Risks and Benefits of Outsourcing for Small Business


Having previously worked for one of the largest Business Process Outsourcers (BPO) in the world, as well as for a number of small and medium businesses, I have had many experiences in outsourcing small ad-hoc pieces of work (market research, copywriting, graphic design), projects with a set timeline (social media campaigns, software integrations), as well as ongoing services such as telemarketing campaigns. What I have learned is that outsourcing can either be the best thing you have ever done, or an absolute nightmare.As a business owner you may have dipped your toes in outsourcing, and usually this is for one of the following reasons:

  • the thing you need done is labour intensive, and nobody on your team has the time
  • the project requires specialist skills your team does not have, like experience with Photoshop, copywriting or crunching data in Excel
  • the opportunity cost of the project is high; that is, your team's time is better off invested elsewhere. Projects involving extended research or conversations with hundreds or thousands of customers just take too much time and are often best outsourced.

Research shows that small businesses are increasingly considering outsourcing various departmental functions in order to focus on their the lifeblood of their business-- that is, generating new products and service offerings, and sales. Having said that, many businesses are also burned by their experiences and apprehensive to trying again.Below are a list of considerations, covering both the risks and benefits of outsourcing business functions, which apply primarily to small and medium Australian businesses. We have also given some advice to mitigate some of the risks of outsourcing.

Benefits of Outsourcing

Cost reduction and improved efficiencyWe mentioned economies of scale, and cost reduction is unexpectedly one of the primary reasons that businesses will outsource job functions. With a dedicated team and infrastructure in place, outsourced businesses will in nearly all cases be able to provide superior service for a lower price point than hiring internally.While many smaller businesses would love to hire the best and brightest in house staff for each area of their business, this simply is not always an option given large corporations with sizeable budgets often have their pick of the bunch. Often a single employee will be responsible for a number of areas within the business, such as graphic design, IT or marketing.One of the major benefits of outsourcing key areas of business is that these companies will specialise in a given area, meaning dedicated talent and greater efficiencies of scale. This can mean putting important areas of your business in experienced hands, which will in nearly all cases reduce operational risk.Scalability (or flexibility)Being a small to medium business, your business needs can fluctuate more often than large multinationals. Because of this, there is an inherent risk in hiring a full time employee, and many businesses will instead try to mitigate for this risk by giving fewer staff more responsibilities. This is often unavoidable, and can work quite well— provided you are keeping track of your internal efficiency metrics.When outsourcing business processes, these issues are avoidable by negotiating ad-hoc contracts that can increase or decrease with your business needs.

Risks of Outsourcing

Like any business venture, outsourcing your business processes can carry its own risks. Instead of opting to reinvent the wheel, we thought we would give Joanna Krotz from the Microsoft Small Business Blog.We have elaborated on some of her points to hopefully help your decision making process.Alignment - Is outsourcing the right move for your business?The question to consider here is how much control you need over the process in question-- IT services, for example, may just be something you want to work behind the scenes. Marketing or sales on the other hand is generally something you would rather keep in-house with greater visibility. At the very least, make sure that someone internal is assigned the responsibility of overseeing the work being outsourced to ensure it is an effective investment and meeting the originally specified needs and/or goals.Business Case - Have you estimated the costs of managing processes internally versus outsourcing them?Having visibility of your financials is at the heart of a business, and it is up to you to know how much a business process is costing you versus in terms of opportunity costs. If your role as a director is being divided amongst fixing computers, making sales calls and managing your books for example, there is a case for analysing how to best outsource or delegate some of these processes so that you can focus on business development and establishing yourself as an authority expert.Culture - Can you bridge the cultural gap between your company and the company providing the service?Outsourcing to a company in the same country can mean improved communication as well as a 'door to knock on'. Another thing to consider is whether you LIKE the people you and your employees would be dealing with-- this is an area that is downplayed but can really mean the difference between a successful partnership and a bad investment. Do you prefer a hands on or hands off approach? Perhaps you like to be kept in the loop with monthly reports, or maybe you want a set and forget type of relationship. Make sure that whatever company you work with, it fits with the way you like to work.Delivery - How will you define a successful partnership?Set key performance indicators for each core business area, so you can establish a current baseline. This will help you decide whether resources can be re-allocated to functions generating more business, and ultimately more revenue. With these baselines in place, make sure that there is clarity between your company and any outsourced provider to ensure that there is performance accountability that meets your needs. If you do not test and measure, you will never know if you have improved.

Some Outsourcing Resources

Graphic Design, Market Research, or Data Analysis - Some of our favourite platforms for outsourcing these sorts of tasks include oDesk, Freelancer and eLance. These sorts of projects can be completed extremely cost effectively. Another favourite site is 99Designs, which allows businesses to create 'competitions' where graphic designers around the world compete to best match your design brief.Look for contractors (or agencies) that speak English fluently, and have an established track record (in terms of jobs completed, portfolios listed, and feedback received) on the platform you are looking at.If you are considering outsourcing your IT, find out more about our Managed IT Support services here.

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