Outsourcing for Small Business

Do you know that Outsourcing is your ally in cutting costs and enhancing business focus, not only for startup businesses but to established corporations as well? A quick browse at Wikipedia, you will read that outsourcing is defined as:

“The delegation of non-core operations or jobs from internal production to an external entity (such as a subcontractor) that specializes in that operation.”

As an owner of a startup business, some business activities and processes are not within your turf. Some entrepreneurs have strong orientation to marketing and sales but lack the profound financial skills or HR acumen. Hiring additional staff costs more money and requires time-consuming trainings. As much as possible, you need someone who can hit the ground running. In these dire moments, you can always rely on outsourcing.

Two things you have to remember when considering outsourcing in you business:

1. Non-core operations

As a rule of thumb, you do not farm out your core competencies! Obviously, you need to protect your company’s reason for being and enhance your competitiveness. Of course you cannot imagine Coca Cola Company outsourcing production of their Coke since they have a century old secret formulation!

2. Specialized services

The key here is finding and partnering with the right organizations with the right set of skills to deliver your business needs. You will encounter numerous outsourcing companies here and abroad offering the ultimate solution to all your needs.

Always be wary and weigh their expertise and match it with your short-term and long-term requirements. There were some incidents where outsourcing backfired instead of helping.

Before you continue, please watch the video clip below to know more about outsourcing and its economic impact today.

Why Outsource?

Contain Costs

The most apparent reason for outsourcing business functions is cost cutting. Business is all about maximizing returns and minimizing costs.

Most fledgling businesses do not have enough resources to support non-core activities like distribution, payroll, customer support, and other facets of day-to-day business. Note that startup businesses do not make money on its first few years of operations, hence they looking for ways to save resources.

Outsourcing significantly affects labor cost, capital cost, and business risks.

Capital cost is your total investment to set up your business. For instance, you like to start a retail store of designer clothes and accessories. Traditional business planning dictates that you need different departments to handle day to day operations. So you will allocate budget for marketing, accounting, sales, distribution, purchasing, and administrative tasks.

Enter outsourcing. Your plan begins by identifying what are strictly critical or confidential to your business and farming out general non-core functions. By this, you need not invest on bigger office space, numerous parking lots, expensive equipment, or even vehicles to deliver your goods. Instead, you can focus your resources on building your brands and generating revenues.

Moreover, you can directly lessen labor costs simply by outsourcing non-core activities. Most companies have short-term projects and need people to run things smoothly. However, hiring and training these additional personnel tend to be expensive and time-consuming. Worst, temporary employees sometimes do not meet expectations. If you subcontract to experts, you can conserve resources, minimize efforts, and get better results.

Better Business Focus

Focus is more important than any cost reductions you can derive from outsourcing. It allows business managers and owners a chance to prioritize their time and resources in running the business instead of worrying about less significant tasks like data entry or content writing. The bottom line is increased productivity and business improvements.

Business Tasks Commonly Outsourced

Customer service

Content Writing

Web Marketing like SEO and traffic analysis

Accounting and other financial operations like payroll

Logistics

HR Recruitment

IT services

Web design and hosting

Distribution

Administrative tasks like data entry, scanning, etc.

Is Outsourcing Good for Your Business?

In general, the answer is yes! Outsourcing has played pivotal roles in honing competitiveness and improving your profit margins. Nevertheless, you have to seriously consider several factors prior to outsourcing.

Here’s my guide:

Do I need to Outsource?

This is the most fundamental yet often forgotten question among small business owners. Don’t be carried away by trends or competitive reactions. Avoid me-too strategy in outsourcing.

Even if your major competitors outsource its operation, it does not logically follow that you must outsource too. You have different business structures and strategic competencies to generate sales and profits. Similarly, outsourcing may prove vital in some organizations but trivial for your company.

The first thing is lay down your objectives, check your budget, and pinpoint areas for outsourcing (if any). Assess its impact on your overall performance and workflow in your business. Finally, determine if benefits outweigh cost and finalize your decision to farm out projects.

Price isn’t everything.

When shopping for outsourcing partners, do not rely solely on competitive rates. Rather, you try see beyond price and understand the dynamics of their pricing strategy. Sometimes lower rates result to lower work quality. Inquire indirectly how they manage to survive and profit despite their lower service fees.

Get this: you are buying their experience and expertise every time you outsource a project or task. Efficiency comes first, cost second.

Be very specific on your needs and wants

The pitfall of outsourcing is unrealistic expectations. Learn and understand the limitations and objectives of your project so you can better manage results. As much as possible, strive to quantify or measure results in terms of its savings, productivity level, or even quality of end-product.

The ability of outsourcing to reduce cost may not be applicable in some projects and increasing output level may not be significant in other ventures. Hence, factor these things before you explore outsourcing initiatives.

Know more about the company

Similar to all business transactions, always assess your potential outsourcing partner. Study their history, significant achievements, and overall image relative to competition.

Vital questions: Who are their clients? Are these organizations satisfied with their performance? Can they give referrals or testimonials as support? What is their expertise? Who runs the group? Do they value their employees? What is the average employee turnover?

If you are in a dynamic and high-tech industry, your outsourcing partner must always be updated and must provide cutting edge technology to sustain competitiveness.

More importantly, know their reputation in after-sales service or client management. Initial outsourcing builds up tension and disruption in the business. Moreover, incremental improvements will come from time to time. If your outsourcing partner is not customer-driver, you will end up losing more money in firefighting and sidestepping issues.

Conclusion

Outsourcing can either be a power pill or a poison in your organization. Think thoroughly before you take actions and cover all critical business points to support or negate outsourcing your business. Furthermore, find an outsourcing partner who is very willing and able to render the services you want.

At the end of the day, do remember that outsourcing is always a joint effort between you and your service provider. Your involvement in operations remains very essential in the achieving your outsourcing objectives.