for companies who implement and utilize it well. Learn more about how to leverage HR outsourcing to grow your business by downloading our free e-book: HR outsourcing: A step-by-step guide to PEOs.
Additional contributors: Rodney Satterwhite, MBA and Lisa Rosh, PhD