Outsourcing has garnered tremendous attention in the last few years. The practice has both detractors and adherents, but despite any perceived negatives, it continues to grow for small businesses. At its core, outsourcing is nothing more than taking an in-house process or procedure and hiring an outside provider to take care of it. Although the first impulse may be to continue to grow assets and add more people internally, many companies are finding the benefits of outsourcing. Why does it continue to grow?
Do What You Do Best
Small businesses usually serve a particular market niche and specialize in core areas at which they excel. By outsourcing their non-core processes, they are able to free up time to do what they do best, whatever that might be.
Competing with the Big Boys
Another reason that outsourcing continues to grow is that utilizing an outside provider allows small businesses to compete with much larger companies. In a world without outsourcing, many small companies would have higher fixed costs, perhaps be limited to working within their local area only and serving a smaller customer base. With outsourcing they can:
- Expand their reach much sooner as they grow
- Provide the same level of support and customer service as much larger firms
- Ensure they have the same expertise available as Fortune 500 companies.
One of the prime reasons that small businesses continue to outsource their needs is for the efficiency benefits offered. Small businesses gain the time savings and cost reduction that come from the outsourcer’s economies of scale by partnering with an outsourcing firm that specializes in a particular procedure or process. Common examples include payroll processing, 3PL warehouse services, and EDI solutions.
The economies of scale available through an outside provider are frequently enough to make outsourcing a very good decision.
The Labor Problem
The more in-house processes a business takes on, the more staff that company needs. Hiring staff is an on-going expense and the costs go beyond just payroll hours. Insurance, taxes, worker’s compensation, sick days, vacation and other benefits all should be tabulated as well.
However, because an outsourcer isn’t an employee, the small business doesn’t have to worry about those costs. Labor, software and other asset purchases can be reduced by a significant amount, which is something that every small business owner can appreciate.
Risk Reduction Matters
Processes that can be done in-house or outsourced may have risks associated with them. For example, payroll processing has risks associated with calculating federal, state and local taxes properly. Mistakes can result in penalties. An outsourced payroll provider has the expertise and experience to mitigate those risks.
EDI capability has the risks of improper testing, delays in implementation and chargebacks due to improper data transmissions. An outsourced EDI provider can mitigate those risks as well.
Outsourcing is a growing trend because it is highly beneficial for small businesses. Benefits include being able to focus on what you do best, the ability to compete with much larger companies, time savings, cost savings, and reduction of risk.Why Outsourcing by Small Businesses Continues to Grow by Steve Brewer