Modern businesses are growing in new ways and new places. Disruption, the buzzword for doing things differently, has seen young SMEs move into shared workspaces, retailers become less reliant on banks for card terminals and questions about hiring full time staff emerge. The latter is what we’re looking at today. As your business expands, should you hire full time employees to carry out jobs or could that task be completed more efficiently through outsourcing? It’s different for every business which means there’s no simple answer. Here are the things you should consider when deciding between hiring or outsourcing.
What is Outsourcing?
In a nutshell, outsourcing is leveraging external resources to complete specific tasks. There are several reasons your business might consider outsourcing instead of hiring, the most popular of which are:
- lacking in-house expertise to complete a task
- in-house resources completing tasks not considered core to your business
- the need to provide 24/7 customer service
It’s important that we go a little deeper into the definition here as there are two very similar options that often get confused; outsourcing and contracting.
Contracting is when you hire an external company’s resources to work closely with your business to deliver work you do not currently have people capable of doing.
Outsourcing is handing responsibility for a task to an external company when your team may have the skills but not the capacity to complete tasks. New research by B2B international carried out on behalf of Liberty Global found that fast-growing companies in particular, cite their need to increase capacity as a key reason to outsource.
What is the Task?
The first step in deciding between hiring or outsourcing is to assess the task at hand. How frequently will the task occur? If your business has evolved to the point where a new task has become more increasingly regular, hiring a full-time employee makes sense. They can come in and make the task a part of their core responsibilities. Outsourcing a recurring task, needs a well-planned flow in place to ensure it runs smoothly.
However, if you just need to respond to an unusual spike in demand, outsourcing makes far more sense as a temporary resource your business can leverage.
However, outsourcing is not only limited to short term solutions. Should the demand on business continue to grow, your third-party outsourcing solution will likely be able to offer increased levels of support.
Logistics, payroll, financial administration and IT services are among the most commonly outsourced business functions. When it comes to outsourcing IT services, new research highlights that benefits such as 24/7 support and a need to compensate for a lack of expertise internally were, unsurprisingly, the key drivers in the decision.
What Are the Risks?
Outsourcing opens your business up to new risks. If you handle customer data, you must ensure that third-party vendors meet European Union data protection regulations. This is a particularly difficult process if the vendor you are outsourcing to is based outside the European Economic Area.
Your own intellectual property could be at risk too. There is a far greater risk of commercially sensitive information being leaked from outsourced teams than in-house teams.
Another risk to consider, and one that warrants deeper discussion, is potential damage to the customer experience.
Will Outsourcing Impact Customer Experience?
It’s difficult to guarantee that the party you outsource to will care about your business or your customers as much as an in-house team would.
Let’s look at outsourcing a customer call centre, one of the most commonly outsourced business functions. Most commentators agree that it costs more to acquire a new customer than to retain an existing one. If you outsource your call centre, which is likely a primary point of contact for your existing base of customers, what will the impact be? A negative experience here needs to be avoided at all costs.
There is another side to this coin though. In certain situations, outsourcing can provide a much-improved customer experience. Again, customer care is a good example as 24/7 contact centres might only be feasible for your business should you opt for an outsourced solution.
Innovation is another area which benefits from outsourcing. For instance, a small online retailer might recognise the importance of online UX for its business, but is unlikely to have an online UX specialist. Utilising an external UX specialist provides your business with the best of both worlds; efficient access to specialist skills and improved customer experience.
When it comes to protecting your customer experience, every decision you make is critical. In the social media world that we live in, people are vocal about their feelings and will quickly let companies know, in a very public manner, when they’ve experienced poor customer service.
Will it Impact Employee Experience?
Do you have an existing team? If you do, outsourcing will impact them in both positive and negative ways. Leveraging external resources to handle new or menial tasks allows your in-house team to focus on strategy, development and their core tasks. Combined, these factors will add to their job satisfaction, overall morale and operational efficiency.
Equally though, be aware that outsourcing can bring negative connotations for employees too. Communications between in-house teams and the outsourced vendor will still need to take place. This can be hampered by email communications, companies being in drastically different time zones and language barriers. This can impact your in-house team’s job satisfaction, reduce operational efficiency and have a detrimental effect on customer experience.
If you have an established business, existing in-house teams may react negatively to what they see as new opportunities being outsourced. They may also feel their long-term job security is undermined by the business opting to outsource rather than hire in-house.
Clear communication between your business, your team and the third-party vendor is necessary to ensure a seamless integration of resources.
The Financial Implications of Outsourcing
You can’t weigh up all the factors involved in outsourcing without taking finances into consideration. Hiring a full-time team member involves expenses:
- Salary
- Holidays
- Training
- PRSI
- Benefits (Health, pension)
- Expenses (Phone, car)
- Company events
When you choose to outsource a business function, you will likely be paying a fixed rate for a result. Your business can also outsource responsibilities beyond geographic restriction. This means you can also shortlist several potential vendors as an outsourcing solution and choose the most suitable and best value option for your business.
Migration to Outsourcing
Outsourcing itself isn’t as simple as flicking a switch. Planning how your business will migrate to an external vendor is critical. This phase of consideration will likely uncover regulatory or logistical issues which need to be addressed before you can outsource a business function.
In the early stages of researching vendors for outsourcing, you should take their service level agreements into consideration too.
Service Level Agreement
If your company suddenly finds itself in a crisis, how quickly will your outsourced solution react? An in-house team can always be told to drop everything else, but outsourced resources might not be so easy to reach in an emergency.
Should a third-party vendor take on other clients, they may redistribute their own resources internally, impacting the level of attention your business requires.
A clearly drafted contract including a detailed service level agreement ensures there is a clear framework to define how and when tasks are completed.
Should Your Business Consider Outsourcing Instead of Hiring?
As you can see, there is no simple answer when it comes to choosing between hiring and outsourcing. Every business is different and so too is every expansion opportunity. Treat each hire on a case by case basis and evaluate your options with the above considerations before making a choice.For more tips and advice on making the business decisions that matter to you, visit the Virgin Media Business Blog.