Grow Your Small Business by Outsourcing Business Processes

What is outsourcing?

Outsourcing is the process of hiring an outside company or independent contractor to perform tasks that an in-house team member would otherwise perform. 

What are the types of outsourcing?

There are several outsourcing types, including these three popular models:

• Onshoring: Onshoring means hiring a contractor or company located in your country. For example, you might hire a marketing company based in your city or another city in the U.S. Onshoring can be convenient but may not save a business money.
• Nearshoring: Nearshoring means hiring a third-party individual or company in a country near your location. For example, if a U.S. company hires a manufacturing facility in Mexico to produce its products, it’s engaging in nearshoring. Nearshoring can be a convenient and cost-saving solution.
• Offshoring: Offshoring is when you hire a nonemployee or firm in a country far from your company’s headquarters. For example, a U.S. company might hire a virtual assistant in the Philippines or contract with a call center in India. Offshoring can bring significant savings but may involve challenges with communication and time zone differences. 

What business tasks can be outsourced?

Successfully outsourced tasks are typically low-impact and repeatable functions that consume significant time and resources. For example, accounts payable, accounts receivable, customer service, shipping and logistics, market research, human resources and administrative tasks are frequently outsourced.

Consider the following business task outsourcing categories: 

• Process outsourcing: Process outsourcing involves delegating entire business functions — such as sales, human resources, customer service and IT support — to external providers. Although process outsourcing can significantly reduce salary and training costs, it also carries the potential risks of diminished control and reduced quality.
• Professional outsourcing: Professional outsourcing involves using an outside attorney, accountant, financial advisor or IT company. In this scenario, you get access to highly educated and trained professionals, usually temporarily or part time. You’ll save money because you won’t have to hire a full-time employee, but you’ll have to share that person’s time and attention with other clients.
• Logistics outsourcing: Logistics outsourcing involves using an external shipping company to ship goods. It can also include warehousing, packing and inventory management. For example, Amazon sellers use Fulfillment by Amazon for these functions. When done well, logistics outsourcing can speed up order fulfillment and reduce costs. However, it can have the opposite effect if the third-party logistics company is low-quality.
• Manufacturing outsourcing: Some countries — including China, India and Vietnam — have much lower manufacturing costs than the United States. With manufacturing outsourcing, a business contracts with an outside factory and provides specifications for product manufacturing. This outsourcing process typically involves offshoring and can produce significant manufacturing cost savings. However, it also introduces risks, such as supply chain distribution disruptions, loss of control over production processes, and concerns about ethical issues, including the treatment of workers in outsourced factories. 
• Project outsourcing: Companies may contract with an outside business to handle a specific, limited-time project. For example, a business may hire a web developer to create a website or a market research company to conduct a viability study on a proposed new product. Project outsourcing tends to be onshore because it allows for easy communication and control.

How does the outsourcing process work?

If you’re thinking about beginning the outsourcing process, follow these five steps:

1. Decide which tasks to outsource.

The first step is to decide which workflows to outsource and which to keep in-house. Businesses typically approach outsourcing from one of the following viewpoints:  

• Outsource back-office tasks. Many companies outsource back-office tasks that are crucial to operations but don’t help a business grow. For example, while you can’t neglect accounting, human resources, payroll and other support roles, these functions don’t bring in new clients and revenue. Routine tasks, while necessary, can distract an in-house team’s time and attention.
• Outsource tasks for specific skills or projects. Businesses also outsource tasks that require talent or skills they don’t have in-house. Often, these outsourced tasks have firm start and end dates and may include minor upkeep. For example, business owners may choose to outsource website design and development instead of dedicating an employee or adding the project to the IT team’s tasks.  

Outsourcing works best when you have specific goals and structured processes and know precisely which functions you want to offload. Take time to prepare to ensure the partnership succeeds.  

2. Write the outsourced function’s job or project description. 

Detail the precise functions you want the outsourcing company or independent contractor to perform. Consider these best practices: 

• Set and clarify the task expectations. A detailed write-up will help you clarify your internal expectations so you’ll know if the outsourced resource is meeting them during your relationship.
• Set the job parameters. Be specific about what you need from your outsourced partner and when you need it. For example, if the outsourcing company is in another time zone and you need work performed during your local business hours, add this information to the job description.
• Find a partner with the right skill set. Consider the qualities, talents, knowledge and proficiencies that your ideal outsourcing partner would possess, and set these expectations clearly in the job or project description. For example, you might state that your outsourced accounting provider must understand generally accepted accounting principles (GAAP). For tasks that involve verbal or written communication, such as blog writing or customer service, you might specify that your provider must have an excellent command of the English language.

Post your job or project description on freelance sites such as Upwork and Fiverr, or create a request for proposals (RFP) and send it to certain companies. When you include your expectations and requirements in the job description, many less-qualified companies won’t apply, meaning you won’t spend as much time sorting through and assessing applications.

3. Assess your outsourcing candidates.

Once you post your job description or issue an RFP, you’ll start getting responses. They may be as simple as a Fiverr candidate sending a description of their skills and prices or as detailed as a custom proposal from an established company. 

When you assess the applicants, consider these factors about the candidate or company: 

• How closely do their skills match the job description requirements?
• How long have they been in business? 
• How experienced are they in doing this sort of task? 
• What kinds of certifications, reviews or other social proof do they have to back up their credibility? 
• How well do their responses show that they understand the job or project? 
• How is their communication? Is it clear, understandable and free of errors?
• How are the price and value compared with those of other outsourced providers?

After you review the applications and proposals, choose the company or candidate you feel is the best fit. 

4. Manage and communicate with your outsourced resource.

Designate a point person to interact with the outsourced resource. At first, this will involve setting expectations and familiarizing the resource with the company’s people and processes. 

Depending on the task, you may need to consider giving the outsourced company or candidate access to parts of your computer network. If so, set up restricted usernames on your network for security reasons. Other outsourced partners may only need to send in their work via email or tie their phone system into your customer service process.

5. Track your outsourcing partner’s tasks and expenses.

To stay on top of project timelines and costs, ask outsourcing partners to use time-tracking software you can access. They should track their time for each task to give you an idea of their time and monetary efficiency. 

Tracking tasks and expenses can help you determine when more communication is needed and whether outsourcing with this particular company is working.

How does outsourcing help grow your business?

Outsourcing allows companies to focus on their customers and leverage internal resources for growth. Here are a few ways outsourcing can help grow your business: 

• Outsourcing cuts employment costs. Outsourcing significantly cuts employment expenses, including costs for recruitment, salaries and benefits (since outsourcing companies don’t need employee benefits packages). There are no employment taxes to pay, and outsourced employees typically have their own computers, office space and other overhead costs taken care of.
• Outsourcing lets you allot more money to revenue producers. Outsourcing leads directly to greater efficiency because it allows companies to hire top talent in their critical revenue-producing areas, including sales, marketing and core operations. At the same time, companies save money on routine-but-necessary tasks, like bookkeeping, customer service and data entry. Because money is freed for revenue-producing employees, the company can attract top performers in areas where excellent employee compensation is essential. These individuals will be more likely to stay with your company for the long term.
• Outsourcing brings more value for your dollar. High-quality outsourcing partners that use offshore talent can often deliver exceptional performers at a lower cost. Outsourcing also means you don’t have to worry about hiring and retaining employees and investing in employee training because the outsourcing partner handles those functions.
• Outsourcing offers lower rates for repetitive tasks. An outside company or freelancer can often handle tasks such as data entry and invoicing at lower rates than you’d pay your in-house employees. Having fewer employees can also save you money on office rent. 
• Outsourcing saves money on equipment and technology. Many companies need customer support help, but building an in-house call center would be a waste of resources. It might make sense to outsource with a call-based customer support company with the infrastructure, training, hiring protocols and management process already in place. 

6 keys to effective outsourcing

Every company outsources differently, but these tips can help any business customize its outsourcing strategy:

1. Set clear efficiency goals. “Growth” and “increasing efficiency” are very broad goals. Be specific about your intentions: Are you trying to cut certain costs, build a particular team, or free up resources for a specific initiative? Consider how outsourcing workloads in one area can free up resources and energy in another. How will that help your company deliver more value to customers? Whatever the goal, it should guide where, when, why and how you choose to outsource.
2. Plan for change. Outsourcing will fundamentally change your company’s makeup. That’s an exciting opportunity, but it requires planning. Begin preparing your staff, workflows and company structure to facilitate your plan. You’ll need to outline processes around the tasks that will remain in-house and determine how your team’s workflow will change.
3. Get buy-in from key stakeholders. It’s essential to gain buy-in from key members of your organization, including department heads and board members. Before you present outsourcing as a strategy, ensure that you know the answers to some challenging questions. Who will spearhead the strategy? How will this affect your current team? Where will you use the cost savings? How long will the process take from start to finish?
4. Choose the right outsourcing partner. Outsourced services are only as good as the partner that provides them. You want a flexible partner who is willing to integrate into your team. To know whether a provider will be a good fit, read testimonials and ask for references. Quality providers will happily engage in one-on-one conversations and provide detailed proposals. If applicable, the provider should ask you to visit its facility. Don’t move forward until you’re confident you’ve found the right outsourcing partner.
5. Define outsourcing success. Excellent outsourcing partners commit to specific performance standards, but it’s up to you to define them. Decide which metrics and benchmarks matter. Your key performance indicators (KPIs) will vary depending on the service you outsource. For example, if you’re outsourcing creative talent, you might use a predetermined quality score. With invoicing, turnaround time could be the key metric. Additionally, ask the provider to determine its own KPIs. Agree on how often the partner will update you with results. Hold your provider accountable for weekly, monthly or quarterly results, depending on your needs.
6. Start outsourcing slowly. Instead of outsourcing an entire department, start with a pilot project that requires less upfront investment. This approach also lets you observe the outsourcing partner’s effectiveness before you commit completely. Great partners will be flexible with your terms and want to prove their worth.

Outsourcing can help you increase productivity and save money 

If your goal is to evolve and expand, imagine how helpful it would be to function with leanness and agility. By engaging with an outsourcing provider, you’ll work with high-caliber professionals for reduced costs. Outsourcing is a big decision and an endeavor you must approach with careful consideration and planning. However, in the end, many companies find the results 100 percent worth it.