There are numerous reasons for outsourcing some types of work functions. Business owners often find that it makes sense to "rent" the expertise they need rather than commit to "buying" it for a long period of time.
Types of Companies Using Outsourcing
Outsourcing is commonly used by these types of businesses:
- Insurance Companies
- Healthcare Companies
- Government Agencies
Common Reasons for Outsourcing
Here are some common reasons why companies choose to outsource:
Outsourcing Saves Money
Cost savings could be the biggest reason why businesses choose to look outside to hire the expertise they need. If work is being performed by someone who is an independent contractor, the company simply pays the amount agreed to in the contract. No payroll tax or other deductions are taken, which means that payment processing is streamlined.
Another way that outsourcing saves businesses money is due to the fact that the employer does not have to provide benefits to outsourced workers. Benefit plans are paid for by employers as a way to attract and keep quality workers, but they are expensive. If some work can be outsourced, it cuts down on this expense, which means that the business can operate more profitably.
Outsourcing Gives Employers Flexibility
When a business chooses to outsource some job responsibilities, the company has the flexibility to buy services only during the times they are needed. Contracts can be written to hire a contractor for a specific time, for a specific project only, or on as as-needed basis. The employer pays only for work performed, as opposed to paying a salary to an employee on a regular basis.
Access to a Larger Pool of Workers
During times when the job market is tight, outsourcing means that companies have access to a larger pool of workers. If the business is open to having some functions performed offsite, then the organization is not limited to considering local talent only. A good candidate could be located in another city, region, or even another country and still be able to provide needed services to the company.
Improved Customer Service
The world of business is shrinking, and many companies are offering their products to a global marketplace. When some functions, like customer support, are outsourced to a provider operating an a different time zone, the business can continue to look after customer needs outside of regular business hours.
Outsourcing Means Accessing Expertise Not Otherwise Available
Particularly in the information technology area, companies may not have personnel available in house to take on certain projects. If a company is growing rapidly, the organization may not have the time to recruit and train the workers needed. In this situation, outsourcing makes sense: the business can continue to grow and meet deadlines until they have staff members in place who can take over these responsibilities.
When the company is in a period of downsizing, it takes time to reassign duties to the remaining workers. Outsourcing some duties means that progress continues to be made on outstanding projects while the company restructures job responsibilities.
Outsourcing can mean joining forces with another company, rather than an individual service provider. The outsourcing business can take advantage of the fact that the partner company has already invested the resources necessary to acquire new technology and train workers in its use.
Investing in new technology can be a risky proposition for businesses today. Rather than putting up its own funds, it may make more sense for a business to use outsourcing to ensure that the technology available to them is always up to date and relevant to their needs.
There are many good reasons for outsourcing, and today's companies will likely continue to use this business strategy in the future.