What is outsourcing? The reasons why companies outsource and the reasons why companies don’t outsource.
Mark Ford here,
Today we are going to talk about outsourcing because this was something that I had to look into some time ago when my business was growing from strength to strength. It was only when I joined a group of mentors that I understood what, “Do more of what you love, empower and give the work that you don’t love to those who love to do it,” really means.
Don’t let what you don’t love to do take you away from what you really love to do. That is why today I wanted to talk about outsourcing. If you’ve started your business and you find that your business is transitioning from small to medium, you will have to perhaps outsource or hire someone who is skilled in other tasks so that you can focus on the bigger picture along with your core business goals.
Okay, let’s dive in.
What is outsourcing?
Outsourcing is when you pay a freelancer, another company or purchase something from an external supplier through a contract.
The reasons why companies outsource
- The reasons why companies outsource is because they could be spreading themselves too thin with the number of departments that they have to run, i.e. accounts, human resources and even marketing, for example.
- The reasons why companies outsource is and was because of cost reduction. Especially during the economic crisis, a lot of companies have consolidated two departments into one, leaving a lot of people unemployed and looking for less overhead costs.
- The reasons why companies outsource is because they want to focus on more significant business goals, especially if specific tasks are time-consuming. Directors want to manage their time better or require taking the business on the next level.
- The reasons why companies outsource is so that they can access what they don’t have internally within their industry, which also could be a combination point number 5.
- The reasons why companies outsource is so that they can access skills on a global level
- The reasons why companies outsource is so that they can provide better customer service. Having a team just focusing on customer service helps companies retain their customers as they continue focusing on growth, which is already bringing in new and more recent customers. Companies can receive proper feedback and provide online customer service via a chat.
- The reasons why companies outsource is so that they can lower their infrastructure and material costs. For example, buying material from India is cheaper than buying materials in France for manufacturing clothes, and a lot of companies outsource the manufacturing of clothes and other products in China, India and other countries. Saying that some companies also want to reduce their shipping costs. Which means that the products can be manufactured and shipped over quickly. This then also brings us to the next point.
- Globalisation could be another reason why companies outsource. A few examples that come to mind is Nestle and Cadbury. It’s easier to produce products and offer services to the end-users in the country where they’ve purchased a product. This eliminates challenges with time zones. Companies can also access new technologies this way.
- The reasons why companies outsource is so that they can have access to resources which they otherwise won’t have access to perhaps in the country where they’re operating. An example that comes to mind here is the company Innocent drinks. Innocent drinks have mango farms in India while Richard Reed is British mangoes don’t grow in Great Britain.
- The reasons why companies outsource is so that they can have peace of mind. Once the interviewing process, finding the right partner, the contracts are over, and the beginning stages of working with a new partner have calmed down, a director can have peace of mind that that specific element of the business is now taken care of.
- The reasons why companies outsource is so that employees don’t have too much workload and can focus on their core duties instead of multitasking or handling menial tasks. There are some tasks that employees find menial and those who have educated themselves to do a certain role procrastinate on menial tasks.
Reasons why companies don’t outsource
- Reasons why companies don’t outsource is because of language barriers. A customer that thinks they’re calling the number of a company in their own country is then greeted by a person who speaks English with a foreign accent that they don’t completely understand. This affects customer service. If the company is huge, customers can complain because of the hold time and the duration of the call because of not understanding the English with a foreign accent.
- Reasons why companies don’t outsource is because they can’t control and measure security and privacy policies to see if they are being complied with and won’t be able to manage it effectively if there is a breach. Now that GDPR is in place, companies have to conform to privacy policies and handle private and sensitive information of their customers with utmost care. Companies can be fined four percent of their annual global turnover or twenty million – whichever is greater.
- The reasons why companies don’t outsource is because they also can’t control or measure things accurately. They won’t know if procedures have been breached either.
- Reasons why companies don’t outsource is because they don’t think that the service or quality is good and that might not end up being the smartest move just to lower overhead costs. With the type of service and product, some companies offer that could affect the product or quality of the product because of weather temperatures, for example.
- Reasons why companies don’t outsource is because they don’t want to make people redundant and instead keep the workforce employed contributing to the empowerment of the country where they run their business. Also, staff are likely to feel threatened and feel they can be replaced easily if the company chooses to outsource as an option.