Over 33% of small businesses outsource at least 1 process. This is not just about managing your workload—it’s a smart way to take care of time shortages, budget issues, and limited staff.
This post will show you how to decide if outsourcing is a fit for your needs and guide you on how to get started.
Let’s get right to it.
What is Outsourcing? Easy-to-Understand Explanation
Outsourcing is a business practice of hiring a third party to perform your business tasks, functions, or processes that are not core to your organization’s operations. This is done to reduce costs, access specialized skills, or focus on key business activities.
To help you figure out what to outsource, here is a breakdown of common tasks different industries outsource.
| Department/Industry | Commonly Outsourced Tasks | Outsourcing Partners |
| IT & Tech | – Software development – IT support & maintenance – Cloud storage & management | – Specialized IT service firms – Freelance developers – Cloud service providers (e.g., AWS, Google Cloud) |
| Healthcare | – Medical billing and coding – Telemedicine services – Laboratory services | – Medical billing companies – Telehealth platforms – Specialized diagnostic labs |
| Manufacturing | – Component production – Assembly – Packaging | – Overseas factories – Contract manufacturers – Packaging companies |
| Retail | – Customer support – Inventory management – eCommerce platform development | – Call centers – Supply chain management firms – IT and web development agencies |
| Finance and Accounting | – Payroll processing – Tax preparation – Auditing | – Payroll service providers – Tax consultancy firms – External auditing firms |
| Marketing | – Content creation – SEO & SEM services – Social media management | – Content writing agencies – Digital marketing firms – Social media consultants |
| Legal | – Document review and management – Legal research – Paralegal services | – Legal process outsourcing (LPO) firms – Freelance legal researchers – Paralegal service providers |
| Human Resources | – Recruitment and staffing – Employee training programs – Benefits administration | – Recruitment agencies – Professional training companies – HR consulting firms |
| Real Estate | – Property management – Virtual staging – Market analysis | – Property management firms – Virtual staging companies – Real estate analytics firms |
| Education | – Online course development – Tutoring and grading services – IT infrastructure | – E-learning content developers – Academic tutoring firms – Educational IT service providers |
How Outsourcing Works
In outsourcing, you delegate specific tasks or projects to external partners or third-party vendors. The outsourcing partner then carries out the work based on the agreed terms and conditions laid out in the service level agreement (SLA). This allows you to concentrate on your core activities while taking advantage of the specialized skills and efficiency of external experts.
Pros & Cons of Outsourcing
To help you make a balanced decision, here are the most common benefits and risks you will face if you outsource.
| Pros | Cons |
| Maximizes your budget | Potential quality Issues |
| Get expert help from around the world | Loss of control |
| Lets you focus on what you do best | Communication challenges |
| Adjust easily to business ups and downs | Cultural misalignments |
| Lower your business risks | Dependency on suppliers |
| Launch products faster | Hidden costs |
| Use the latest tech without huge costs | Security risks |
| Deliver better quality services | Impact on internal staff |
| Bring new ideas to your business | Risks of non-compliance |
| Stay on the right side of the law | Difficulty in managing remote work |
Outsourcing Benefits in Detail
1. Maximizes Your Budget
You can save on operational and labor costs and transform fixed expenses into adjustable costs. This shift lets you direct funds where they are needed most to make your business more agile and efficient. For example, outsourcing tech support will cut your expenses by at least 50% and you can use what you save for marketing.
2. Get Expert Help From Around The World
The skills you need may not be available locally. Outsourcing gives you access to these specialized skills and knowledge from experts in other parts of the world. This brings diverse perspectives and innovative solutions for your projects. For instance, you can outsource software development to India to leverage their expertise in AI and ML.
3. Lets You Focus On What You Do Best
Outsourcing non-core tasks frees up time and resources. These can then be used for important business activities like developing new products or expanding into new markets. For example, outsourcing payroll processing lets HR focus on talent acquisition and employee growth.
4. Adjust Easily To Business Ups & Downs
You can quickly adjust resources based on demand fluctuations. This reduces the risk of overstaffing or understaffing so you can adapt to changing market conditions more efficiently.
For instance, outsourcing your customer service operations to a business process outsourcing (BPO) company ensures that you have enough representatives to handle high call volumes during peak seasons without hiring additional full-time staff.
5. Lower Your Business Risks
Outsourcing helps distribute risks across your partners. When you transfer certain tasks or operations to experts, you reduce the burden on your business. This makes your business more resilient and apt to handle challenges.
For instance, you can outsource your IT infrastructure to a managed service provider (MSP) to reduce risks of cybersecurity threats and system downtime.
6. Launch Products Faster
External partners have streamlined workflows and resources that can deliver projects efficiently. This helps you bring your product to market faster than if you were to handle everything internally.
For example, you can outsource your mobile app development to a specialized outsourcing company. This firm, with its expertise and dedicated team, can develop the app in 3 months, compared to the 6 months it might take to hire and train your own team.
7. Use The Latest Tech Without Huge Costs
Investing in cutting-edge technology can be costly, with costs starting at $50,000 and can escalate to millions for advanced systems. Outsourcing lets you benefit from advanced tools and software without hefty upfront costs. You pay for the services you need, when you need them, which makes it a budget-friendly option.
For example, instead of spending $20,000 to $30,000 on servers and hardware, you can work with a cloud computing provider. This option allows you to pay a monthly fee, typically between $500 and $2,000, for just the computing power and storage you actually use.
8. Deliver Better Quality Services
When you outsource tasks to professionals who are experts in those areas, you benefit from their in-depth knowledge and experience. This means higher quality outcomes because these experts are up-to-date with the latest trends, technologies, and best practices in their field.
9. Bring New Ideas To Your Business
Outsourcing business functions encourage the cross-pollination of ideas. As you work with external partners who operate in different industries or markets, you get exposure to best practices, trends, and strategies that you might not have considered otherwise.
For instance, working with a digital marketing agency can expose your business to innovative social media strategies that have already proven successful in your industry.
10. Stay On The Right Side Of The Law
When you delegate tasks to experts, you pass on some of the legal responsibilities that come with those tasks. You get advice and support from specialists who understand the intricacies of the law.
Outsourcing Challenges & Solutions
Now let’s go over the challenges and learn of ways to avoid or fix any issues you might experience.
1. Potential Quality Issues
Outsourcing tasks could result in varying quality levels since the work is outside your control. To counter this, actively communicate your standards and regularly check the work done to make sure it meets your expectations.
2. Loss of Control
When you outsource, you lose control over the processes and quality of work. Establish clear communication channels and create detailed contracts with expectations and deliverables to maintain control and oversight.
3. Communication Challenges
Outsourcing can introduce communication barriers because of geographical distance, time zone differences, and language barriers. Use communication tools and ensure there is a dedicated liaison who understands both parties to bridge communication gaps.
4. Cultural Misalignments
Cultural differences between your company and the outsourcing partner can cause misunderstandings and inefficiencies. Conduct training sessions and team-building exercises to understand and respect each other’s cultural norms.
5. Dependency On Suppliers
Relying too heavily on outsourcing companies can make your business vulnerable to disruptions if the supplier faces issues or fails to meet expectations. Diversify your supplier base and establish backup plans to spread the risk.
6. Hidden Costs
Outsourcing seems cost-effective but hidden expenses like additional management overhead, communication costs, or quality control measures can quickly add up. Conduct a thorough cost analysis and negotiate transparent pricing structures at the time of contract.
7. Security Risks
Sharing sensitive data with outsourcing partners can cause security breaches, data leaks, or intellectual property theft. Implement advanced data protection measures (encryption or multi-factor authentication) and sign comprehensive confidentiality agreements to protect your information.
8. Impact On Internal Staff
Your internal team can feel job insecurity or resentment which affects morale and productivity. Involve employees in the outsourcing decision-making process and offer upskilling opportunities to enhance their value within the organization.
9. Risks Of Non-compliance
Outsourcing to suppliers who don’t adhere to regulatory standards or compliance requirements can expose your company to legal liabilities and reputational damage. Conduct thorough due diligence on potential outsourcing partners and include compliance clauses in contracts to mitigate risks.
10. Difficulty in Managing Remote Work
It can be challenging to coordinate and supervise a remote workforce, especially if they work across different time zones and locations. Implement remote work policies and procedures. Provide training on remote collaboration tools (Slack, Asana, Trello) and establish clear performance metrics (Project Completion Rate).
3 Real World Outsourcing Examples
Let’s discuss 3 real-world examples of successful outsourcing to see how you can also benefit from it.
Slack – Outsourced Product Development
Slack is a popular communication platform businesses use to streamline internal messaging.
- What They Outsourced: In its early days, Slack outsourced the design and development of its app logo, website, and even parts of its app development to a small design firm.
- How It Helped: This strategy allowed Slack to make fast updates on its product design and focus on core functionalities which accelerated its time to market. Slack’s strategy shows how outsourcing non-core aspects can help a startup scale quickly, turning it into a company valued at billions.
WhatsApp – Outsourcing To Accelerate Development
WhatsApp is a globally used messaging app that offers text messaging, voice calls, and other media sharing.
- What They Outsourced: With a very small team, WhatsApp outsourced its iOS app development to a Russian developer so they could launch on multiple platforms simultaneously.
- How It Helped: This move helped WhatsApp to rapidly expand its user base across different operating systems. The app’s ability to quickly iterate and improve, supported by outsourcing, played a major role in its $19 billion buyout by Facebook. This shows how you can benefit from outsourcing to support a growing number of users, especially during the early growth phase.
Basecamp – Outsourcing to Enhance Productivity Tools
Basecamp is a project management and team collaboration software.
- What They Outsourced: Basecamp has consistently outsourced various components of its operations, including customer support and application development, to manage workload and focus on core product development.
- How It Helped: Basecamp improved its software’s features and user interface while maintaining a lean team. This led to higher customer satisfaction rates and more engaged users, making Basecamp a top project management tool. Basecamp’s strategy of outsourcing non-core tasks shows that you can keep operational costs low while still delivering high-quality service.
How To Get Started With Outsourcing: 10 Steps
Outsourcing can bring many benefits but only when it’s done right. Here are 10 steps to help you get started on the right track.
1. Identify The Tasks To Outsource
Review your business processes to pinpoint tasks that are:
- Time-consuming
- Require specialized skills you lack in-house
- Are not central to your core business objectives
For example, a small eCommerce business might identify customer service as a time-intensive task that an external call center in the Philippines can handle more efficiently.
2. Define Your Outsourcing Goals
Identify what you want outsourcing to help you with.
- Do you want to save on cost?
- Do you want to access specialized skills not available in-house?
- Or do you want more flexibility?
For example, a tech startup might want to outsource app development to India because of cost reduction and their large pool of skilled developers.
You also need to identify what kind of outsourcing type and model you want. Here are 2 tables to help you.
Outsourcing Types
| Outsourcing Type | What This Type Is | Best For |
| Professional Outsourcing | Services like accounting, legal, purchasing, & IT support from specialized professionals. | Businesses needing expert services without the overhead of full-time staff. |
| IT Outsourcing | The transfer of IT-related tasks, like software development and support, to external providers. | Companies seeking technical expertise or expansion in tech capabilities. |
| Process-Specific Outsourcing | Focused on specific business processes like customer service, payroll, or HR. | Organizations aiming to streamline operations and concentrate on core activities. |
| Project-Based Outsourcing | Outsourcing specific projects with defined timelines and objectives. | Companies needing to complete temporary projects or specialized tasks. |
| Operational Outsourcing | Outsourcing entire functions or operations, like call centers or logistics. | Large and mid-sized companies aiming for operational efficiency and cost optimization. |
| Offshoring | Outsourcing tasks to companies in other countries for lower labor costs or specific talents. | Businesses looking to significantly reduce costs or access international skills. |
| Nearshoring | Outsourcing to companies in nearby countries to reduce costs while maintaining time zones and cultural similarities. | Companies seeking cost efficiency with smoother communication and proximity benefits. |
| Onshoring | Outsourcing within the same country to regions with lower operational costs. | Businesses wanting to keep operations domestic for better control and cultural alignment while reducing costs. |
Outsourcing Models
| Outsourcing Model | What This Model Is | Best For |
| Staff Augmentation | Adding external staff to your team for temporary or long-term projects. | Businesses needing temporary or specialized skills without increasing permanent headcount. |
| Managed Services | An external provider manages a particular function or process end-to-end. | Companies looking for a comprehensive solution for non-core functions where the provider manages all aspects. |
| Project Outsourcing | A company outsources an entire project, from inception to completion, to an external service provider. | Organizations with specific projects outside of their expertise or capacity, seeking full project execution by specialists. |
| Hybrid Outsourcing | Combines elements of different outsourcing models to tailor a solution that meets specific operational, strategic, and financial objectives. | Companies with complex needs that cannot be addressed by a single model, looking for a customized approach combining, for instance, staff augmentation and managed services. |
3. Research Potential Outsourcing Partners
When outsourcing contracts, look for providers with a proven track record and positive reviews. Start by checking out:
- Online platforms like Upwork or Freelancer where you can find freelancers and agencies.
- Headhunter agencies like Genius which can thoroughly vet candidates.
- Industry-specific online forums or communities where professionals share recommendations and experiences.
- Relevant trade shows, conferences, and networking events to meet potential outsourcing partners face-to-face.
4. Evaluate & Select An Outsourcing Provider
Size up marked outsourcing providers based on your specific criteria and needs. Consider these major factors:
- Expertise and experience in your industry or niche.
- Reputation and track record, including client testimonials and case studies.
- Communication and responsiveness to ensure they are easy to reach and collaborate with.
- Evaluate pricing structures and payment terms.
- Review contracts and agreements thoroughly before making a decision
For example, a software development company looking to outsource project management tasks might evaluate multiple providers based on their project management methodologies, cost, and ability to integrate with existing workflows.
5. Negotiate Terms & Finalize The Contract
Make sure that the contract terms are transparent and clear. This includes watching out for hidden costs that come as additional fees for revisions or scope creep.
- Discuss pricing structures, payment schedules, and potential discounts.
- Clarify responsibilities, deliverables, and timelines.
- Consult legal counsel for contract review to ensure legal compliance.
- Address intellectual property rights and confidentiality agreements.
For example, a startup outsourcing web development may negotiate fixed pricing for milestones and include a termination clause in case of unsatisfactory performance.
6. Transition The Work To Your Outsourcing Partner
Transition the identified tasks or projects to your outsourcing partner with clear instructions, necessary resources, and support.
- Schedule initial meetings to introduce key team members.
- Establish communication channels.
- Share relevant documentation, guidelines, and access credentials.
- Provide training sessions or resources.
For example, when outsourcing customer service to a call center, training sessions ensure agents understand products/services and support protocols before handling inquiries.
7. Implement A System For Ongoing Communication & Management
Establish clear channels for continuous communication and effective management with your outsourcing partner. Use tools like:
- Project management software like Asana or Trello
- Communication platforms like Slack or Microsoft Teams
- Video conferencing tools like Zoom or Google Meet
For example, when a company hires an outsourcing firm for social media marketing, it might use Asana to track project tasks, Slack for daily communication, and Zoom for weekly progress meetings.
8. Monitor & Assess The Outsourcing Partnership’s Performance
Regularly evaluate performance. Use key performance indicators (KPIs) to track progress and identify areas for improvement.
- Set measurable KPIs like project deadlines, quality metrics, and customer satisfaction scores.
- Schedule weekly and monthly performance reviews and feedback sessions.
- Address any issues or concerns promptly to maintain a productive partnership.
For instance, a company outsourcing content creation may track KPIs like article turnaround time, content engagement metrics, and client feedback.
9. Make Adjustments As Necessary
Stay flexible and adapt strategies for optimal outsourcing. Let’s see how you can do it:
- Monitor performance closely and address issues promptly.
- Communicate openly with your outsourcing partner about any changes in requirements, expectations, or market conditions.
- Seek feedback from internal stakeholders and the outsourcing partner to identify areas for adjustment and enhancement.
For example, a company outsourcing its HR operations might adjust the scope of services based on changing workforce dynamics or regulatory requirements.
10. Plan For Long-Term Collaboration Or Conclusion
Strategize a plan for the future to maximize the benefits of the outsourcing collaboration. Here’s how:
- Continuously assess and align the outsourcing relationship with your organization’s long-term strategic goals.
- Implement shared risk and reward models to incentivize the outsourcing partner.
- Implement advanced knowledge transfer and retention strategies to protect intellectual capital and institutional knowledge.
- Plan for a gradual transition back to in-house operations if necessary.
- Proactively plan for various exit scenarios, including insourcing, re-negotiation, or transitioning to alternate outsourcing providers.
For example, a hospital looking to outsource its billing could establish a joint innovation lab to co-create solutions for healthcare revenue management.
7 Outsourcing Best Practices to Keep in Mind
As we discussed earlier, outsourcing comes with challenges, to help avoid these, here are things you can do.
I. Negotiate Flexibility For Scaling Up or Down
Make sure your contract allows adjustments in scope and scale to adapt to match your changing business needs without heavy penalties.
II. Leverage Technology For Seamless Integration
Use advanced tools and platforms to smoothly integrate outsourced teams into your workflows and communication channels.
III. Establish A Clear Exit Strategy
Define how either party can end the contract, including notice periods, transition support, and data handover procedures.
IV. Adopt A Collaborative Approach To Problem-Solving
Encourage open dialogue about challenges and view your outsourcing partner as a strategic ally in finding solutions.
V. Incorporate Continuous Learning & Improvement
Set up mechanisms for sharing feedback and lessons learned between your team and the outsourcing partner to create a culture of continuous improvement.
VI. Ensure Data Security & Privacy Protections
Implement strict protocols and agreements to protect sensitive information and comply with international data protection regulations.
VII. Monitor Market Trends & Adjust Strategies Accordingly
Stay informed about industry trends affecting outsourcing practices and be prepared to adjust your strategy to stay competitive and innovative.
Conclusion
When outsourcing is done right, it can improve your operations and save you money. Of course, there are always risks. But if you plan carefully and do your homework, you can reduce those risks. It is all about finding the right balance between cost, quality, and reliability.
If you are tired of the limitations of traditional outsourcing, Genius offers a revolutionary solution: access to the top 1% of talent at a fraction of the cost. With a 6-month talent guarantee and zero monthly fees, there’s no risk in trying. Contact us now to experience the Genius difference today
Frequently Asked Questions
1. What are the common reasons businesses choose to outsource?
Businesses choose to outsource because of:
- Cost savings
- Focus on core activities
- Access to expertise
- Scalability
2. How do I make sure my outsourcing is successful?
To ensure successful outsourcing:
- Clearly define your objectives and expectations
- Choose the right outsourcing partner and establish open and clear communication channels
- Monitor progress regularly and address any issues promptly
- Always provide necessary support and resources to the outsourcing team
3. How do you measure outsourcing success?
Outsourcing success can be measured by:
- Cost savings achieved compared to in-house operations.
- Quality of work delivered by the outsourcing partner.
- Timeliness of project completion.
- Customer satisfaction and feedback.
- Impact on overall business performance and goals.
4. Is outsourcing unethical?
It can be unethical if outsourcing you pay below-standard wages or provide poor working conditions.
