Outsourcing For Small Businesses

Introduction

Currently, the competition for limited resources such as space for expansion, market for the produced goods and services, and talented workforce has increased more than ever before. This has made the world to appear like a jungle, where only the organizations which have the necessary competitive tools are deemed to survive and develop, while those which do not have these skills are eliminated from the market. For this reason, most entrepreneurs are determined to embrace and implement measures that would enhance the competitive edge of their organizations. Moreover, there are numerous ways in which an organization can enhance its competitive edge, including allocating substantial funds for facilitating research and development, fostering innovation among the employees, orienting and training employees, and most importantly, outsourcing business functions. Outsourcing entails the practice of seeing external firms to perform some of the tasks that are normally carried out within an organization. Outsourcing is a common practice that is embraced by both public and private corporations and it is a core resource in business strategy. Apparently, despite this strategy being cheap to implement, most managers fail to contemplate the value in it, and this is according to the manner in which the managers overlook it and instead focus on other strategies. This paper entails an argument that outsourcing business functions is a good resource for small businesses because it costs less, saves time and provides expertise.

Outsourcing and cost reduction

The owners of small businesses have less experience concerning the various organizational functions such as payroll processing, product distribution, accounting and others. However, it is unfortunate that not many small businesses thoroughly contemplate the merits of outsourcing, especially after the outsourcing mania of the early 1990s, when most organizations outsourced excessively resulting to the occurrence of a flat economy (Whittenly, 2016). During this time, most organizations were forced to undergo huge layoffs to the extent that most of the outsourced functions were called off and kept in-house.

Apparently, things have changed and the outsourcing strategy, which had long been seen as a strategy reserved for big organizations, is now accessible to small businesses. Precisely, the development of technology has made outsourcing an accessible and affordable tool for small businesses. With the current globalized world, professionals can now work from anywhere, and the availability as well as the accessibility of qualified professionals such as public relations directors, graphic designers, marketing directors, web designers, paralegals, transcriptionists, virtual executive assistants, information technology specialists, bookkeepers, and human resource consultants (Institute of Management & Administration, 2006). The presence of these freelancers can be outsourced by small business owners as subcontractors, and save the entrepreneur from the burden of paying overheads that are linked with payroll taxes as well as numerous expenses such as worker`s compensation, space constrictions and health insurance.

Outsourcing functions for small business helps in saving money in a number of ways. First, outsourcing tends to be cost effective. This is mostly due to the fact that most of the functions that the owner of a small business may outsource are completed in an efficient way and at a low cost. There is no way that an entrepreneur can embrace outsourcing if the latter will not result to saving costs. Precisely, the business professional who m an entrepreneur outsources his or her services will complete the delegated task in a cheaper way than when the same task is performed within the business. However, in order to achieve this, the entrepreneur needs to take time and conduct research and development and weigh the costs associated with outsourcing. One aspect that the research and development should focus on is the type of business professional that the owner is going to delegate the function. It is worth noting that some professionals take advantage of the fact that most small business owners are inexperienced and charge them higher for any of the tasks that he or she happens to delegated to them. When the owner conducts a market research before contacting the individual or organization to outsource from, he or she manage to contemplate that there is a vast difference in the wage patterns between the western developed countries and the developing nations. For example, a given work can be performed in the west for a very high price, and the same function can be performed at a much cheaper price in the developing countries like India. It is anticipated that the wage difference between the developed nations and the developing ones varies with up to 60 percent. This means that if the owner of a small firm decides to contact a firm from the western countries, he or she is deemed to pay more than if he contracts from the developing countries.

Figure 1: Outsourcing is cost effective (EDUCBA, 2017)

Consecutively, outsourcing helps the owner of a small business to save training costs. This is due to the fact that the business professional or organization that the business owner contracts for outsourcing services would provide training services or orientation services to the employees within the business. At the end, the employees within the small business will gain extensive skills to an extent that the organization will not outsource in future for the same function. For example, if the owner of the small business outsourced the distribution function, the employees gets an opportunity of learning the logistic skills needed, and may perform the function by themselves in future. According to the Association for Talent Development, organizations spend approximately $1, 195 to train each employee each year, and this means that if an organization has a higher number of workforces, the total amount that it can use in training the employees can be very high. Apparently, when an organization outsources a given function, it is saved from the stress of allocating time, money, and other resources for training employees working for an outside firm (it is not the responsibility of the small business to provide this training).

Moreover, the small business is saved from the stress of providing benefits to the employees. For example, it is a requirement by the law for the organizations to provide benefits like disability insurance, field insurance, house insurance and health insurance to the employees. This means that if a small business outsources a given function, it is relieved the stress of providing these benefits to the employees who could have conducted the function (Kirk, 2010). One of the major concerns of a small business is how to save costs and maximize revenues, and this means that saving benefits and training costs through outsourcing can be one of the major avenues of achieving this goal.

In addition, outsourcing some functions helps the small business owner to save the employee opportunity cost. Precisely, one of the greatest assets of an organization is its workforce, and the manner in which the employees are used and treated influences the competitive advantages that an organization has. In this regard, if the business owner use his or her employees by mandating them to perform mundane work such as payroll, data entry or even janitorial tasks, he or she is likely to lose the competitive advantage if the same employees were working on more important projects (Thomas & Wasmund, 2010). Precisely, outsourcing enables the owner of small business to free most of the talented employees, and this gives them ample time to engage in innovative ideas.

Moreover, most businesses require the use of complex computer networks in order to not only execute their operations but also to store and analyze fundamental data concerning them or their clients. Apparently, these technologies do fail sometimes, and this would require the small business owner to have an information technology staff on site to help in troubleshooting and fixing the problems.

Apparently, catering for an IT professional in terms of their salaries and benefits is expensive, and it may be costly to a small business. For example, it is expensive for the owner of a small business to outsource service from an Ottawa Tech Support, since the company is a globalized brand (Weissman, 2005). Consecutively, outsourcing would help a small business to operate almost twenty four hours (Round the clock work), especially when there exists a difference in time zone. Usually, there will be a difference in terms of the time in one country and the one where the work is being outsourced from. For example, in a situation where the owner of a small business outsources some services from India, where the time gap between the two countries is almost twelve hours. The small business entrepreneur can assign work in the evening and relax, and the work will be completed by the time he or she wakes up in the next morning. The small business is deemed to achieve its set goals and objectives at faster, making it to expand rapidly.

Outsourcing saves time

A small business entrepreneur works around the clock in order to ensure that his or her enterprise overcomes the stiff competition in the markets. Therefore, time is one of the core assets of a business.  Every organization conducts its operations within the twenty four hours in a day, and the manner in which the hours are spent determines the competitive nature of a business. Outsourcing greatly helps a small business to save time and to enhance its focus. For example, trying to conduct payroll and contract management within an organization entails a number of administrative tasks to both the employer and the employees (All Covered Inc., 2015). Writing and delivering checks, processing payroll, calculating and paying employment taxes, handling employee inquiries, preparing and delivering tax forms are all important processes in every organization, but employees should be engaged with other productive and competitive activities.

Outsourcing helps an organization to free employees from most of these time consuming tasks and enhance employees` time to focus on closing more deals, following more leads, offering better customer service, and more importantly, focusing on effective strategizing of the business. One of the main resources that make an organization to includes aspects such as working overtime (late night and during the weekends) is poor time management. For example, it is common to find an organization where some employees are involved with functions that can be outsourced, such as the payroll function, and since these functions are time consuming, the resulting outcome is that the organization will not manage to complete the set goals and objectives within the stipulated time. This calls for the business owners to embrace and implement the aspect of employees working overtime in order to meet the daily, weekly or monthly objectives. However, the cost and time lost through working overtime is high compared to outsourcing.

In addition, outsourcing helps a small business entrepreneur to save time by managing to get projects get off the ground quickly. Assigning a project to the employees may involve recruiting, training and orienting people and shopping for the raw materials to be used and these forms of capital investment tend to delay the execution process of the project for weeks, months and even years (Flatworld Solutions Pvt. Ltd, 2018). Moreover, the situation may become worse if the employees are not motivated to work without being monitored, as this can further delay the completion of the task. Apparently, outsourcing helps small businesses to get professionals who have the resources and extensive knowledge and skills of executing the work right away. In addition, since the outsourced professional or organization needs to be contacted again in future, they tend to be time conscious and delivering the best they can to the small business in order to impress the manager. However, some entrepreneurs rarely embrace the aspect of outsourcing, arguing that all the tasks that arise within the business premise should be executed by their employees. However, most entrepreneurs increase the risk of their business by taking on everything by themselves, including tasks which they are not qualified to execute. Not once where an entrepreneur opts to outsource after his or her employees performs poorly in a task that they have little knowledge and skills in, such as the payroll function. it is anticipated that most western organizations that have outsourced work to China and India have recorded a significant cost savings (double digit cost savings) especially due to the cheaper cost of labor in those countries. Apparently, it is worth noting that lower cost does not mean lower quality, since most of the experienced firms in the developing countries typically provide products and services that are of high quality.

Outsourcing provides expertise

It is not surprising to establish that poor quality products, services, as well as poor customer involvement contributes to major losses in most companies. Running a small business entails diverse functions and despite this, the entrepreneur should always be concerned with the quality of the products or services that are delivered by the employees. One ways of ensuring that quality products or services are provided is by embracing the outsourcing aspect. According to Klynveld Peat Marwick Goerdeler (KPMG), a globally recognized organization that offers professional services such as assurance, audit, consulting, tax, actuarial, advisory, legal and corporate finance services, 48 percent of the small businesses that contact them aims at enhancing customer service, while 56 percent claims that they intend to access skills through outsourcing (Pangan, 2013). Either way, it is evident that outsourcing provides expertise to small businesses, which enables them to provide the best to their customers. Most small business entrepreneurs contemplate that one of the measures of enhancing their competitive edge is providing products and services that meets the needs of their clients in the market.

Moreover, most small business owners tend to be much occupied with ways of enhancing their businesses and do not have abundance of free time to spend researching on withholding rates, government forms, and constantly changing regulations that comes with payroll and contract management. However, this does not mean that such an entrepreneur cannot get a high level of expertise like the other competitors. Instead, the aspect of outsourcing can help an entrepreneur to access expertise and technology, which are both essential to a small business. Considering that the aspect of embracing technology is increasing each new day, the cost of installing technology is high, and most small business owners can rarely afford it. Without technology and expertise, it is challenging for an entrepreneur to keep up in a competitive market. Subsequently, gaining more business calls for additional administrative tasks and more talented employees to manage it. Apparently, it is challenging for an entrepreneur to drain all his or her business resources in order to achieve these technological and expertise tools. However, outsourcing provides such an entrepreneur with the best available alternative.

Moreover, outsourcing helps an entrepreneur to enhance its accuracy. In most cases, payroll and contract errors are common for a reason, and they cannot be avoided by an entrepreneur who is determined to ensure that his or her small business works to remain on top of the various complications that arises. Apparently, the occurrence of mistakes can cost a small business huge losses and disruption of core operations, and this can be detrimental as far as the success of the business is concerned. In order to reduce these risks, it is better for an entrepreneur to look externally for professional who can handle payroll and contract functions, and use that time to focus on other development agendas for his or her business. Consecutively, engaging employees with tedious and time consuming functions which they have no skills and experience to execute them kills their morale and expertise. This may, in the long run, stimulate adverse behaviors among the employees such as frequent absenteeism and idleness, and this can negative affect the performance of an organization. In addition, innovativeness, which is a rare resource when it comes to enhancing the competitive value of an organization, is discouraged whenever an entrepreneur mandates employees to execute time consuming and tedious tasks. In order to avoid this, the best thing an entrepreneur can do is to embrace outsourcing.

Conclusion

It is, therefore, evident that outsourcing some of the business functions is good for small businesses since it costs less, saves time, and provides expertise. Most of the entrepreneurs who embrace this aspect always manage to take their businesses to a higher level. Cost saving and provision of quality goods and services are fundamental resources as far as the success of a small business is concerned. The fact that the world has become interconnected due to the development of numerous technological inventions provides small businesses with a golden opportunity of accessing professional individuals to conduct some of their tedious functions such as payroll and distribution.

References

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EDUCBA, (2017). How Does Outsourcing Reduce Cost? (Benefits of Outsourcing). Retrieved from, https://www.educba.com/how-does-outsourcing-reduce-cost/

Flatworld Solutions Pvt. Ltd, (2018). The Benefits of Outsourcing. https://www.flatworldsolutions.com/articles/benefits-of-outsourcing.php

Institute of Management & Administration. (2006). Cost reduction and control best practices: The best ways for a financial manager to save money. Hoboken, N.J: John Wiley & Sons.

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Pangan A., (2013). 3 Ways Your Customer Service is Improved by Outsourcing. https://www.infinitcontact.com/blog/3-ways-customer-service-improved-outsourcing/

Thomas, M., & Wasmund, S. (2010). The Smarta Way To Do Business: By entrepreneurs, for entrepreneurs; Your ultimate guide to starting a business, Enhanced Edition.

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Whittenly H., (2016). 5 Ways Your Business Can Save Money by Outsourcing. Retrieved from, http://www.leadershipgirl.com/5-ways-business-save-money-outsourcing/