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According to the Outsourcing Institute, a professional association that tracks strategic use of outside
resources, organizations in the United States alone now spend $200 billion to outsource noncore functions, not including the
subcontracting of manufacturing services. In five years, the Institute estimates the U.S. outsourcing market could reach $500
billion.
The following are the top reasons businesses are embracing outsourcing:
- Time to focus on the
organization’s primary function. A key reason for outsourcing is to enhance the firm’s ability to focus on core business
issues, while external professionals provide noncore products and services. Through outsourcing, organizations free internal
staff to concentrate on product and service improvements.
- Increased level of expertise. Another benefit is
obtaining a level of expertise often not found in-house. Rather than spend time and money training and staying current in a
noncore area, organizations contract with experts who remain abreast of issues, practice regularly and specialize in a given
field.
- Cost-effectiveness. Because an expert already possesses the knowledge, skills, contacts and equipment to
effectively complete a job, professionals generally are more efficient than the outsourcing organization.
- Decreased overhead expenses. In most cases, contractors provide their own office space and work off-site. While
some work must
take place on company property, technological advances make communications easy and efficient and reduce the need for on-site
space.
In addition, contractors generally maintain their own equipment and supplies, reducing the need for peripheral
capital expenditures.
Although hourly rates for outsourcing will not likely be higher than internal rates, companies can
experience savings of 12% of payroll by eliminating payment of several payroll taxes (unemployment and FICA). Additional
payroll savings of 30%-40% can be attributed to a reduction in employer-paid benefit costs.
- Risk reduction.
Knowledgeable experts can provide sound advice and help reduce costs and legal risks. In addition, independent contractors
are required to carry their own liability and worker’s compensation insurance, and reputable organizations will guarantee
their work. Also, contractor services generally can be terminated with less time and effort than terminating employees,
reducing the likelihood of employment claims and lawsuits.
- Flexibility. Outsourcing provides greater flexibility
to companies by allowing them to work on a project basis and discontinuing services when necessary.
- Technology.
Companies that outsource can focus time and money on remaining technologically competitive in core business functions, and
also receive the benefit of the outsourced provider’s up-to-date information, equipment and technology.
While outsourcing can provide a major financial boost to a company, choose your outsourcing partners wisely, since you remain
responsible if their work is unsatisfactory. It is important that you define your needs and expectations clearly, and that
both sides agree on schedules, compensation and criteria for satisfaction.
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