5 Advantages of Outsourcing Key Business Functions

25th August 2021 Axies Digital

Outsourcing became a popular business strategy in the early '90s as a means to combat rising labour costs in a growing global market. Essentially, outsourcing is the process of using third-party service providers to manage particular business functions. Historically, it was larger corporations who took to this idea, however businesses of all sizes are now seeing the benefits that outsourcing brings.

Indeed, outsourcing is often the only feasible way to grow your business or manage existing operations, such as IT, web design, accounting, HR and more. To understand this better, here are 5 advantages of outsourcing business functions.

1. Focus on the Core Business

One of the biggest advantages to outsourcing parts of your business is that it allows you to focus on your core processes.

To put it simply, outsourcing gives you time. Without doing this, an hour spent on internal processes is an hour lost to revenue generation activities.

Of course, all businesses benefit from specialising in specific functions, however most business leaders will end up using their time on the back end. As such, outsourcing functions, like HR, allows you to concentrate on the right strategic areas, identify trends and respond accordingly - it’s far more cost-effective to outsource everything but your core business processes. In other words, your focus can be put on outputs rather than inputs, giving the ability to deliver maximum value.

2. Reduced Overhead Expenses

It's no secret, hiring and training new employees can be expensive. And, those employed on a temporary basis will not produce the high quality work that you require.

So, by outsourcing, fixed labour costs become variable costs - you only pay for the services you use, giving yourself flexibility that does not come with fixed employees, as you can adjust your consumption based on how the business is performing.

For example, you might not need a full time, in-house accountant. Yes, it’s an important job, but sometimes a full-time salary cannot be justified. Arguably, you could hire someone part-time, but trying to find skilled professionals to work just a few hours a week is challenging. Therefore outsourcing allows you to pay for the service you want, when you need whilst still having the reliability of a dedicated employee.

Furthermore, back end jobs like accounting will come with added costs like office space, furniture and supplies, reinforcing the idea that outsourcing will be cheaper for your business overall.

3. Access to New Resources

As mentioned earlier, hiring new employees usually requires expensive recruitment and training; you have to teach them your business processes.

However, when you outsource your business functions, these people often come with specialised knowledge and expertise. The outsourcer is responsible for any licences or accreditations that the work requires and is typically up-to-date on industry trends.

In addition, outsourcers can have access to tools and skills that you may not need at the time but will probably need in the future. Therefore, outsourcing gives your business access to new resources and, actually, a larger talent pool as you are not limited to a particular area - you could outsource to anyone worldwide.

4. Managed Risk

There's nothing worse than hiring a new employee, investing time and money into their training, only for them to resign a few months later - yes, employee turnover is painful!

So, outsourcing builds consistency in your business. For example, let's say your HR Manager leaves the business during a critical time. You'd either have to quickly fill the position, do the work yourself or go without it completely. But, if you outsource, your operations can continue to run smoothly without any interruptions or risk of resignations; you can rely on tasks to be completed and costs to remain constant.

5. Controlled Costs

The last key advantage to outsourcing business functions is that you have better control over cash flow.

This is because, when you outsource, you are converting fixed costs (i.e. salary) into variable costs (i.e. pay for what you need), which means you free up your cash flow that can be invested into other parts of your business.

Essentially, by only paying for the services you require, you can improve your existing products or services and even launch new ones. Plus, you will more likely attract new investors as they’ll be happy to see room in your cash flow to invest into new ideas that are in line with market trends. Lastly, outsourcing means you do not have to invest into technology, as the outsourcer will already have everything they need to get the job done.

Summary

The immediate advantage that comes to mind when thinking about outsourcing is cost savings, both in terms of time and money. Outsourcing comes with financial benefits by saving in areas such as back end functions, with higher focus on revenue related activities. Overall, outsourcing allows you to use your time and resources more effectively to enhance existing business processes.

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