Why Should SMBs Outsource? Benefits & What to Look Out For
Outsourcing is a business tool best known for its transformative potential, helping businesses gain the necessary skills to progress through their growth stages. 37% of SMBs outsource at least one of their processes, striking a balance between internal and external resources and maintaining steady functionality and quality control (Clutch).
Trusting an external vendor to deliver on the essential processing needs of your business is a tough task. But with stronger checks for accountability, and reduced value leakage, twenty-four and a half percent of businesses increased outsourcing efforts or outsourced for the first time ever in 2021 (Capital Counselor).
Outsourcing has aided them in meeting growth objectives. Why are all industries adopting outsourcing with such frequency? What benefits of outsourcing are they hoping to gain?
What are the Benefits of Outsourcing for SMBs?
According to Deloitte’s 2020 Global Outsourcing Survey, cost reduction is a leading cause for modern business outsourcing, with seventy percent of businesses partaking (Deloitte). Surpassing increased agility and better quality of service, this benefit is making business leaders prioritize outsourcing as a means of survival in the incoming pandemic-induced global recession.
When not outsourcing, SMBs need to search for new talent and staff members, onboard them, train them, arrange and pay for their healthcare and benefits, payroll taxes, amongst other responsibilities. Businesses save precious resources by hiring an already formed and functioning expert outsourcing team, at a fraction of the expense of the former. The time, effort and capital saved can be better invested in more profitable avenues.
The following are other benefits of outsourcing for SMBs.
1. Optimizing Scarce Resources, Increasing Efficiency
Twenty-four percent of businesses stated increased efficiency as their reason for outsourcing, with sixteen percent championing better resource flexibility (Deloitte). Small and medium-sized businesses value their limited resources by outsourcing short-term contracts to external firms. This helps free up their resources to be deployed more flexibly, leading to higher productivity and greater utility. Overall, their bottom-line expenses are expected to decrease.
Customers are demanding services that know no boundaries, and service providers that enable effective and viable solutions. Outsourcers are deploying software and technology with improved integration and compatibility. Optimal operational efficiency is possible when businesses are afforded the resource flexibility to see what works best for them. Outsourcing can ensure the continuity of operations and manage the risk of workforce overload for small and medium-sized businesses.
With changing business scenarios, end-to-end supply chain hurdles, and greater geographical restrictions, outsourcing is the best means to stay adaptable.
2. Focusing on Core Competency, Harnessing Growth Potential
Outsourcing job functions is more affordable than building one’s own in-house team. Investing in some operational processes like accounting, IT management, taxes, public relations, etc., have high risk potential for small and medium-sized businesses. In the case it does not pay off, they end up creating inefficiencies in their business model and hinder growth.
Fifteen percent of small and medium-sized businesses outsource to free up work hours, and have more time to concentrate on future potential (Deloitte). Outsourcing can undertake responsibility for the completion of important but tedious tasks for a number of industries, like healthcare, transportation, retail manufacturing, insurance, etc. This frees up resources to be flexibly deployed in more profitable core activities, specific to the unique needs of their business. This will ultimately increase Return on Investment (ROI) and raise profitability.
3. Accessing Expert Advice
Eighteen percent of small and medium-sized businesses outsource for the access it allows to a ready talented pool of experts and their many years of industry experience (Deloitte). Professionals are a valuable commodity to start-ups and businesses trying to navigate new markets, understand customers and set achievable goals.
While an SMB may not be able to offer competitive packages to recruit top talent, outsourcing firms are capable of doing so, thereby giving access to expertise that delivers sound results.
Hiring an expert outsourcing arm means assuring the quality of output, proportional to their years of experience in the industry. Service standards are reliably consistent and customers feel valued, further fortifying brand loyalty (Forbes).
Things to Look out for When Outsourcing
The following are aspects of outsourcing to consider before investing.
1. Giving Up Control
While the SMB is directing what needs to be done and accomplished, outsourcing does make it difficult to maintain complete control of an enterprise and those who work for it. The outsourced service provider is neither on-site nor an employee, but rather a contractor. Therefore, an SMB will be giving up an aspect of operational control to an outside entity.
Spend more time on the proposal and service provider selection process. Measures to safeguard interests would include vetting the company online, checking client reviews, their industry experience, software compatibility, case studies, etc. Curtail unnecessary risk by doing due diligence!
2. Navigating Communication Issues
Communicating business needs and project expectations is the best way to get the most out of an outsourcing experience.
Before hiring an outsourcing arm or team, an SMB should inform in-house employees about the change. SMBs can ease the transition by communicating to their team the reason why this hiring choice has been made, how it will benefit them and their scope of work. This way, business reputation will be safe, employees will be happy to have expertise onboard and will appreciate the additional support so they can spend more time on the company’s core competency.
Keeping working relationships satisfied and their needs fulfilled is a sure means of getting the most out of an outsourcing experience.
Typically, SMBs outsource to offshore firms. This can include a time difference of anywhere between 2 to 10 hours. For there to be a successful working relationship, it is crucial that both must have an open line of communication, via a means mutually decided by both parties. The means of communication can include phone, email, instant messaging, video calling, amongst others. These are common business hours to connect, stay updated and address concerns.
Potential language barriers can also be a concern to a healthy working relationship. Common language and dialect are required to ensure the SMB’s needs are communicated, understood and fulfilled effectively. Without these, there will be a lack of engagement and miscommunication leading to lower service standards delivered.
3. Maintaining Quality Assurances
When businesses outsource, they look for a firm that understands and delivers on quality and deadlines. When onboarding a provider, there should be an agreement about quality controls and timelines and how they will be implemented. The ideal outsourced service provider will be responsible for regularly following up on deliverables, deadlines, meetings, feedback and complaints. As well as being mindful of the terms of the agreement as it pertains to job scope, quality assurances and deadlines.
Else, SMBs outsource to the wrong partner, facing further issues like delays, additional costs and declining customer contentment.
For the modern SMB, outsourcing is a must. The post-Covid competitive business landscape makes outsourcing necessary to survive and thrive competitively. They should outsource non-essential operations to firms, and take advantage of the flexibility and cost effectiveness that it avails them to scale upwards. Will your SMB be playing catch-up or leading the charge?
Did you know? Businesses spent $75.2 billion worldwide on security outsourcing in 2017.