Over the course of the past couple of decades, outsourcing has become one of the most hotly debated topics in American politics. Nobody likes to see jobs go overseas, and lawmakers love to use a firm stance against the threat of outsourcing as a rallying point for their wider business agendas.
But in the realm of small business, outsourcing doesn’t necessarily mean taking work overseas. When small business owners talk about outsourcing, they’re usually thinking of farming out content work to freelance writers, hiring an accountancy firm to take on the book keeping or relying on an employment agency to track down and deploy hired help.
What is Outsourcing?
Outsourcing is the business practice of hiring a third-party, which c
ould be an individual or an organization, to handle specific tasks, operations, or services that were traditionally performed in-house. This strategy allows businesses to streamline their processes, tap into specialized expertise, and often, reduce costs.
The decision to outsource can be driven by various factors ranging from financial benefits to operational efficiency.
Key Elements of Outsourcing:
- Task Delegation: Assigning specific tasks or operations to an external agency.
- Contractual Agreement: Formalized terms and conditions defining the scope, responsibilities, and payment terms.
- Short-term or Long-term: Depending on business needs, outsourcing can be project-based (short-term) or ongoing (long-term).
- Domestic or Global: Outsourcing can be done to a local company (domestic) or to companies in other countries (offshore outsourcing).
- Cost Management: A primary motive for many businesses, as outsourcing can offer potential savings.
- Access to Expertise: Leveraging the specialized skills of experts or tapping into resources not available in-house.
- Focus on Core Activities: Outsourcing peripheral tasks allows companies to focus on their core competencies.
Advantages and Disadvantages of Outsourcing
In the right context and deployed shrewdly, outsourcing can be a fantastic way for small business owners to improve efficiencies and bolster their company’s bottom line. But that doesn’t mean the practice isn’t without its own disadvantages, too. Outsourcing isn’t right for every situation, and so you’ve got to think long and hard before investing time and energy in farming out work.
To help you get started, here are 20 advantages and disadvantages of outsourcing from your small business.
Advantages of Outsourcing
1. You Get More Experts
Your core team might be fantastic at a few things, but nobody is perfect at everything. By outsourcing particular tasks, companies are often able to substantially improve performance by drawing on the niche skills of experts in certain fields.
2. Things Get Done Fast
One of the top reasons small businesses tend to outsource work is because it will get done quicker. If you’re working with a limited number of staff members, you can get things done a whole lot quicker by passing time-consuming tasks on to freelancers or external agencies.
3. You’re Able to Focus on What Matters
Another benefit of outsourcing tasks is enhanced freedom. By passing on supporting processes, you’ll be able to concentrate your skills on strengthening and improving the core processes that help make your business tick.
4. You Can Share Some Risk
One of the most important factors in any project is risk assessment and analysis. By outsourcing certain campaigns or processes on to experts in their respective fields, you will benefit from their enhanced ability to plan and mitigate potential risks.
5. You Can Reduce Costs
As one might imagine, outsourcing piecemeal work is almost always going to be cheaper than hiring permanent full time staff. Not only will you save time and money on recruitment, but your profit will also be extended than s to shorter overheads.
6. You Can Work Around the Clock
One major benefit of outsourcing digital work overseas is the substantial differences you might encounter in terms of time zones and holidays. Although this can pose an initial hurdle logistically, once overcome it can effectively mean your business is running even while you’re fast asleep.
7. You Can Simplify Project Management
If you choose to outsource work via a wide range of specialist freelance websites and online services, you’re often provided dynamic and intuitive platforms that will help you to effectively manage what’s being done, when it’s due for submission and how it will be paid. Most of this can be automated, freeing up your time for more important work.
8. You Simplify Work Relationships
Quite a few small business teams are tight-knit groups of friends and family — which is fantastic. But when you’re incredibly close to your staff members, it can also lead to issues when work isn’t being done up to par. By outsourcing work, you’ll typically be able to minimize work relationships to simple, contractual arrangements.
9. Efforts Are More Targeted
Another overlooked advantage of outsourcing is that it enables you to plan and execute more effective, targeted campaigns and projects that you wouldn’t ordinarily be able to take on. This gives your business the chance to take new risks and experiment with different methods of exposure.
10. You Get Peace of Mind
At the end of the day, choosing to outsource with a reliable individual or agency should give you peace of mind that tasks are being handled expertly and efficiently without you having to worry or lift a finger. What could be better?
11. Enhanced Business Agility
Outsourcing enhances business agility by enabling rapid adaptation to changing market conditions and industry trends. Companies can quickly adjust their service offerings, respond to customer demands, and seize emerging opportunities, maintaining a competitive edge in dynamic business environments.
12. Time Zone Advantage and 24/7
Time Zone Advantage and 24/7 Support Outsourcing to global service providers offers a time zone advantage, enabling continuous work and support. Businesses can benefit from round-the-clock operations, timely customer assistance, and accelerated project delivery, particularly when collaborating with teams in different time zones.
13. Access to Specialized Resources
Outsourcing grants businesses access to specialized resources, tools, and equipment that may not be available in-house. This access allows companies to leverage the latest technologies and best practices without the need for substantial investments, ensuring optimal performance and innovation.
14. Scalability of Services
Outsourcing offers the flexibility to scale services up or down depending on your business’s needs without the need to hire or train additional staff. This scalability is crucial for businesses experiencing fluctuating demands.
15. Access to Global Talent Pool
Outsourcing opens doors to a global talent pool, giving businesses access to a wide array of skills and expertise that may not be available locally. This global reach can introduce new perspectives and innovation.
16. Improved Compliance and Quality Control
Outsourcing to specialized service providers can improve compliance with regulations and standards. These providers often have robust quality control processes and are well-versed in regulatory requirements specific to their industry.
17. Reduced Time to Market
By leveraging the skills and capabilities of outsourced teams, businesses can reduce the development time for new products or services, enabling a faster time-to-market which is critical in today’s fast-paced business environment.
18. Focus on Core Business Growth
Outsourcing non-core activities allows businesses to focus more on growth and expansion strategies. This focus on core business areas can lead to enhanced business development and innovation.
19. Access to Latest Technology
Outsourcing companies often have access to the latest technologies and software, which means businesses can benefit from these advanced tools without having to make significant investments in technology upgrades.
20. Improved Risk Management
Outsourcing can lead to an improved risk management as the responsibility and management of certain risks are transferred to the outsourced provider. This can include risks related to technology, process management, and regulatory compliance.
Disadvantages of Outsourcing
1. You Lose Some Control
As you might expect, when you farm work out to external agencies or freelancers, you’re losing control of how those tasks are being monitored and performed. So long as you know and trust who you’ve hired, that shouldn’t be a huge issue – but you’ve got to tread carefully.
2. There are Hidden Costs
Although outsourcing work is generally considered cheaper, yo must also beware of getting ripped off. Outsourcing companies or big agencies will typically ask small business owners to sign lengthy contractual agreements, and they’ll include plenty of fine print. If you don’t read the terms carefully, you could get hit with unexpected costs.
3. There are Security Risks
In this age of data protection, it’s essential that you exercise caution whenever using customer data. If you plan to outsource processes that require personal data, you could be placing the privacy of others or security of your business at risk by passing that data on to other people.
4. You Reduce Quality Control
Outsourcing companies and some freelancers may often be motivated by profit rather than a job well done. That means the work you send out may come back quickly, but will lack the standard and quality that customers have come to expect from your products or services.
5. You Share Financial Burdens
Although it can be nice to bring in expert agencies to share in risks, it can be pretty dangerous to tie your business to the financial well-being of another company. Again, you’ve got to spell out any and all terms and conditions in contractual arrangements plainly – because you don’t want to take a financial hit if they fail to deliver.
6. You Risk Public Backlash
If you’re taking work overseas (even just to write a blog or two), your business very well may run into ill will from consumers that have taken a moral stance against outsourcing. Right or wrong, for better or for worse, some form of criticism is often inevitable.
7. You Shift Time Frames
One major disadvantage of outsourcing particular tasks is the risk that your freelancers or partner agency may be marching to the beat of a different drum. As a result, it might be difficult to synchronize schedules in order to ensure your customers receive what’s promised to them on a reliable timeline.
8. You Can Lose Your Focus
Because many outsourcing agencies or freelancers tend to service multiple clients at any given time, the work you’re sending out may not be receiving the focus it deserves. Depending on the processes you’re outsourcing, that lack of focus could be detrimental to your small business.
9. Things Get Lost in Translation
It doesn’t matter whether you’re dealing with overseas freelancers or some talented expert just up the street – but if you’re handing out remote work via email or telephone, important instructions are often lost in translation. That could cause you serious time, money and hassle.
10. You May Face Moral Dilemmas
While it may not be an issue for everyone, a major disadvantage of outsourcing is that you may be denying your team or a talented local agency crucial work or development opportunities. Growth begets growth, and by outsourcing work, you may not be contributing to the growth of your community.
11. Lack of Team Cohesion
When parts of a project or tasks are outsourced, the dynamic of your in-house team can be disrupted. There’s often less of a sense of camaraderie or common purpose, which can lead to decreased morale or motivation. This lack of cohesion can impact productivity and the overall team spirit.
12. Dependency on External Entities
By relying on external agencies or freelancers, your business becomes dependent on their timelines, expertise, and reliability. If they decide to discontinue their services, hike their rates, or face internal challenges, it could disrupt your operations. This dependency might limit flexibility and hinder quick decision-making processes.
13. Intellectual Property Concerns
Entrusting external entities with your company’s proprietary information or processes can pose intellectual property risks. If proper precautions aren’t taken, there’s potential for theft, misuse, or unauthorized sharing of your intellectual property. This can jeopardize the uniqueness and competitive advantage of your business.
14. Communication Challenges
Outsourcing often leads to communication barriers, whether due to language differences, time zone mismatches, or cultural variations. These challenges can lead to misunderstandings, errors, and delays in project completion.
15. Lack of Organizational Knowledge
External service providers may not fully understand your company’s culture, ethos, and nuances, which can impact the quality and relevance of their work. They might not be fully aligned with your organization’s long-term goals and strategies.
16. Reduced Customer Satisfaction
If outsourced tasks involve customer interaction, there’s a risk of diminished customer service quality. External teams may not be as invested in customer satisfaction or may lack comprehensive understanding of your products and services.
17. Inflexibility in Contracts
Contracts with outsourcing companies can sometimes be rigid, making it difficult to adapt or change the scope of work as your business needs evolve. This inflexibility can limit your company’s responsiveness to new opportunities or challenges.
18. Impact on Internal Staff
Outsourcing can demotivate in-house teams, especially if they perceive their jobs or roles as being outsourced. This can lead to reduced morale, lower productivity, and even higher staff turnover.
19. Quality Inconsistency
While outsourcing can bring in expertise, it can also lead to inconsistent quality, especially if the work is distributed among various vendors or freelancers with differing standards and capabilities.
20. Loss of Confidentiality
Sharing sensitive information with external vendors increases the risk of data breaches and loss of confidentiality. This is particularly crucial if the outsourced work involves customer data, trade secrets, or other sensitive company information.
Advantages and Disadvantages of Outsourcing Summary
| Advantages of Outsourcing | Disadvantages of Outsourcing |
|---|---|
| You Get More Experts | You Lose Some Control |
| Things Get Done Fast | There are Hidden Costs |
| You're Able to Focus on What Matters | There are Security Risks |
| You Can Share Some Risk | You Reduce Quality Control |
| You Can Reduce Costs | You Share Financial Burdens |
| You Can Work Around the Clock | You Risk Public Backlash |
| You Can Simplify Project Management | You Shift Time Frames |
| You Simplify Work Relationships | You Can Lose Your Focus |
| Efforts Are More Targeted | Things Get Lost in Translation |
| You Get Peace of Mind | You May Face Moral Dilemmas |
| Enhanced Business Agility | Lack of Team Cohesion |
| Time Zone Advantage and 24/7 Support | Dependency on External Entities |
| Access to Specialized Resources | Intellectual Property Concerns |
Outsource Photo via Shutterstock
The key is finding the right people to outsource your business to. This person should be an expert at what he or she doea and the person should have enough integrity to not abuse the control that they have over your business.
Thanks for a thorough list. I’d be lost without outsourcing for two reasons.
Number one used to be that I just didn’t have enough time to do everything that needed doing, but I’ve gotten more efficient at identifying what really doesn’t need doing after all. So now number one is that I can outsource what I’d rather not be doing, due to either lack of competence or lack of interest. Sometimes those necessary but unpleasant (to me) tasks take me away from doing what I actually went into business to do, and other times I’d just rather admit I hate them and let someone else have the aggravation.
Number two, everybody who hires me is outsourcing, so I like that. 🙂
Couldn’t agree more. Probably the biggest advantage is the number 5. You Can Reduce Costs. Also as Aira Bongco mentioned, the key is finding the right people to outsource your business to so that quality is not compromised. You can balance between these if you hire someone qualitifed who lives in a place where average labor cost is lower like India. In this case recommendation from someone, maybe a friend, who has been benefitted from him.
However, when it comes to outsourcing, I always companies instead of individual freelance service providers. Freelancers often lack commitment and more often skill which often lead to quality compromise, even time waste, and project failure. On the contrary, companies are committed to providing best services, they also come with two options, you may choose a virtual assistant from them or assign the company project as a whole. Company always try to maintain quality at its best so that their reputation isn’t damaged.
When I needed to get my site’s articles written, I hired a virtual assistant from Staff India following suggestion from a friend who also got his writing done by them. I saw how much those companies value reputation and so maintain quality service.
Again, thanks to the writer, really helpful article. I wish I knew these facts before.
Outsourcing has helped businesses focus on their core functions while letting professional outsourcing companies that provide BPO services to take over the everyday tasks. Tasks as important as customer service and customer retention are being handled by third party companies that are giving excellent results and flexibility to your business.
Really good article! I would like to add some more advantages of outsourcing, with some detailed listing:
1. Focused strategy – sometimes your development team may have problems managing lots of projects. By picking outsource software development you won’t have to worry about this, as outsource team will focus entirely on the project you provide.
2. Time savings – outsource software development process is usually much faster than in house one.
3. Bringing in fresh perspective – as simple as it is, if you add additional members to your team, you will surely hear new perspectives.
Nowadays there’re many software outsourcing company in Vietnam like PowerGate,..and I think Vietnam has some advantages to develop software outsourcing such as profession skill, labour, environment,…
Nice article.
Biggest advantage of outsourcing is cost cutting and getting service of expert at very competitive rate.
Hiring and selecting employee is time consuming and costly. Moreover, you need to have space and facilities for new employees.
Outsourcing is not limited to start up or small businesses. Nowadays, well established companies also prefer outsourcing and reducing the cost.
With some safety steps, outstanding is the best option as per me.
My uncle owns a few properties which he rents out so that he can get an extra income but he told me that he is tired of dealing with people that don’t want to pay rent. I found it interesting when you said that one of the top reasons small businesses tend to outsource work is because it will get done quicker. I will definitely recommend him to think about outsourcing a property management company so that they can take care of his tasks.
The key is finding the right people to outsource your business. This person should be an expert at what he or she does and the person should have enough integrity to not abuse the control that they have over your business!
Great article. Yes, outsourcing is mainly done to reduce cost. It helps companies to save time and money allowing them to focus on the core aspects of their business. With this, business owners and their onshore staff can concentrate with their main tasks like networking or driving profits. Companies have to just analyze and carefully choose their provider to minimize (or eliminate) the risks of outsourcing to avoid costly mistakes.
In my opinion, there are some disadvantages and the ways to overcome as below:
1. Difficult to control the working process
When business owners and software outsourcing teams are in two different places, there will certainly arise problems about the process of finishing the work and the results achieved in each set out stage. On the other hand, you probably won’t have complete control over how those tasks are performed, but just be monitored.
If you have chosen a reliable service provider, take it easy checking and tracking each work item, do not put too much emphasis on controlling every detail, steps to steps. The experts themselves would always know how to handle the job.
2. Time zone differences
Geographic differences will lead to differences in time zones. For instance, if an enterprise is based in the Americas but works with a software outsourcing team in Asia, the evening is the time for the enterprise to go to bed, and it will most likely fall into the team working time or vice versa.
Whatever the contradictory working hours, we will certainly find the appropriate time to discuss. Or simply, online communication by using the messaging application is also a good idea. On the other hand, you can also use large time zone differences to your advantage. For example, you might send a software outsourcing team a task at the end of your workday. While you are sleeping, the team is still working hard, and you will definitely get results by the beginning of the next working day.
3. Difficult to grasp each other’s styles & ideas
“Conveying ideas,” sounds easy, but if the two sides do not fully understand each other, then the damage is caused. Every business owner, every organization, every individual has a unique color; from work style to arrangement idea. Sometimes, with the same project and destination, the software outsourcing team will certainly have a completely different perspective from the business owner. Because they see things from the lens of technological expertise, while business owners have their holistic point of view, taking into account the loss – profit and many other factors.
Surely 2 parties will have to prepare a unified meeting, and discuss each item, details in the plan table. Software outsourcing teams and businesses will have the opportunity to listen to understand each other better, grasp ideas and needs easily.
Disadvantages of Software Outsourcing & How to overcome
4. Security risks
When you decide to transfer your internal business information to a partner, make sure that the partner will keep the information completely confidential. In this era of Big Data, you must be very careful when using customer data.
In order to avoid such risks and ensure security standards, the 2 parties should sign NDAs (Non-disclosure agreement) and security protocols before starting the project. Furthermore, the business owner should also consider a well written-contract covering all the aspects of intellectual property hand-over before software outsourcing takes place.
5. Language barriers
Nowadays, English has become popular in most countries. Thus, if the communication is simple or not too deep into the professional aspect, then the citizens from different countries can easily express ideas with each other. However, if you are delegating teleworking via email or phone, important instructions are often missing, lost, or difficult to keep in full meaning when using online translation tools. That can cost you time, money and serious trouble. You can convey your edits or ideas through particular photos or presentation slides for illustration.
Encourage the software outsourcing team to ask more questions. In the process of working, there will certainly be many problems, and of course, no one can understand the brand as much as the representative from that business. Once you have a more detailed view of your needs, the software outsourcing team will definitely complete the project well and deliver a great result.
6. Your project will probably not be focused or cared for
Most newly established software outsourcing companies or small scaled software companies will certainly have many other projects for many different businesses. Each project has a unique color with specific requirements. Your project may be delayed, completed later than the deadline due to the shortage of human resources from the software outsourcing team, or may be completed very soon because they only “get it done”, then quickly move on to another project.
If it’s a project that ends early, don’t worry too much. Because “quality” will be the most objective measure to evaluate the professionalism of the software outsourcing team that you have chosen. In particular, if your technology service provider is in a different country – with a different time zone, you should also publish to control the project progress or synchronize information through daily report, communication and exchanging with each other equally also bring about significant results.
It caught my attention when you said that outsourcing tasks will give us peace of mind that things are being handled efficiently. My brother mentioned that he wants to improve the storage and fulfillment processes for the modern retail business he started last year. I’ll give him a call to see if he knows why outsourcing his warehousing services would be beneficial!
That’s a good point.
ODS Group sometimes has to outsource software development, some companies like Saigon Technology, FPT Software Or Bairedev are really good.
Wonderful, this information explains a lot plus this is what really is happening in the outsourcing industry. However, some unavoidable spectacles will be happening during the operation that means everybody should be prepared for that especially for the newcomers or fresh employees who are unaware of what really outsourcing does and don’ts. I would recommend this article it helps others understand the advantage and disadvantages of outsourcing.
Thanks for a great article , there are some thoughts from my point. Outsourcing is maybe the answer to develop your company in this scenario. Let’s follow these step by step to achieve successful outsourcing!
Web and software development outsourcing is basically to hire a third party IT company to do technology-related work. In the past few decades, this solution has brought many opportunities for outsourcing companies in Asia, Middle East or North America…
But when it comes to looking for an outsourcing contractor in a foreign country, it is not as easy as your thoughts without the experiences: time difference, work culture, language, cost.. that are all the important factors we need to consider thoughtfully.
Thanks
Outsourcing is always an important part of any company that wanted to extended company size and saving manpower cost. Vietnam or India can be a good destination with cheap and loyal worker also easy policy from the government
Great Article Nash.
I noticed it was updated in February of this crazy year. Would you have said your opinions have changed or remain the same?
As a fairly small and relatively new website design business owner in Saigon (an expat at that too) I am torn between outsourcing or trying to maintain as much cash flow within house.
It would be good to know your thoughts if something as rare as we are experiencing would influence your decision.
Great Article. Choosing the right outsourcing company is the key and beneficial to your business. As it can reduce maintainance cost for a company
I agree with the author. With outsourcing in any field, it will help to simplify the project management which will increase productivity and scalability.
Yⲟu should be a pаrt of a contest foг one оf tһe greateѕt websites on the internet.
Ι’m going to highly recommend this website!
Wow, I never thought that working with an outsourcing company could improve your business’s efficiency and get things done quicker. A friend is thinking about starting manufacturing different products, but he’s just starting in the business. I think that this option would help him out, so he can focus on making the business grow. Thank you for the information about the advantages of outsourcing.
Thanks for posting this artcle
It’s great that you talked about how outsourcing helps your business reduce its costs. One of my cousins works in the packaging industry, and the other day, he mentioned he needs to find another supplier for his product’s packaging materials. That’s why I believe your article could help my cousin with his problem. Thanks for your tips about the benefits of working with an outsourced company.
Biggest advantage of outsourcing IT: The flexibility and agility It’s a form of computing that can work with existing technology infrastructure, usually via virtual servers hosted in data centers and accessed via the internet. Our company provide best dialer services and 24*7 service provide .outsourcing helps your business reduce its costs.
thanks