Outsourcing FAQs: 11 Key Insights for Business Leaders

Outsourcing FAQs: 11 Key Insights for Business Leaders

by Eric Thomas
May 10, 2023

If you’ve never outsourced aspects of your business before, the mere thought of handing over work to an outside party can be daunting. That’s understandable, since many leaders find it difficult at first to trust an external provider with key components of their companies. But if you’re looking to reduce costs, maximize efficiencies, gain access to skilled resources and/or scale your business, outsourcing could provide the critical support you need to strengthen your organization and drive sustainable growth.

The following FAQs highlight what you need to know about outsourcing and what actions your organization can take to determine whether outsourcing is right for you.

1. What Is Outsourcing?

Outsourcing is delegating non-core business functions to external service providers so you can focus on what you do best: the strategic, value-add aspects of your organization. Essentially, it is like having a dedicated team that’s a phone call away instead of just down the hallway. When you outsource a job function or process to a skilled third party, you gain their expertise in that type of work. You may also minimize the time and dollars spent on that function.

For instance, if you need to get your car’s oil changed, you can do it yourself by buying the oil, learning the process, getting greasy and devoting significant time to it. Or, you can find a specialized service provider who will take care of the entire process for you efficiently, correctly and at a reasonable cost.

2. What Is Outsourcing Not?

Outsourcing is not synonymous with offshoring, and it’s not limited to call centers or any other specific type of business process. While offshoring is a type of outsourcing, many U.S. organizations outsource a variety of important functions to U.S.-based providers.

3. What Functions Can Be Outsourced?

The range of functions that can be outsourced is vast — accounting, finance, information technology, human resources, legal and administrative or back-office functions are among those most commonly outsourced. However, outsourcing can encompass many departments and industries.

4. Why Do Organizations Choose to Outsource?

Organizations choose outsourcing for a variety of reasons. One top motivation is mitigating in-house turnover. By outsourcing certain functions, you can avoid continually onboarding new employees and instead rely on the consistent availability and expertise of external service providers.

A common example of a turnover problem is when longtime employees are getting ready to retire, taking decades of experience and institutional knowledge with them. Instead of trying to fill the void with new positions and new workers, outsourcing makes it possible to quickly fill the gap with specialized third-party talent. And because your outsourcing provider is responsible for keeping their people educated on the most recent compliance, technology and industry trends, you don’t need to worry about devoting time and resources to continuous training.

An organization undergoing a digital transformation may also choose an outsourcing solution. Let’s say you want to update your technology to improve operations, but you lack in-house expertise or have change-averse staff (those who resist adoption or might leave the company). In this case, outsourcing would be an excellent option to help facilitate a complex technology implementation without hiring and training new employees.

Outsourcing can also improve morale among your best talent. When labor-intensive, error-prone activities are delegated to a third-party, employees don’t have to spend their time on tasks that are not well-suited to their strengths or interests. Instead, they can shift their focus to areas they find more valuable and rewarding, which will likely result in better retention as well.

Last but not least, outsourcing provides affordable access to high-level expertise. For instance, you may not be able to afford a full-time CFO or controller, but you can gain that expertise by outsourcing these roles to an external service provider. Outsourcing to a team that includes an as-needed CFO provides your organization with scalable talent. Additionally, your organization can leverage that entire team’s breadth of experience rather than relying on the skillset of just one full-time employee.

For these reasons, many organizations thrive when they use outsourcing services.

5. What Are the Different Types of Outsourcing Available?

Outsourcing can take different forms depending on an organization’s needs. There are three main outsourcing options: supplemental outsourcing, soup-to-nuts outsourcing and enterprise outsourcing.

Supplemental outsourcing is an option if you have existing staff but require additional support for specific duties that are unpopular or challenging to fill permanently. This could include short-term projects or roles that don't offer clear career paths.

Alternatively, soup-to-nuts outsourcing involves outsourcing an entire department, from top to bottom.

Lastly, enterprise outsourcing is when you outsource non-core functions that are not related to your company's mission. For instance, you may choose to outsource your accounting, HR, finance, or marketing departments.

Depending on the outsourcing option your organization is looking for, you may benefit from an outsourcing resource that falls into one of the following categories:

  1. Specialty outsourcing services: These organizations provide specific services from professionals with a depth of expertise in their respective areas, such as HR or accounting. You may benefit from a specialty outsourcing company if you’re looking for enterprise outsourcing help.
  2. Headhunters or fractional CFOs: Headhunters are outsourcing firms that specialize in finding and recruiting top talent for organizations. They typically work on a contingency basis, meaning they only get paid if they successfully place a candidate. Fractional CFO outsourcing firms, on the other hand, provide interim or part-time CFO services to organizations. This allows businesses to benefit from financial expertise without hiring a full-time CFO. Headhunters or fractional CFOs may be recommended for supplemental outsourcing.
  3. Interim or long-term resources: Outsourcing can be done on an interim or long-term basis. Interim outsourcing is typically used for short-term projects or to cover staffing gaps. Conversely, long-term outsourcing is used when a company wants to outsource a specific function for an extended period of time.
  4. Individual or team resources: Outsourcing can be done by either an individual or a team. Individual outsourcing is often used for specialized services that require a high level of expertise, such as legal or financial services. Team outsourcing is used when a company needs a larger group of people to handle a specific function, such as customer service or data entry.

6. Who Can Benefit From Outsourcing?

Organizations of all sizes and stages can benefit from outsourcing, including:

  • Startups and/or small businesses – Outsourcing can help startups and small businesses scale quickly without needing to invest in complex, expensive infrastructure or hire full-time employees.
  • Growth stage and/or medium-sized businesses – Outsourcing can help these businesses save money on overhead costs and focus on their core competencies and growth.
  • Mature and/or large corporations – Outsourcing can help large organizations increase profit margin by improving efficiencies and accessing specialized expertise that is not available in-house.
  • Nonprofit organizations – Nonprofits, which are often looking to do more with less, can use outsourcing to alleviate their administrative burdens and devote more time to their core mission.

7. How Do I Determine if I Should Outsource a Particular Process?

The decision to outsource a process depends on various factors. If a process is straightforward and consistent in terms of timing or process steps, outsourcing can be a great option. Outsourcing might also be a solution for work that can be documented in a repeatable and/or predictable workflow. Easy examples are accounts payable, monthly forecast updates and payroll.

However, other factors should also be considered. If the work requires onsite, close supervision or constant updates, it might not be a good fit for outsourcing. Examples include inventory management and cash control work.

Your personal perspective also plays a role in this decision. If you have expertise in and are comfortable managing a particular department it may make more sense to keep it in-house and outsource other departments. Ultimately, it is crucial to assess your organization's needs to determine what can be outsourced.

8. Do Outsourcing Providers Come Onsite?

Outsourcing providers may or may not work onsite, depending on the nature of the outsourcing arrangement and the specific needs of your organization.

9. Does the Outsourcing Provider Use Their Technology or My Technology?

You and your outsourcing provider should agree on the technology that’s used. Some outsourcing providers will not use unfamiliar technology unless it makes sense within the context of your need. Others are more receptive to learning outside technology and working with a broad, diverse set of software.

Consider whether you need a specific technology to reach your desired outcomes. If so, that can drive your decision on which provider to choose.

10. How Do I Choose an Outsourcing Provider?

Research an outsourcing provider like you would any major investment or purchase. Before initiating discussions, consider your organization’s top priorities. Do you value top-notch service, cultural fit, competitive pricing, advanced technology or industry-specific expertise? Look for a provider that caters to your needs and preferences.

During the scoping and discovery phase, determine if the provider aligns with your company’s culture, since cultural fit can impact the success of the partnership. Also, if industry expertise is important to you, ask the provider what their experience is with your industry and if they can provide case studies or testimonials from clients in that industry.

11. If I Want to Outsource, Where Do I Start?

Your first step should be to identify your company’s objectives. Host a strategy session to determine what’s important to you and what your organization wants to get out of outsourcing. Narrow down whether you need outside expertise, need to mitigate employee risk, want to boost employee morale or have a digital transformation initiative you want to pursue.

Once you’ve established your priorities, your second step can be to identify one portion of a larger internal process you’d like handled by outsourcing solutions. For example, if you're looking to mitigate risk, start with a small portion of your operations and try outsourcing it first. If you're primarily concerned with cost savings, you may want to look into outsourcing accounts payable first since it is a static, repeatable process.

The Bottom Line

Outsourcing can be a valuable way to increase efficiencies, lower costs, improve morale and gain access to specialized expertise. By conducting thorough research and analyzing your unique circumstances, you can determine whether outsourcing is the right fit for you and can choose the option that best meets your specific needs and goals.

Contact our Outsourcing experts to learn how to leverage outsourcing services for better performance at your organization, or explore other ways to take control of your operations for maximum efficiency and profitability.

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Eric Thomas - Partner, Consulting - San Ramon CA
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