What is the Benefit of Outsourcing?

A Study by the National Foregin Council on Trade, conducted with the SHRM Global Forum found that the past five years have shown an increase in outsourcing (no surprise) but an increased dissatisfaction with it as well. Overall it found an 84% satisfaction level with outsourcing practices, but this was down from 92% from the first year of the survey (2000).

This fact reflects the increasing trend in outsourcing a broad array of company functions, as well as the entry of thousands of outsourcing providers into the marketplace.

However the practice is increasing commonplace with many companies seeing a benefit to outsourcing many jobs. The largest percentage of outsourced jobs is in IT (28%), followed by HR (15%), Sales & Marketing (14%), and Financial Services (11%). Most outsourcing is done by multinationals, with much of it going to India, China, and the Philippines.

Outsourcing today can be viewed as a strategic management function instead of merely a cost-cutting function. Here are some of the less obvious "pros" to outsourcing:

Pro #1 - Focus on Core Business: Allows managers to focus their priorities, attention, and best talent on the core activities that serve their customers, and move the less direct activities out of the way.

Pro #2: Level the Playing Field: All companies that outsource can reduce costs, but small companies can gain economies of scale and expertise that is normally enjoyed only by large companies, giving them a strategic as well as cost-efficient benefit of outsourcing.

Pro #3 - Risk Management: There are risks that increase with outsourcing, but it helps to also look at outsourcing as a means of reducing risks, such as those associated with labor market conditions, government regulations, and technological progress. When you outsource, you transfer some of this risk to your service providers, and give your company the ability to be nimble, changing outsourcing providers when needed in a way that is much faster than what can be done in-house.

Pro #4: Initiative Speed: With certain forms of outsourcing, the benefit comes from getting pre-trained specialists onboard quickly, allowing you to start a new project fast and with little long-term commitment.

Companies should not always outsource purely for cost-cutting reasons. Outsourcing brings with it a loss of managerial control, the possibility of hidden costs, and the threat of security and confidentiality. To avoid these, keep in mind the following best practices:

1. Use big service providers: Credibility and reputation are perhaps the top considerations when assessing the benefit of outsourcing providers. Use a company that is large, broad in a number of services, and has strict testing and evaluation criteria on its workers. Do not hire individuals unless they are affiliated, screened, and managed through a large outsourcing provider like ODesk or one of the other large firms.

2. Insist on maximum visibility: If you are outsourcing work to India or Russia, you may not ever come in physical contact with the workers, which is why many outsourcing firms offer a strict set of monitoring criteria so that you can keep tabs on the progress on the outsource workers.

3. Don't sign long-term contracts: Outsourcing is so competitive these days, and providers in Russia, India, and elsewhere are willing to compete for business by offering flexible terms. When beginning your outsourcing functions, consider an open-ended commitment even if it means more cost in the short-term, as you want the ability to test the provider, and switch quickly to others if you are not getting the benefit of outsourcing that was promised.

One of the companies marketing an easy-to-use outsourcing interface for many different business services is ODesk. They satisfy the requirements listed above, and offer specialists in web development, writing and translation, customer service, software development, admin support, design, IT, and many other fields.

ODesk is an American company, with many of its outsourcing providers based in the U.S., as well as overseas. They allow "buyers" to create online workstreams that are monitored using "Team Software" which allows real-time supervision and fully transparent progress-checking.

It is this monitoring capability (which has been the subject of some criticism of the company), that helps to overcome many of the natural hesitancy towards hiring outside providers, since it offers a virtual version of the in-house monitoring most companies already have (such as webcam shots of the providers working).

ODesk also provides full statistics, test scores, and competency scores for each provider who lists with them, so it's easy to sort and filter for certain skill sets.

Learn more about ODesk here, and read more about the benefit of outsourcing business functions.