Balancing the Pros and Cons of Outsourcing for Strategic Advantage

If you’re part of the micro/small/medium enterprise (MSME) sector, chances are you’ve gone through the hoops of being a Do-It-Yourself Entrepreneur, a veritable one-man team to keep all aspects of your business covered. You are simultaneously the founder, the digital marketer, the accountant, and the customer service manager, just to name a few. But while the embryonic stages of a business require some grind, being a jack-of-all-trades is far from sustainable if your ultimate intention is to grow your business.

So the thought of outsourcing has finally danced around in your head. You’re clear on which business activities constitute core, i.e. strategic tasks that improve customer value and drive profits, versus non-core activities, i.e. daily routinary tasks that add little value and are not a profit center, and you’ve just about made up your mind to be part of the growing contingent of small businesses that want to benefit from globalisation. But before you make the definitive move towards outsourcing some of your business activities to take back some of your time for more high-level strategic activities, it is imperative to weigh the pros and cons and foresee the possible impact this will have on your current status quo.

Pros of Outsourcing

1. Grow your business

When undertaken with the view of freeing up your time for high-level, value-generating, creative, or intellectually proprietary work, the decision to outsource is sure to come with hefty benefits in the way of creating growth opportunities.

By gaining access to professionals whose expertise is in the knowledge area you need for your business, you are effectively delegating to a team that is already boot-strapped and ready to hit the ground running. The time you would have otherwise lost to doing these tasks yourself, and probably with less than stellar outcomes, can now be spent building your business through ideation work or expanding your product portfolio.

2. Widen your profit margins

A common motivator for outsourcing in the production of goods and services is the benefit of cost reduction and the subsequent widening margins of profit for businesses as a result. The most frequently cited example of this is outsourcing skilled labor to professionals who have the requisite skills but live in developing countries will lower labor costs.

Within this context, outsourcing also becomes synonymous with offshoring. Economic nationalists will disagree with this trend in the globalisation of business as it takes job opportunities away from locals. However, the lure of increased profits for businesses who want to achieve economies of scale proves to be too hard to resist.

3. Boost economic efficiency

There’s a lot to gain in the way of operational and economic efficiency. For a start-up that outsources its non-core activities, the idea of opportunity cost is a compelling reason. A technology start-up founder, for example, might find that spending his/her time talking to possible venture capitalist investors is time better spent rather than managing fiduciary HR tasks like payroll processing. Businesses generally benefit when their members focus on key areas of their specialisation from which the business derives its highest value-drivers. Think about it as the most optimal use of talent where tasks are delegated to professionals with the appropriate skill level required for its completion so you can focus on leveraging your unique talents as a business founder and ideator. There is a difference between ‘busywork’ and ‘productivity’ for a high-level entrepreneur who shouldn’t be hindered by menial tasks after all.

4. Gain access to a larger talent pool

Small businesses are generally constrained by the logistical limitations of geography and often only think in terms of hiring locally. By expanding your options through outsourcing, you gain access to a wider talent pool that is not limited by physical distance. Hiring remote knowledge workers is a thriving industry and in the age of high-speed internet and powerful enterprise collaboration tools, there is virtually no limit to what you can accomplish.

Cons of Outsourcing

1. Lack of control over decision rights & authority

Exactly how much decision rights and authority are you willing to delegate to your outsourced staff? To avoid having this become a bone of contention between your internal core business team and the outsourced staff, draw clear lines of authority and decision rights. It is often implied that some level of control is transferred to the outsourced staff as part of the terms of the agreement. Map out who is in charge of what and with how much intellectual or creative discretion are they allowed to exercise their tasks in autonomy?

2. Communication issues

Communication challenges are often presented by differences in these three things: timezones, geography, and language.

When mapping out the optimal way of conducting your business across different timezones or geography, first decide which among the outsourced tasks can be done synchronously versus asynchronously. This boils down to the nature of the task and how much decision making authority and creative discretion you’re willing to delegate to your service providers. Another issue involving geography is the use of region-specific versions of English. If you’re an Australian company outsourcing content marketing writers from the Philippines, you will need to make an explicit point of directing your outsourced staff to use AU English norms in grammar and spelling because US English grammar and spelling norms are more commonly used.

Finally, having a shared language where both parties can communicate with near-native fluency is also a big issue. The lack of fluency can increase the likelihood of miscommunication and errors in both the delegating and carrying out of client directives.

3. Problems with quality assurance

The consequence of outsourcing to a third party is a loss of control. By relinquishing some part of your business process, you are entrusting it to the skills and discretion of the outsourced service provider. Although you have no idea of the work quality until the deliverable is submitted, there are ways to mitigate the possibility that quality standards will not be up to par with expectations. Taking the time to orient or train your outsourced staff will go a long way in setting both your business and your outsourcing relationship up for achievable and sustained success.

4. Organisational culture problems

If you have an existing core team with its own culture and accepted norms or social mores, you will have to examine how outsourcing will impact your organisational culture. Companies cannot afford to overlook the areas in which subjective differences in cultural points of reference can create conflict between the outsourced staff and the core team. But this is not entirely irremediable. Part of laying the groundwork for positive inter-cultural relations is taking the time to understand the outsourced staff’s culture and general approach to doing business. This will help your business identify policies or values that could lead to a sore point in your working relationship. As is the case in any working relationship, compromise is key. Both parties might have to give in a little to find the right balance or harmony.

There are numerous pros and cons to outsourcing and/or offshoring. Considering the impact this could have on your core business’ cultural status quo, it is worth taking a moment to assess how to mitigate the possible negative effects and outcomes of it while maximising the economic and operational benefits of it which are quite compelling. Finding the right balance is defined subjectively within each business and the right leadership will know how to intuitively navigate through all the grey areas of this strategic endeavor.

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