An SME guide to outsourcing
With globalization and the digital age, it has become easier than ever before to outsource most tasks.
SMEs in particular can find outsourcing a savvy business move for certain work. This is largely because of the difficulties of scaling up and the fact that small businesses are unable to compete with the salaries offered by bigger companies.
The question is, how do you decide which business activities to outsource and which ones to keep in-house? There are risks and benefits to each.
In this article, I’ll be looking at the most commonly outsourced tasks for SMEs and the key considerations businesses need to make before entrusting work to a third party.
What is outsourcing?
Outsourcing simply means to hire a party outside of the company to perform services or create goods that are traditionally performed in-house by a business’s own employees.
Outsourcing has become increasingly popular in the world of SMEs. Finding top talent for specialised tasks isn’t always financially viable. For many small and medium-sized businesses, in particular those in the tech industry, outsourcing has become a way of meeting talent requirements without overstretching operating costs.
What are the most commonly outsourced tasks in SMEs?
The tasks a company outsources will depend a lot on the type of business. A manufacturer may outsource the making of some parts, for example, and tech companies often outsource development work. Tech execs tend to be pro outsourcing because rapid changes in technology make it hard to keep up.
Most entrepreneurs and small businesses will find they don’t have the necessary expertise to do everything and it makes financial sense to outsource in those areas and save valuable time.
The most common tasks outsourced by small businesses and entrepreneurs are:
- Accounting, bookkeeping, tax returns, payroll and company secretarial
- Social media
- Website development and content writing
- Web video production
- Web hosting
- SEO (search engine optimization)
- Diary management and call answering
- Customer or technical support
Why do businesses outsource?
Outsourcing is purely a business decision, and there are a number of reasons a business may decide to outsource, including:
- To reduce costs
- To free up employees for other urgent projects
- To gain access to talent
- To improve customer relations
- To accelerate growth
- To complete project deadlines
- To get expertise unavailable within the business
What are the benefits of outsourcing?
In certain areas, outsourcing not only frees business owners up to focus on the important job of growing the business, the process can add value to the business.
“Outsourcing of the accounting function can help to make cost savings and ensure compliance (incorrect tax reporting can incur heavy fines). Some accountancy firms also offer specialist business planning advice to SMEs, which can be critical for growth phases.”
– Oliver Spevack, OS Accounts.
What are the downsides of outsourcing?
While outsourcing definitely has its benefits, there are some potential pitfalls. Outsourcing can make some staff feel disposable and that’s not good for culture. There is the issue of control and quality of service delivery, as well as the possibility of threats to confidentiality and data security.
If outsourcing services overseas, businesses will also have to contend with time variations and possible cultural and language differences.
It’s a good idea to have some contingency plans in place when you outsource in case any problems arise. Research other service providers or consider how you may be able to take the outsourced task back in-house.
5 Tips for effective outsourcing
- Always take your time making decisions about which tasks to outsource
- Be as prescriptive as possible and collaborate – although the supplier will have responsibility, the relationship still needs to be managed
- Try not to switch suppliers – long term relationships are more likely to get you the best results
- Be prepared to renegotiate and adapt according to changing circumstances within the business
- Measure performance and set targets to ensure outsourcing remains the most cost-effective strategy
Questions to ask before outsourcing
- How strategically important is the task?
If the task isn’t very important when it comes to business strategy, and if it doesn’t contribute significantly to operational performance, it is usually beneficial to outsource. Any task that is important to both strategy and performance should generally be kept in-house.
Mindtools have developed an outsourcing decision matrix to help businesses decide which activities to outsource. Find out more here.
- Will outsourcing improve performance/add value?
Are you outsourcing just to simplify life, or will outsourcing improve performance and add value to the business? If outsourcing will save you valuable time, factor that in to any cost implications.
- Could the task be automated?
Some simple administrative tasks may seem like the perfect choice as tasks to outsource, especially when you know your time could be better spent on increasing sales and growing the business. However, investing in business process automation might be a better saving in the long term.
- Is there a security risk?
If the task you are outsourcing involves sensitive information, carefully research and consider the security offered by the person or company you are outsourcing too. If the security risk is high, it’s probably a task you should keep in-house.
- To outsource or not to outsource?
All businesses outsource these days; it’s a practice that is here to stay and has many benefits. It’s not a good idea to outsource core elements of the business. Businesses should focus on their core competencies in-house. However, for many operational tasks, outsourcing is a valuable strategic tool.
There is no simple answer to the question of outsourcing and every business will have its unique set of circumstances that will dictate whether outsourcing is a good idea or not. Ultimately, it comes down to what will enable your business to operate efficiently and achieve sustainable growth.