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Pros and Cons of Outsourcing: What You Need to Know
April 26, 2024

“To outsource, or not to outsource. That is the question.”  

OK, I took some liberties with that famous line from Shakespeare.

call center -- something to outsource
Businesses today have more ways to be efficient and outsourcing may or may not work for them. Have you been mulling over the idea to outsource one or more tasks within your business? The most popular outsourcing trend right now is outsourcing your human resources. What about outsourcing your marketing? Sales? Customer Service? Production? Delivery?

What about outsourcing personal tasks? You can outsource things like picking up your dry cleaning with Task Rabbit, many people are already outsourcing picking up their food through GrubHub and other delivery services.  

Outsourcing in the business world is growing and will continue to grow as many organizations become your outside departments. You really need to understand the effects of outsourcing and how that can affect your company culture and not just the bottom line.

Some Advantages of Outsourcing:

Knowing the benefits of outsourcing will help you decide if this is something that could work for your business. One of the biggest reason’s companies outsource is to free up resources for other areas.

  • warehousing -- something to outsource
    You don’t have to hire more employees: When you outsource, you can pay your help as a contractor or vendor. This allows you to avoid bringing an employee into the company, which saves you money on everything from benefits to training.
  • Lower labor cost: Did you know that there are approximately 300,000 jobs outsourced in the US each year?  By having those specialists doing the work of the company lowers your labor costs from taxes, benefits, etc. By outsourcing your labor, the company you hire finds the right person for the job. They usually have access to a larger talent pool.
  • Outsource the mundane tasks: Paying a full-time data entry person may not make sense when you can have someone else do the same tasks for a fraction of the rate. Not to mention all the other savings that come with not having that person on the payroll or taking up a desk.
  • Tap into global scaling: Even outsourcing manufacturing can reduce costs but allows your connection with the contractor to tap into other potential customers and revenue streams. Possibly expand your product lines, increase distribution, eliminate warehousing, and not manufacturing in-house.
  • Reduce problems: Outsourcing allows the business to wash its hands from many problems, that are difficult to control in house, such as regulatory, unions, licenses, etc.

Some Disadvantages of Outsourcing:

Despite the many benefits of outsourcing, you don’t want to go down this path until you compare some of these potential drawbacks:

  • Lack of control: Although you can provide direction in regard to what you need to accomplish, you give up some control when you outsource. There are many reasons for this, including the fact that you are often hiring a contractor instead of an employee. And since the person is not working on-site, it can be difficult to maintain the level of control you desire.
  • Communication issues: This doesn’t always come into play, but it’s one of the biggest potential drawbacks. Here are several questions to ask:
    • What time zone does the person live in and how does this match up with your business hours?
    • What is your preferred method of communication? Phone, email, instant messaging?
    • Does the person have access to a reliable internet connection?
    • Since communication is essential to success in the business world.
    • A large number of U.S.-based employees report not being engaged at work.
    • Communication remains a major problem. Will this get worse if you outsource?
  • Problems with quality: Despite all the benefits of outsourcing, it is only a good thing if you’re receiving the quality you expect. Anything less than this will be a disappointment.

    This isn’t to say you can’t successfully outsource particular tasks, but you need to discuss the expected quality upfront. You are still responsible to your customers regarding the quality of your product and/or service. Make sure you do your due diligence in finding the best outsource company for your product or service.
  • Delivery: Many companies outsource their manufacturing operation, then have another outsourced company that stores and pick/pack/ships the finished goods. Their delivery problems are your delivery problems. Customers don’t want to hear excuses on why their delivery was not on time, or the wrong products were delivered.
  • Intellectual property/formulas/secret sauce:  You really need to make sure your IP, formulas, etc. are protected properly.  Some countries don’t care about your legal documents and will copy your product and distribute it through their sources without your knowledge.

Impact of Outsourcing on Company Culture: 

As a business owner, it’s easy to focus on the benefits of outsourcing, all without considering the impact it can have on your company as a whole. If you plan on outsourcing, you need to take steps to ensure that it doesn’t have a negative effect on company culture.

A positive work culture leads a higher level of productivity, so you don’t want to do anything to jeopardize this. Some of the ways outsourcing can negatively affect company culture include:

  • Upset employees as they may feel they are being replaced
  • Confused employees who don’t understand why you are outsourcing particular tasks
  • Add challenges to the daily workflow of the company

Outsourcing doesn’t always have a negative impact on company culture, but you need to protect against this before you ever take a step in this direction. This typically means discussing your decision with any employees who could be impacted.

There are many pros and cons of outsourcing, all of which you should carefully consider before deciding for or against this strategy. With the ability to affect company culture, this isn’t something to take lightly. Do you have any experience with outsourcing? Did it benefit your company, or result in more harm than good?

A SCORE Mentor can help you in the decision on what to outsource or keep in-house. Click here to schedule a free mentoring session with a mentor near you in the Phoenix Valley.


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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

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