Among the myriad of studies that have focused on outsourcing, there is one statistic that never fails to amaze me. Published by Forbes magazine, the Global 2000 is an annual ranking of the world’s top 2000 public companies1 and research has found that 92% of those firms outsource at least part of their IT functions2. That is one highly credentialed vote of confidence in a business strategy that began decades ago but has gathered momentum in recent years.
It is not only global corporations investing in outsourcing though, with further studies finding 37% of small businesses outsource at least one business process3. No matter the size of an organization, there is clearly a lot to like about partnering with external providers to complete specific tasks and support growth ambitions.
That said, it is also understandable that taking the step into the outsourcing world can be daunting for many business owners and managers. The fear of the unknown is a genuine concern, while some people file it in the too-hard basket and continue doing what they have always done. Deciding to outsource is a major call for any organization and it would be remiss of business leaders not to weigh up whether it is the right option for them.
On that note, this article is designed to help ease that load by showcasing benefits of outsourcing, addressing potential challenges and highlighting alternative options.
What is outsourcing?
Outsourcing involves assigning business tasks to an external third party rather than having in-house employees complete them. The third party may be an individual or a provider that specializes in undertaking specific projects, multiple activities or entire business functions such as IT or human resources. Outsourcing has evolved to become a multi-billion-dollar industry, with businesses able to partner with providers in three general locations – onshore (the same country), nearshore (a neighboring or nearby country) and offshore (a more distant country).
Source: 40+ Vital Outsourcing Statistics [2023]: How Many Jobs Lost To Outsourcing? - Zippia
What are the benefits of outsourcing
Outsourcing allows businesses to reap multiple rewards including:
- Sustainable growth: it is no secret many businesses are initially drawn to outsourcing as it allows them to significantly reduce costs. With employment costs up to 70% less in outsourcing destinations such as the Philippines, studies have found 59% of companies pursue the strategy to reduce costs4. What is equally important is how those savings can be used to deliver sustainable growth, especially at a time when businesses are under increasing financial pressure.
- Access to talent: labor shortages are continuing to cause headaches for businesses, with a recent survey finding 75% of US employers are finding it difficult to fill roles5. Quality outsourcing providers help mitigate such concerns by investing heavily in nurturing talent pools filled with skilled workers across various sectors. This is particularly so in the Philippines, which has a high standard of education and sees more than 680,000 residents complete university each year6.
- Focus on core tasks: how many times have you heard owners, managers or even staff bemoan the fact they spend so much of their workdays on time-consuming, non-core tasks rather than activities that grow their business? Outsourcing eases this burden by assigning repetitive and often mundane tasks to third parties and allowing in-house colleagues to focus on more meaningful work that not only boosts growth but typically increases employee satisfaction.
- 24/7 support: the rise of offshoring has given birth to the concept of a ‘follow the sun’ workflow that sees external parties continue to perform duties long after in-house staff have finished for the day … or even the week. This is particularly valuable in the customer service space, with outsourcing providers highly proficient at ensuring consumers can access support at whatever time of day or night they want or need it.
Source: 9 Key Outsourcing Statistics, Facts & Trends (2024-2026) (spdload.com)
- Increased efficiencies: transferring certain tasks to quality outsourcing providers not only eases pressure on in-house staff but puts them in the hands of specialists who are fully committed to their successful completion. For example, the Philippines is renowned for producing highly skilled and hard-working staff, while many providers use custom systems and processes that result in greater productivity. Little wonder studies have shown outsourcing can boost efficiency by up to 25%7.
- Greater scalability: one of the challenges of running a business is adjusting staffing levels to meet demand. How can you quickly increase numbers in peak seasons? How much will it cost to lay off staff if business activity falls away? Outsourcing is a simple and cost-effective way to tailor staffing to suit specific needs. Better still, providers typically take care of recruitment, onboarding and training, further reducing the administrative load.
What are the potential issues with outsourcing?
Outsourcing can present challenges for some businesses but they can be mitigated.
- Lack of control: some business owners or managers may be concerned about ‘letting go’ of certain tasks but typically find that such worries are misplaced. Experienced outsourcing providers are well-versed in facilitating open lines of communication and developing systems that ensure onshore teams can have as much oversight of tasks as they desire. Business leaders can strengthen these ties by organizing regular meetings, both in-person and online, and establishing KPIs for accountability.
- Staff morale: outsourcing has the potential to impact company culture, particularly if employees do not have a clear understanding of the benefits of the strategy. Once again, communication is key. Ensure that staff are taken on the outsourcing journey by hosting information sessions and rolling out training workshops that minimize complications with new workflows. It is also beneficial to identify staff advocates that can help promote positive messaging.
Are there alternatives to outsourcing?
Outsourcing is not the only option for businesses looking to call on external support. One alternative is subcontracting but it is essential to appreciate there are key differences that may result in the adoption of a model that fails to deliver the precise benefits one is searching for.
It’s important to understand the differences between outsourcing and subcontracting to help decide which is the best option for your business.
Conclusion
Outsourcing may be a proven strategy for setting businesses on the path to sustainable growth but deciding to pursue that strategy is just the first step. One of the greatest mistakes an organization can make is to rush into a partnership too quickly, which is why to pays to do your research. Discover 30 questions to ask a potential outsourcing provider before putting pen to paper.
