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Staffing Dilemma: Is Outsourcing Good for Your Business?

July 2, 2024

With the advent of globalization of markets, outsourcing has become a more accessible and effective solution to filling the gaps in a company’s workforce. Primarily, this corporate practice has enabled businesses to tap into a wider pool of talent and access specialized skills that may not be readily available in their local scope. It has also brought many other benefits to organizations, such as potentially reducing costs and increasing operational efficiency.

While outsourcing has undoubtedly helped in overcoming various business hurdles, particularly in staffing, it has its own set of complexities. From navigating cultural differences to managing communication across time zones, organizations must carefully weigh the pros and cons before fully integrating outsourcing into their processes.

If you are considering outsourcing as part of your business strategy this year, you won’t want to skip this post. Here, we’ll delve into the essential details about outsourcing, such as its meaning and pros and cons for your business. At the end, we also share with you a staff management tool that can help in managing outsourced workers!

What Does Outsourcing Mean?

Outsourcing refers to hiring third-party providers on a contract or ongoing basis to handle certain processes or job functions of a business. It is a strategy that was formally recognized in 1989 when companies began to delegate tasks that they were not proficient at doing themselves to outside organizations. Since then, hiring third-party service providers has become a well-established and cost-effective alternative to the traditional method of hiring new staff.

How Does Outsourcing Work?

When a company outsources, it engages a third-party provider to handle designated tasks, operations, or services. The third-party provider may be an agency or an independent contractor who could accomplish the tasks themselves or delegate them to in-house workers.

Which Industry Outsources the Most?

In terms of industries that outsource the most, a report by the professional services network Deloitte indicates that information technology is the most popular outsourced service, with a 54% market share. This is followed by finance at 44%, payroll at 32%, and customer services at 22%.

Nearshore vs. Offshore Outsourcing

When it comes to outsourcing, two common terms that often come up are nearshore and offshore outsourcing. Nearshore outsourcing refers to hiring a team or third-party provider in a nearby country, usually with a similar language or culture. On the other hand, offshore outsourcing involves working with a team from a different time zone and cultural background, often in a distant country.

Nearshore and offshore outsourcing can both assist companies with their staffing needs, but they differ in terms of benefits and drawbacks. Nearshore outsourcing makes it easier to bridge cultural differences, resulting in better communication and collaboration among team members. However, it may not be as cost-effective as its counterpart. Meanwhile, offshore outsourcing can provide access to a wider pool of specialized workers and cost savings, but it can also bring challenges due to differences in communication styles, language, and culture.

Why Do Companies Outsource?

Did you know that as much as 66% of companies in the United States with over 50 employees have resorted to outsourcing? This is just one of the many interesting statistics that back how this staffing solution has become increasingly popular over the years. But why do companies outsource in the first place? There are several reasons behind this, and we will discuss the most common ones below.

1. To Overcome the Shortage of Staff

According to a 2023 report by ManpowerGroup, employers are having a hard time filling job vacancies, with 77% of them struggling to find the right candidates. Outsourcing workers is often done to address this issue. Through this practice, businesses can fill gaps in staffing numbers faster and maintain or improve efficiency in accomplishing workloads.

Besides outsourcing, there are other alternative solutions to an insufficient workforce. For more information on these solutions, check out the full blog post on overcoming staff shortages here.

2. To Address Fluctuating or Seasonal Workloads

Some companies may experience variations in their staffing requirements during special events or seasonal changes. Industries such as events management are particularly susceptible to these fluctuations. Outsourcing can be a useful strategy for such businesses, as it allows them to rapidly adjust their workforce without incurring the added expenses and risks linked to hiring and training new staff.

3. To Cut Costs

Outsourced workers typically do not require any training or extra benefits, minimizing the labor costs of a company. Outsourcing also enables firms to reduce their operational costs as third-party providers already possess the necessary resources, hence eliminating the need for companies to allocate funds for the same.

4. To Focus on Scaling the Business

Businesses often outsource when they scale up their operations. When a business grows, it might need more help with tasks like customer service, manufacturing products, or managing computer systems. Instead of hiring lots of new employees right away, the business might decide to outsource some of these tasks to other companies that specialize in them. This way, they can manage their growing workload more efficiently and pay more attention to their core activities.

Pros and Cons of Outsourcing

Like any other corporate practice, it's vital to first weigh the advantages and disadvantages of hiring third-party agencies before adopting it for your business. To assist you in this process, we share with you the pros and cons of outsourcing below.

Pros of Outsourcing

  1. Increases staff support, which decreases the time and effort required to complete tasks and improves business efficiency and productivity.
  2. Reduces costs associated with hiring, training, and onboarding new employees, particularly for specialized or temporary tasks.
  3. Provides access to a global talent pool.
  4. Enables business stakeholders to focus on core competencies, enabling faster scaling and higher profitability.
  5. Lowers operational costs as it allows access to tools and equipment that would be expensive to purchase. Examples of equipment include a computer, printer, or scanner used in an office setting.

Cons of Outsourcing

  1. Increases the likelihood of communication issues due to cultural disparities.
  2. Delays in the completion of work or deliverables due to timezone differences.
  3. Raises security risks as a third-party company and its staff get access to sensitive company data and information.
  4. Lacks flexibility as terms of agreement do not typically allow for any adjustments in the work responsibilities.
  5. Requires managers to embrace different staff management approaches.

Is Outsourcing Good for Your Business?

The answer is it depends on your business. Outsourcing is a widely adopted business practice that can benefit many companies, but it may not be suitable for every business. For example, if your company relies heavily on in-house expertise and specialized knowledge, hiring third-party partners may not be the best option.

Typically, businesses that can benefit the most from outsourcing are those that are in need of staff to manage non-core or non-administrative functions. Some of these include information technology, web design and development, social media marketing, human resources, and customer service.

Elevate Your Outsourcing Game With StaffConnect

If you have already decided to outsource for your organization, then you shouldn’t pass up on StaffConnect. StaffConnect is your all-in-one business management software that provides automation and streamlining technology to manage your business and staff.

At StaffConnect, we take pride in offering our services to a wide range of industries, including those requiring management of third-party providers. Our system makes it easy to add multiple outsourced companies to your StaffConnect profile to make managing your workforce more streamlined and efficient. StaffConnect also offers tools such as GPS check-in and check-out, automatic reminders, live chat, a communications hub, and scheduling features for all around staff management functions.

Say goodbye to inefficient business management processes that take time and effort. Book your free demo today to get started on using StaffConnect for your business!