According to Gartner, “Outsourcing is the transfer of services that would otherwise be performed internally to a third-party service provider to drive cost optimization and efficiencies”.
Outsourcing was first declared as a formal business strategy in the year 1989. Since then, it has continued to gain immense importance by the organizations due to its manifold benefits. In the article published by Forbes, outsourcing has been shown as one of the biggest trends for startups in 2022.
How is outsourcing favorable to SMEs?
According to the data presented in Clutch Report (2019), more than one third of small businesses (37%) outsourced a business process in 2019 and more than half (52%) planned to outsource.
SMEs usually suffer with lack of resources and struggle with high production costs. Outsourcing provides an appropriate guideline across different operating functions including HR, Marketing, IT, Finance and so forth. Other than cost reduction, outsourcing the services helps to focus on the core business. It also empowers new entrepreneurs to meet the consumer demands by decreasing the product cost still yield high quality products.
Why do SMEs outsource?
Outsourcing is primarily a value driver for SMEs. There are numerous benefits that are achieved by SMEs through outsourcing.
- Helps to reduce costs
Outsourcing is the best way to reduce cost consumption which is the primary concern of the emerging entrepreneurs and new startups. Outsourcing helps to cut costs by eliminating the processes associated with talent acquisition and management, the need to dedicate another office space and other related overhead costs.
- Enhances efficiency
Outsourcing enables small businesses in increasing the efficiency of business operations as they can focus on their core competencies by outsourcing their non-core functions to external vendor. It allows the employees to focus on the areas of their respective skill set to scale up the business. Clutch Report (2019) showed that businesses mainly outsourced in order to elevate efficiency and look for assistance from the experts.
- Allows better risk management
Outsourcing allows a business to mitigate the risks by transferring the business operations or tasks to the party experienced in those spheres enabling the organization to escalate their services and drive business value without troubling about the potential risks.
- Provides access to expertise, resources and new technologies
Outsourcing allows to avail the services for a specific function from the specialized group of professionals. Small businesses can continue to improve business performance from the expertise and resources that are unavailable within the organization.
In addition to expertise and resources, SMEs can benefit from the equipments and new technologies being employed by the outsourcing service providers that are not accessible in-house.
- Helps to optimize time
Having the functions outsourced to expert talent, SMEs can help their employees in optimizing their time so that they can focus on the core activities of the business as well as other tasks where they can unleash and create new opportunities while delivering their best quality of services.
Clutch Report (2019) showed that 15% of the small businesses preferred to outsource in order to free up their employees’ time for other tasks.
- Offers flexibility
After the pandemic changed the business world largely, outsourcing has got considerable attention as it provides versatility. It enables to intelligently transfer the use of available resources as per the changing business dynamics having other functions outsourced to external vendor, in order to outperform the demands of the market.
- Helps in compliance with regulations
Through outsourcing, SMEs can keep pace with the ever-changing horizon of the regulations leaving them assured about the regulatory compliance processes.
The statistics of Clutch Report (2019) showed that small businesses most commonly outsourced IT (37%), Finance and Accounting (37%) and Human Resource services (24%). Whether it is about cost mitigation or enhancing efficiency, the numerous advantages of outsourcing prove it to be SMEs’ ticket to a greater business value.
A large number of SMEs get failed in the initial years of their establishment and very few them achieves stability and growth. And one of the main reason of their success is their understanding towards other experts and engaging them for their advice and their expertise that empower them to focus on their long term goals and objectives.
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