Businesses nowadays have to work around an ever-increasing laundry list of customer demands, wants, needs and requirements. This in turn magnifies the scope and reach of their operations & processes. As organizations grow, they quickly face the reality of having to delegate certain tasks to external entities, in order to maintain current quality and productivity levels.
This is a process known as outsourcing and it has been around the business environment for quite a few good years, but we’ve never seen it on such a grand scale. It’s become so widely spread that it is commonplace even for certain small-sized businesses to make use of it.
To keep a long story, short, outsourcing involves entrusting certain processes that your company cannot fully accomplish to external providers. If a certain function can be done from anywhere outside your headquarters, it can be easily outsourced. From transaction processing, payroll & inventory management, to data storage, security management or staff augmentation, whatever you may need, there’s bound to be a provider for it.
Trends over the years
As noted earlier, outsourcing isn’t a new trend. It has been around since the 1970s, when manufacturing companies began hiring external companies to manage their non-essential processes, in order to maximize efficiency.
According to Michael F. Corbett, author of The Outsourcing Revolution, we know that in 2004, the average manufacturer outsourced 70%-80% of the contents that went into their finished products.
Outsourcing went from being an efficiency-maximizing strategy to a core growth method. If in 2004, 3% of companies outsourced for innovation, 9% did so in order to acquire skills unavailable in their current roster of employees and 49% engaged in outsourcing for efficiency purposes, in 2013 things looked drastically different.
According to an IBM study from 2013, only 27% of companies outsourced to reduce costs, while 36% did so for innovation, and 37% for skills growth. However, those numbers would soon look much different, in 2016 when Deloitte released data from their Global Outsourcing Survey, data which is still relevant to this day.
`Clients are more frequently considering outsourcing to capture and enable innovation that exists in the marketplace.`
As it stands right now, 59% of companies use outsourcing to minimize expenditures, 57% do so in order to enable focus on core business operations, 47% use it as a way to solve capacity issues and 31% claim that outsourcing enhances their services quality.
As we can see, outsourcing has become more than a means to an end; it is now a core component that maximizes business output in all its forms.
Outsourcing: the middle man between start-up and success
Some of today’s biggest players were either born out of outsourcing or made their name due to it.
Our dearest search engine, Google, has been engaging in outsourcing since forever. Whether they needed IT specialists, developers or virtual assistants, the company made great use of this service in order to take care of as many projects as it could. For example, in 2011, they outsourced their phone & e-mail support for AdWords to about 1,000 representatives, from over 60 countries.
AdWords is one of Google’s top grossing products, so wanting to maximize return on investment is quite understandable. According to Francoise Brougher, their VP of Global Advertising and Product Operations, this move “definitely saw a positive ROI and expenditure lift from advertisers touched by Google AdWords customer service.”
Another good example of a company making great use of outsourcing is Whatsapp. Founded by two former Yahoo! Employees, Brian Acton and Jan Koum, Whatsapp has become the go-to method for SMS: everything from encrypted communication & group messages, to file sharing or phone calls.
Launched in 2009, it got bought out by Facebook in 2013 for over $19.3 billion, and none of this would have been possible without outsourcing. We know this because Igor Solomennikov, who later became their CIO, got contracted by the two founders in order to work on the app’s entire core development.
Without going into much detail about other such examples, suffice to say that many of the companies we know today would not have existed without outsourcing.
We wouldn’t have had the largest global marketplace, Alibaba, had they not outsourced website development to the US. There would be no GitHub had the site’s founders not hired Scott Chacon – a huge expert on Git, as an outsource contractor to eventually build the backend of Gist, a sharing feature within GitHub.
MySQL, Opera, Skype, Slack, AppSumo, Groove, Expensify, Basecamp, Klout and many more companies have entered our lives and became success stories due to outsourcing and its potential.
IT Outsourcing – The Good
As we can see, one of the most widely used areas for outsourcing is information technology, as many companies find it more feasible that way. To give you an example, company A might prefer to outsource data storage to company B, as this proves to be more cost-efficient than buying and maintaining their own servers.
As it stands today, when businesses look at services like web development, hosting, software & app development, website/app maintenance and management, tech support, database development and management, telecommunications or infrastructure, it has become quite customary to simply think about outsourcing.
But what are the advantages of engaging in this process?
1. Cost efficiency
By far one of the first reasons anyone considers outsourcing in the first place. Given the nature of expenditures and how they differ from one country to another, outsourcing allows one’s company to benefit from lower operational, infrastructure and capital costs. This offers you the opportunity of employing exceptional employees without breaking the bank or spending months-worth of time finding the ideal candidates.
For example, it’s been reported that due to the difference in wages between countries, you may oftentimes find yourself saving costs by 60% if you choose your investment locations wisely. This release of capital allows you to direct your investments in other areas.
2. Increased productivity & experts
The second most oft-touted reason for outsourcing is the gain in productivity. By working with a specialized team, you save valuable time, effort and investment as the contracting provider brings experts in their field. You no longer have to train your employees to acquire the necessary service, you may simply turn to an IT vendor and they’ll simply supply it.
Most outsourcing companies understand the role they play in a business relationship, which is why they choose to maximize their specialization towards specific knowledge categories. For example, if you need an iOS developer or an Android developer, the same vendor might provide both, but don’t expect them to also offer you a marketing specialist.
3. Focusing on key functions
Third off, by bringing in an external team, you give yourself the freedom to focus on core activities within the company. Instead of planning what team or maybe an entire department should now receive a task that’s beyond their knowledge, your main roster of employees can devote 100% of their attention to what they’re good at.
4. Greater reach
When you decide to outsource, you gain access to capabilities, facilities and a global talent pool that may not be available locally. It becomes even more so when you start engaging in multi-outsourcing, which is the contracting of several external providers. These may be from the same region or from different ones. Nonetheless, they would shore up multiple requirements within your company.
This type of process presents you with the added benefit of gauging multiple markets at a time, which can easily become a competitive advantage if leveraged properly.
5. Round-the-clock service
By analyzing time zones for both your desired provider and your target market, you may be faced with a dream scenario, whereby you can offer support and keep the business running 24/7.
Let’s assume you’re a software developer and your two main markets are your local national one and another that’s on a 10-hour time zone difference. You can maintain good service & support figures for your local one, but let’s say you have no night shift and your software breaks. That’s where outsourcing comes in. You outsource most of the maintenance effort and now you’re covered for both markets.
IT Outsourcing – The Bad
Now, this wouldn’t be a pros & cons section without the latter. So in terms of issues with outsourcing, there are three which deserve your attention.
To begin with, whereas outsourcing in a totally new time zone may be a blessing, it can also be part-curse, as communication might become hamstrung and delayed due to the hour difference.
Moreover, depending on where you decide to outsource, various language and cultural differences can also impede a smooth process. Case in point, imagine having a big update or new launch precisely on the day when your outsourcing team is on a state-mandated holiday.
In addition to this, working with a company on the other side of the planet might incur additional costs when it comes to travelling there for a business meeting, as not all issues can be easily settled over online communication channels. Some aspects need to be discussed in a face-to-face meeting, and that’s where extra costs might kick in.
That being said, no business deal is perfect. Everything in life and in the business world comes with a trade-off. At the end of the day, the mere act of starting a business implies risk & reward; so much so stands true when contracting another one to help you out.
Keep in mind that outsourcing is no longer an option only for giant corporations. This $85.6 billion industry that connects IT experts, marketers, advertisers, content creators and many others, is now a true global practice.
From an innovative strategy in the U.S.A., to connecting people all the way from Hong Kong to Brasil, or from Sydney to Kiev, outsourcing has become a staple procedure for today’s businesses, regardless of size or location.
It is up to you to decide whether it is worth the investment and once you’ve decided, figure out which vendor offers the best bang for your buck.