Why do companies choose to outsource work?
During a time when a distributed workforce is becoming more commonplace, many companies are taking advantage of the benefits of outsourcing. Here are a few reasons why they are outsourcing work to external vendors.
1. Lower costs to increase profit
Financial instability is a driving factor in decision making more and more in recent months. By outsourcing certain tasks, a business can reduce the overall costs of a process. The higher cost of conducting a process in house may be due to an expensive tool, the scalability of tools across a team, knowledge that requires a specialist in a particular field, or a temporary requirement for any of the latter.
Additionally, building a team is expensive. Employee retention can become costly in competitive markets and studies have shown that it can cost a company 6 to 9 months salary to replace an employee. For example, an employee earning $60,000 a year would cost $30,000 to $45,000 to replace. For high-level executive employees, it can cost up to twice their salary. This is due to expenses associated with recruiting, onboarding and training as well as reduced productivity during the onboarding and transition stages. These costs and loss of productivity are partially negated when a company outsources these jobs since these costs are managed by the vendor.
2. Focus for faster growth
When a tool or process requires in-house integration, this can drain resources from other areas of the business, especially if it is not the core competency of the business. In these cases, it may be better to outsource the task to an established IP services provider, so the company can focus its internal resources on the right areas.
When a company chooses to outsource work, it also opens itself up to faster growth potential. Access to larger teams with established resources is relatively rapid in comparison to onboarding internal teams, acquiring tools and training those teams on tools and processes. By working with specialized vendors, a business can access specialists and resources quickly at a lower cost and lower risk. For example, if your business wants to expand into a new market, outsourcing work to a specialist vendor specialized for the local market can provide rapid access with local insights. It also prevents context switch for internal teams, so they aren’t detracted from their key focus areas.
3. Fast access to specialist tools
Tools built to simplify a process can be expensive and time consuming to integrate into a business, especially when employees are not familiar with the tool and require remote training and supervision. If not properly integrated or if the right level of support isn’t accounted for, any initial investment may be completely wasted. Many businesses choose to outsource work that relies on tools which are expensive and time consuming to integrate.
In many cases, it’s more advantageous to outsource tool-specific work to an external vendor who specializes in complex tools and develops them with an advanced support team. For example, if your business wants to expand into a new market, outsourcing market research to an external vendor can provide you with valuable data and local insights that would have otherwise not been accessible due to time and cost constraints.
It’s also worth noting that more than 93% of companies have adopted cloud-based tools to enable them to work more easily with external vendors. However, shifting to the cloud has raised the concern of data security, particularly when it comes to working with external vendors. Approximately 45% of businesses believe that cloud services are not stable or reliable enough and 35% fear losing intellectual property. Weighing up the risks and benefits of shifting to the cloud can be the deciding factor for many businesses seeking to outsource work to external vendors.
The market for business process outsourcing (BPO) is expected to reach $405.6 billion by 2027, rising at a CAGR of 8.0%, demonstrating that more and more companies are choosing to outsource work to save money, quickly access tools and resources, and scale their businesses more efficiently.