What Is Outsourcing and Why Do Companies Outsource?

Author Sean Behr Date May 21 2019

What is outsourcing and why do companies outsource?

Outsourcing definition: Outsourcing is when a business decides to delegate some of its functions to an individual or a team outside of the company. Due to the advances in technology, businesses of any size can benefit from technical expertise and outsourcing for skills that they do not have in-house.

Access to business outsourcing is becoming increasingly common. A study has found that at least one in three people in the U.S. are gig workers. This report also found that the number of gig workers could reach around 40% by the year 2020. The increase in contingent workers, such as freelancers, contractors and gig workers, make it even more convenient for small business outsourcing .

A huge advantage of outsourcing work is that it can be done with a limited budget. Therefore, small businesses and entrepreneurs can now benefit from outsourcing different tasks.

What is an outsourced business provider?

An outsourced business provider is an individual or business that performs tasks that your business requires. Different outsourced business tasks can include: outsourced sales, marketing, support, accounting, operations, design, development, and more. Practically any task can be completed by outsourced business providers.

Why is outsourcing bad for business?

Business process outsourcing is typically beneficial for your business when done strategically. However, you may prefer retaining certain strategic and core competency related tasks internally so that you can further develop your internal team’s knowledge in those specific areas.

Why should you outsource business processes and work?

Even if you can complete all of tasks yourself, this can prevent you from focusing on the big picture to grow your business. Business process outsourcing helps you streamline your business by allocating different tasks to outside companies and vendors.

This enables small business owners and entrepreneurs to focus on areas that give them the best return on investment. When a specific task or project needs to be done, they can be outsourced as opposed to hiring an in-house team. This avoids paying full-time wages, benefits like health insurance and finding office space to house the additional employees, which results in reducing operational and labor costs.

According to Deloitte’s Global Outsourcing Survey of 2018, keeping costs down is still a major benefit of outsourcing various tasks and projects. However, business outsourcing has transitioned to partnerships with other agencies that provide a service that the company is unable to.

Entrepreneurs and small businesses can use the power of outsourcing to scale their business without the associated overheads. Outsourcing is particularly beneficial when dealing with technical expertise that’s unavailable in-house.

[Read More: A Beginner’s Guide to Setting a Recruiting  Budget]

When should you outsource tasks?

1. Outsource when your in-house team is unable to handle specific tasks

With outsourcing, you can receive technical expertise that you need, quickly. If a job requires specialist knowledge, it’s no longer necessary to hire a new employee or get someone in your current team to be trained.

Even if you’re able to train someone in your team to do the job, this may not be the best solution for your company because the trained employee will lack the necessary experience to do the job well. This is where outsourcing comes in.

The professional that you hire already has the skills to complete the task to a high standard – sometimes, in record time. Outsourcing doesn’t just work for one-off tasks. Instead, you can rehire a consultant or a freelancer, if they’ve done a good job previously.

2. Outsourcing work when you have hard-to-fill positions

Some positions in a company are hard to fill. Whether you use a recruiting agency, free job board or paid platform, it can be difficult to identify the right person. For example, if you need a developer with certain skills, the only way you may be able to source this person (especially with a small budget) is to target passive candidates.

However, if you don’t have an efficient hiring process in place with features such as an ATS, you could find it difficult to get the right person. While you’re waiting to find the right professional to join your company, you can outsource this function to the developer who has the experience you require.

Depending on the type of role you’re trying to fill, if you’ve identified good consultants or freelancers, you may find that it’s more cost effective to work with this person as opposed to continuing to look for a full-time alternative.

The main difference with outsourcing is that contingent workers mostly work remotely. You have to sharpen your communication skills and invest in the right technology to communicate effectively with remote workers.

3. Outsource work when you’re feeling stressed

This is especially the case for entrepreneurs who have to wear many hats when first establishing their companies. If you feel overwhelmed and overworked, this could be the time to consider outsourcing some of your tasks to get rid of your stress.

As an entrepreneur, you can start to outsource small tasks, so you can grow in confidence when using contingent workers. Ensure that you’re comfortable outsourcing small projects before you begin to outsource larger projects.

4. Use outsourcing to increase your team’s capabilities

With outsourcing, you can boost your team’s skill sets. For example, if you have an accounting team and they lack the knowledge to complete complex accounting functions, you can outsource accounting tasks to a specialist firm. Outsourcing can work for different types of business functions, including:

  • IT
  • Marketing
  • Customer service

Most small businesses and entrepreneurs think about outsourcing the IT function because of the high level of technical expertise required.

Hiring Best Practices: Traditional Workers vs. Contingent Workers

5. Outsource when you have a reduced budget

Outsourcing can work out cheaper for your business when you delegate different tasks – for example, PR or bookkeeping. This will help to reduce your overheads and operational expenses and will, therefore, boost your profits. Having full-time employees always proves to be more expensive. You have to take into account salaries and other associated costs involved in keeping full-time employees such as sick leave, paid vacation, taxes, insurance, training and ensuring they have the latest software and devices.

6. Outsource tasks when your team needs to be more efficient

You can outsource tasks that your team is already proficient in. Outsourcing doesn’t always have to be for tasks that you have little (or no) experience of. When you outsource some business functions that your team does on a day-to-day basis, you can give them the freedom to become more productive.

Outsourcing can help you to modernize and reorganize processes, so your team can complete their work in less time. Therefore, outsourcing can be a complementary service to your team’s core offering. For instance, a marketing department can outsource some of their design work to a freelancer or consultant. This will enable the content marketing team to get on with other tasks to advance the company’s brand.

7. Outsource when want to provide a better level of customer service

Customer service and a great customer experience are crucial to small business success. Irrespective of the size of your business, consumers are used to demanding services that are delivered quickly and efficiently.

You’ll know you should outsource some of your services if you and your team are so busy with different tasks that it’s difficult to provide the appropriate level of service that your customers need. You can outsource some work to virtual assistants or a personal assistant.

8. Outsource when your progress is stalling

If you’re an entrepreneur or run a small business, you may notice that your business has been stagnant, even though you’re servicing customers and are fully booked. This indicates that there’s no room for you to grow. For example, your different teams may be too busy dealing with routine tasks to regroup and focus on the big picture of how to drive your business forward.

Outsourcing helps free up your team from mundane tasks, so they can come up with new and innovative ideas on how to grow your customer base. Giving your team some extra space will enable them to think more creatively.

Alternatively, you can also outsource idea creation of how to drive your business forward. You can hire a consultant who’s an expert in growth tactics for your particular industry, so they can provide ideas about how to increase your market share.

9. Outsourcing may be necessary when a  part of your business is having difficulty

It’s not unusual for small business employees to be expected to fulfil different roles. However, this can only be taken so far. It’s unreasonable to place too many demands on your small business employees because this can lead to burnout or they may choose to leave your company.

This will increase your turnover rate and, in turn, end up costing you more to source and hire new replacements. You need to review different areas of your company to identify the weak spots. When this has been done, hire freelancers or consultants that specialize in the area that you’re trying to improve. This way, your small business employees will be less stressed and will be able to get on with the work they’ve been hired to do. Taking on a freelancer or consultant to carry out tasks your business is struggling with will help you to get your business back on an even playing field.

10. Outsource one-off tasks

As an entrepreneur or a small business owner, you may have one-off tasks to complete from time to time. For example, you may want to rebrand your business or launch a marketing campaign on a new social media channel. Alternatively, you may want to update your technology and you require expertise that you don’t have in-house. You can outsource your one-off and ad hoc projects, so you only pay for the time you use the expert.

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What type of tasks can small businesses and entrepreneurs outsource?

Here are some tasks that are commonly outsourced by small business owners or entrepreneurs:

  • Tasks that require specialist knowledge. There are some jobs that require technical expertise – for example, IT support. If you need IT support for your computer network, it may not be necessary to get a full-time employee. You could outsource this function to a company or a contractor.
  • Tasks that require expert knowledge. As a small business owner or entrepreneur, you’ll need expert advice. For example, consultation with a financial analyst to give you information about the financial health of your company. However, employing a full-time (or even a part-time) financial analyst may not be viable.

But you can outsource this function to a qualified financial analyst who will work with your company on a contractual basis. This financial analyst could be paid on a per project basis or on an hourly basis.

Tasks that are repetitive. Tasks that need to be done day after day can be very tedious and time-consuming for your team. For example, it could be a good idea to outsource jobs, like data entry, so your team can focus on revenue-generating ideas. Any task that’s repetitive can be outsourced to virtual assistants.In order to outsource successfully, take an inventory of different aspects of your company and identify repetitive tasks, expert tasks and specialist tasks. Then go about finding out which small tasks you can start outsourcing, so you can get used to the process before outsourcing bigger tasks.

Use your network for trustworthy referrals of freelancers and contractors. When outsourcing work, don’t only think about work that your full-time employees can do. It has been shown that gig work is now replacing traditional part-time work. So, if you’re thinking about hiring part-time workers for a specific role, you can reallocate this role to gig workers.

When you need to hire gig workers for your small business, consider using Fountain. We have the expertise to help you to hire gig workers at scale. Whether you want to hire one, 10, 100 or 1,000 gig workers, you can use Fountain to efficiently manage the end-to-end recruitment process.

Companies like Deliveroo and PICKUP already trust Fountain to provide them with a motivated and highly engaged gig workforce.


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About the Author

Chief Executive Officer

Sean Behr

Sean Behr is the CEO at Fountain and has served in leadership roles at STRATIM (acquired by KAR), Adap.tv (acquired by AOL), and Shopping.com (acquired by Ebay). Behr also advises, mentors, and invests in entrepreneurs and early-stage companies.