The Benefits and Pitfalls of Outsourcing Core Business Functions

by Carter Toni

When running a business, there are many elements which can be outsourced to third parties. Outsourcing is when you recruit another person or company to carry out operations on behalf of your business. The people you outsource will not be formally employed by your business, but will normally work on a consultancy or contractor basis so the relationship is slightly different. Some firms work with a PEO Company in order to streamline the process of hiring and payroll. Before outsourcing any core business functions and operations, here are some of the pros and cons to consider.

It Can Save Time

Outsourcing key pieces of work can save a lot of time for the management team of the business. The benefits of human resources outsourcing can often be seen when dealing with problematic employees or trying to get through a difficult hiring or firing process. Rather than spending hours of management time trying to find a solution, outsourcing the job to a HR consultant or other expert can cut down on the internal time and energy which is spent on unexpected human resources challenges.

In the long term, targeted outsourcing of key functions like HR can ensure the business is making the most of available funds while running the company with the right expertise.

It Can Cut Costs in the Long Term

Some businesses avoid outsourcing their core business functions since it can be expensive in the short term. Paying for outsourcing could be more costly than hiring someone as part of the business, since consultants charge higher fees due to work instability. However, this only applies to certain functions and each individual business needs to analyze whether it makes more sense to outsource work or hire inn-house.

Design, marketing, and communications are areas where businesses commonly choose to outsource. Unless you need a constant flow of marketing materials and promotional designs being created, it can be more cost-effective to outsource this work to a freelancer or expert marketing consultant. In the early stages of the business, they can help draw up a marketing strategy, build your social media and broader online presence, and establish a brand.

Small Businesses Can Get Help with Payroll

A small business is unlikely to require a full-time employee to oversee payroll administration and management. By outsourcing necessary HR functions such as payroll or timekeeping, you can cut down on the costs of formally hiring another employee to do this job.

Many small businesses go down this route especially in the early stages. If your business expands, reassess whether you need to hire more employees. But while you have a small team, sending their hours and payroll details weekly or monthly to a third party can cut monthly costs and help you and your team focus on the other aspects of the business.

It Allows Businesses to Focus on Key Areas

When working hard to build a brand, having precious time and energy sucked into administrative tasks can be tiresome. Outsourcing human resources and other core business functions allows businesses to focus on other key areas of the company.

Whether this is product development, marketing, networking, or customer service, you will be able to spend more time working on the main business priorities once you outsource other work to a third party.

Businesses Can Draw on Different Expertise

One of the benefits of outsourcing is that you can make the most of different types of expertise. While you won’t have this expertise in-house and dedicated entirely to your business, it does mean you can work with a range of experts to get broader and deeper insights into your company.

Since most businesses are unlikely to afford the cost of hiring multiple experts covering all aspects, you can outsource different parts of the business throughout the year. By the end of a 12-month period, you will have worked with people on various areas and can draw on this expertise to develop forward plans and strategies for the company.

Others Won’t Always Know the Business Well

One of the downsides of outsourcing business functions to others is that they won’t always know the business or the sector as well as you do. This can bring a temptation to get more involved, which is why trust and confidence are key aspects of working with any other business or service.

When looking for people to work with, look specifically for people and companies with knowledge of the sector you’re working in. While functions like HR and finance can be easily transferred across sectors, you should ensure the people you’re working with have at least some knowledge related to your business.

For example, if you are making a lot of international transactions, be sure that anyone supporting finance operations has knowledge and experience of doing this. If you need to terminate the employment of a senior person within the business, consult an HR expert with extensive experience in this form of work.

It Could Feel Impersonal

Some small businesses don’t like to outsource any work since it removes their operations too far from the center of the business and its management. Those who have started out with in-house staff to manage HR, payroll, communications and other core business functions may find it difficult to hand this over to someone externally.

While you may not always be able to contact them on a daily basis, you should keep in regular contact with those working with your business. Ask for updates at least on a weekly basis, and ensure lines of communication are always open.

It Might Disrupt Staff or Customers

You might also worry about what your staff or customers will think about a third party working with your business, especially if it will have a direct impact on them. Speak to any team members first before bringing on any external workers with may interfere with their roles. Likewise, if you are outsourcing people who will be in direct contact with customers, you may need to alert staff or customers beforehand to this change.

There are pros and cons to outsourcing some of the core functions of any business. Whether bringing in an expert specifically to manage a difficult situation or enlisting the help of a third party to oversee payroll and administrative tasks, outsourcing can be a great way to save money and time and get additional expertise.

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