Small businesses have many compelling reasons to outsource – to save money, improve performance, avoid recruiting headaches and more. Despite the obvious benefits, many businesses are unsure how to get started with outsourcing and, as a result, are hesitant to proceed.
The process begins by considering which workflows to outsource and which ones you should keep in-house. Generally, the most successful tasks to outsource are low-impact and repeatable but which consume a lot of time and resources. Some examples are accounts payable, accounts receivable, administrative work, transaction support and data entry.
Because outsourcing began as a business strategy, all of these low-impact tasks have added up to quite a large industry. Research shows that business process outsourcing generated more than $23 billion in revenue in 2018 and that the overall market is projected to be worth $262.2 billion by 2022.
There is a demand for these services, and it's largely driven by the desire of business leaders to make their organizations operate more efficiently. With the right partner, outsourcing is a way to realize that goal.
Working less to achieve more
Most back-office processes are non-value-adding, i.e., tasks that must be performed to maintain operations but that don't help a company grow. Although organizations can't neglect accounts receivable, transactions or reporting, these activities don't actively bring in new clients and revenue, which is where a back-office outsourcer comes into play.
Back-office work is ripe for outsourcing because it requires a lot of institutional resources that could be utilized for other business functions, particularly for creating growth. Imagine that a business wants to open another location, add a product line, recruit a top executive or revamp its online presence. These initiatives take significant investments of time and energy, but if decision-makers also have to worry about routine tasks, they will only be distracted from opportunities to grow their businesses.
By sending those workloads off-site, decision-makers have more resources available to focus on growth. Essentially, they replace tasks that don't add value with tasks that do. One survey of 1,700 companies showed that outsourcing accounting tasks leads to greater profits, better financial insights and more referrals. The reason is quite obvious: Outsourcing allows companies to focus on clients instead of on themselves.
It should be noted, though, that outsourcing back-office functions works well if the process is structured and your goals are specific. Without the proper preparation on your end or a surefire vetting process, you could end up with a failed partnership. Read more below about the steps you can take to ensure a successful partnership.
Relying on talent for routine tasks
Outsourcing leads directly to greater efficiency because it allows companies to rely on top talent and best practices to handle routine workloads. As a strategy, outsourcing allows a business to get the best talent for each function and focus its hiring efforts on talent that will bring value to the organization, and build up the business. Meanwhile, a third-party outsourcing partner can build teams of individuals whose work is not essential to the business's value or revenue generation.
High-quality outsourcing partners who use offshore talent can deliver talent (degreed, certified individuals) for a much lower cost. A CPA who works in Manila, Philippines, can perform with the same competency as a CPA in the U.S. at a much lower cost. What's more, outsourcing means not having to worry about hiring, training or retention, because the outsourcing partner handles those functions.
Customer care is another example of a function that could be outsourced. Many companies need customer support but would find building out an in-house call center to be a waste of resources. It makes sense, then, for those businesses to outsource call-based customer support to a company that has the infrastructure, training, hiring protocols and management process already in place. Be careful, though, when it comes to your contract with your outsourcing partner. Make sure there's enough flexibility in the contract to ensure quality customer service.
Other back-office activities can be outsourced in similar ways. A business needs accounting for operations, but accounting is not a differentiator for customers. It could easily receive financial reports without having to do all the busywork, including data entry, analysis and invoicing.
By outsourcing nonessential tasks, companies are in better positions to attract higher-level talent who are more likely to stay with the company over time. Outsourcing frees up resources to be used toward more effectively recruiting talent in key revenue-generating roles. Of all the reasons to consider outsourcing, the most compelling is that it can clear away obstacles to growth.
5 keys to effective outsourcing
Every company outsources differently. Use these five tips to customize your strategy.
1. Set clear efficiency goals.
As goals, "growing" or "increasing efficiency" are too broad. Be more specific about your intentions: Are you trying to cut certain costs, build a particular team or free up resources for a specific initiative?
Think about how outsourcing workloads in one area can free up resources and energy to focus on another area. How will that help your company better deliver value to customers? Whatever the goal, it should guide where, when, why and how you choose to outsource.
2. Plan for change.
Outsourcing will fundamentally change the makeup of your company. That's an exciting opportunity but one that requires planning. Begin preparing your staff, workflows and company structure to facilitate your dream. You will need to outline processes around the tasks that will remain in-house and determine how your team's workflow will change.
It's essential to gain buy-in from key members of your organization, from department heads up to board members. Before you present outsourcing as a strategy, ensure you know the answers to hard questions that these decision-makers are bound to ask. Think through your answers to the following questions: Who will spearhead the strategy? How will this affect our current team? Where will we use the cost savings? How long will the process take from start to finish?
3. Pick the right partner.
Outsourced services are only as good as the partner that provides them. You want a partner who is flexible and willing to integrate wholly into your team. To know whether a provider will be a fit, read testimonials and ask for references.
Any provider worth its salt will engage in several one-on-one conversations and provide a detailed proposal. In addition, the provider should ask you to visit its facility. Don't move forward until you're completely confident you've found the right outsourcing partner.
4. Define success yourself.
Great outsourcing partners commit to certain performance standards, but it's up to you to define what those are. Decide which metrics and benchmarks matter. Depending on which service you outsource, your key performance indicators (KPIs) will vary. If you're outsourcing creative, for example, you might use a predetermined quality score. With invoicing, turnaround time could be the key metric.
Before you decide anything, ask the provider to come up with its KPIs as well. Crucially, come to an agreement about how often the partner will update you with results. Hold your provider accountable each week, month or quarter, depending on your needs.
5. Test the waters.
Instead of outsourcing an entire department, start with a pilot project, which requires less upfront investment. This approach also lets you observe how effective the outsourcing partner is before committing completely. Great partners will be flexible with your terms and will want to prove their worth.
If your goal is to evolve and expand, imagine how helpful it would be to function as lean as possible. By engaging with an outsourcing provider, you'll work with high-caliber professionals for reduced costs. Whether to outsource is a big decision, but many companies find that the results are 100% worth it.