What is Outsourcing and why is it an increasingly popular option for businesses of all sizes?

Far from being simply a buzzword, the increasing popularity of outsourcing is continuing to have a significant impact on the business community and consequently the economy.

As a simple definition – outsourcing enables a company to benefit from the expertise of a third party, either for advice or by asking them to process their work. Companies may also outsource the purchase of goods or services.

There was a significant increase in public service outsourcing under Tony Blair in the late 1990s but it was during the Coalition years that it doubled to a spend of £120bn, due mainly to a cost saving exercise in the public sector and the increase in privatisation of the welfare, healthcare and justice sectors

Within the private sector outsourcing also continues to grow, with the opportunity to focus on core business being the main driver, followed closely by cost savings. In 2014 one in five outsourcing deals were in HR services, mainly due to a skills gap and competition from overseas. The overall benefit of outsourcing the more basic but time consuming tasks being that the HR department is left to focus on business-critical issues.

Other major outsourcing areas are IT, manufacturing, web design, call centres and general administration through Virtual PAs.

Previously the strategy of choice for mainly large companies, smaller companies have come to understand the benefit of outsourcing. Particularly for SMEs and sole traders it is a valuable solution when the staff or maybe the skill to process certain crucial tasks is not available. It can help a company to diversify either by calling upon the expertise of a third party, or because they can be left to focus on the more strategic elements of their business whilst not “sweating the small stuff”.

Many companies are turning to outsourcing for ad-hoc assignments, thereby converting fixed costs to variable costs. The fact that the work is usually done remotely is a huge plus for the business owner who does not have the time to babysit temporary or under-utilised permanent staff in the office.

Any outsourcing company worth its salt will focus on providing a polished service within agreed timescales. Such accountability is seen as a huge plus to a company that does not have the management team available to continually assess the quality of work produced by in-house staff. Repeat business will only come to an outsource company that provides a high level of service and the company outsourcing the work can rely upon that.

So to summarise the main advantages of outsourcing:

  • Focus on core business activity
  • Cost savings – recruitment/office space/facilities
  • Fixed costs become variable costs
  • Expertise and efficiency
  • Accountability/quality of service
  • A go-to business partnership