As a company, you have probably thought of outsourcing certain parts of your business. Like digitization, it is an important point in the modernization and restructuring process for your business. What is outsourcing and what are the benefits?
What is outsourcing?
Outsourcing, as the name suggests, means giving work externally. A part of the activities or a whole service can be transmitted to a person or to another company. Services are most often concerned, but in principle, any activity can be outsourced. Take the example of the automotive industry. A car is made up of many spare parts, which are delivered and sold by different producers. The company has thus outsourced production and can focus on assembling the parts and on the subsequent distribution of the car.
Is outsourcing appropriate for SMEs?
Outsourcing is obviously not just for the automotive industry, but is used by companies in various sectors. On the contrary, more and more young entrepreneurs are enjoying the benefits of outsourcing. The reasons are many and varied.
Risks and personnel costs
Some activities are not fast enough to be implemented in your own business. The lack of experience, time and interest in acquiring certain necessary knowledge is decisive in this case. Marketing is a classic example. Companies know full well that now you have to show up on social media. Not to mention, search engine optimization, a good website with a blog if possible, are also necessary. But how does it work exactly? And more importantly: who will take care of it?
Employing someone for this is not really worth it, because new employees must first be trained. You need a workstation with the appropriate infrastructure, plus administrative costs, such as salary statements and social security contributions. For this, it is often simpler, faster and most of the time cheaper to mandate an agency or a (e) freelance. As specialized professionals, they are daily on the lookout for the latest trends and achievements in their field of activity. They are not only more efficient, but deliver high quality work.
The risk of default has not yet been taken into account in this calculation. Indeed, a collaborator can fall ill or pregnant. These risks are almost nonexistent if you use an agency. As long as the business does not disappear overnight, the outsourced service will be provided. If not, you will not have to pay.
Focus on your own strengths
We often tend to forget that each individual and each company has their own central skills. For some, it is sales, for others marketing, still others are technical enthusiasts. Outsourcing thus takes on its full meaning at this level. If you want to do everything yourself, you obviously need a lot of time for that. Entrepreneurs should, however, focus on what they can do best. Sectors that do not match their strengths should be outsourced. Even if this results in additional costs, it will result in a better outcome. In fact, we are better at the activities we do regularly. If you have to focus on a lot of things at the same time, it’s almost impossible to be able to optimize a particular task.
Certain sectors of activity are more concerned than others, but by and large, it is the concern of each company that works well. The demand can sometimes be so great that we no longer know how to accomplish all the tasks ahead. Or on the contrary, there may be phases which prove to be extremely calm. We can avoid all this thanks to outsourcing. In the event of a larger number of orders, certain activities can be outsourced. If the company runs out of time, various tasks can also be outsourced to other companies. As soon as the situation is a little calmer, there is no longer any need to mandate external people. This is really an excellent concept, because there are no unnecessary salary costs for the company. Scaling is a factor to consider for the growth of a business. Indeed, we remain flexible as to the scope of orders to be processed, and these are good prerequisites for a company to be able to achieve significant savings in the long term.
What are the disadvantages of outsourcing for SMEs?
Let us first note that the modern market economy operates according to the concept of outsourcing. Companies specialize in one or more offers. With increased efficiency and quality, they are more competitive on the market. Tasks that have no influence on improving offers are purchased from other companies. Thus each company outsources, even if the purchase of pre-made products or services is not necessarily considered as such. As long as the supplier can be replaced easily and quickly by another, this only brings advantages. As the services become more complex and specialized, this can involve risks. This should be taken into account when deciding whether to outsource, and, as far as possible,
A major drawback is addiction. Even if a task is performed quickly and inexpensively, one logically becomes dependent on the service provider. If the latter is in difficulty, this has direct consequences on your business. As long as there are no long-term contracts for this collaboration, the supplier can adapt its prices and conditions. Even if contracts exist, they are only valid for a short period. The greater the effort required to change supplier and the fewer alternatives, the worse your negotiating position will be. When negotiating a new contract, the supplier can easily assert its conditions. If you have to separate from an external provider, you will quickly face new difficulties. When an individual activity has been outsourced over a very long period, specialist knowledge in this sub-domain decreases within the company. If there are no other alternatives, the skills and knowledge must again be acquired. This can cause delays in all business activities.
Apart from a few special cases, suppliers have several customers. As a result, there may be some overlap regarding customer needs. It is the provider’s responsibility to resolve these issues. He must prioritize requests and decide on the distribution of resources himself. As a customer, you have little influence over this decision, and how the supplier will deal with your urgent needs compared to his other customers. If these services are paid for within your company, you can decide for yourself. Thus, a project can be put in the background, in favor of a more urgent task.
Outsourcing is not just about large international companies. Indeed, the outsourcing of certain activities can prove to be extremely advantageous for SMEs:
- You can focus entirely on your skills;
- The services can be adapted according to needs;
- Fixed costs can be kept low;
- Reduction of the risk of default by people who are the only ones who know a field of activity.
In summary, the outsourcing of certain subdomains is a good thing. The benefits are manifold. However, there are still some drawbacks. They should be reviewed and considered on a regular basis. Dependence on a single supplier can increase over time. If you collaborate closely with someone, you often realize this when it is already too late. A second external service provider should always be available to minimize the potential risk of failure. If addiction cannot be avoided, you should contractually protect yourself against the risks.