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Growth Goals: The pros and cons of outsourcing

POSTED: 18th June 2015
IN: Guides
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What do SMEs need to consider before turning to an external provider to manage elements of their business?

undefinedAs businesses grow beyond the start-up stage, entrepreneurs are likely to face an expanding and ever-more diverse set of tasks in their working day, alongside increasing expectations from clients and customers. While taking on new employees is often considered the logical next step, in some cases there may be advantages to seeking external support to handle specific business functions.

In order to help growing businesses gain a clearer understanding of which route might be best suited to their business, Aldermore outlines some of the major advantages and disadvantages of outsourcing.

Pros

“My advice to any small business is 'focus on what you do best and outsource the rest’ and it’s becoming increasingly straightforward to do this,” comments Emma Jones, Founder of business support group Enterprise Nation, adding, “Outsourcing helps you stay nimble and keeps overheads low.”

Naturally, given the wide range of processes SME leaders must oversee, there are likely to be knowledge gaps within the workforce which would require significant time investment in order to train employees. Outsourcing allows businesses to rapidly capitalise on the expertise of specialists, which can be crucial for areas which require an in-depth, up-to-date knowledge of technical details or legal restrictions, such as accounting or IT security.

Beyond skills, contracting out work may also grant the company access to resources which would otherwise be too costly or time-consuming to obtain, such as machinery, distribution channels or key contacts, allowing the firm to compete with larger rivals. Alongside these economies of scale, opting to pay suppliers by results or work delivered may also lead to cost-savings, creating an

incentive for work to be completed efficiently and mitigating against delays which would otherwise cause costs to spike.

From a practical perspective, outsourcing may be a prudent option for firms with inconsistent workloads, providing an opportunity to quickly attain skilled freelancers or remote workers to fulfil a particular project without the commitment of taking on new employees. This also frees businesses from the administration burden of hiring staff and means space constraints within the workplace will not pose a challenge.

Cons

While outsourcing business functions is often seen as a way to bypass the time required to train new employees, it is unlikely to represent an immediate solution. Business leaders should be aware that finding a high-quality provider can take time, particularly since their work will reflect on the business as a whole and sub-standard results could damage the company’s reputation. More concerning is the potential failure to meet regulatory, technical or financial standards, which could leave the firm susceptible to legal action, cyber-crime attacks, or even costly fines.

Once a third party agency has been selected, the business leader will need to continue dedicating time to the relationship, briefing the firm on jobs, reviewing their output and providing updates on internal developments likely to affect their work. Without this continual communication, third party providers may struggle to understand and embody the business’ values,  as well as having a clear indication of expectation levels of the business owner, which could lead to inaccuracies and the provision of inferior work. This might then require additional action from the business owner in order to rectify the situation, placing a strain on their time.

Even if external providers are effectively managed, businesses may still miss out on the benefits of a permanent workforce.   Full-time employees may be able to identify opportunities to improve business processes and drive innovation across departments, something which may be difficult to achieve for external parties, since their knowledge of the business is likely to be limited to the area they are directly responsible for.

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