How much companies can save by outsourcing

With budget pressures on the rise amid soaring inflation, global labour shortages and the lingering impact of the global pandemic, it is little wonder an increasing number of large enterprises are turning to outsourcing to help reduce costs. Assigning tasks that would normally be completed in-house by one’s own employees to a third-party vendor is a tried and tested strategy, be it partnering with a provider in the same country (onshore) or overseas (offshore) where the cost of living in countries such as the Philippines can result in savings of up to 70% on wages alone.

How does outsourcing help reduce costs?

While it is tempting for executives to ask exactly how much their business can save by outsourcing, one size does not fit all. What can be said with certainty is the fiscal benefits extend far beyond simply saving on payroll.

Recruitment, onboarding and training:

employees are expensive and we are not just talking about their wages. The cost starts with recruitment but in the outsourcing world that is an expense borne by the provider, which takes responsibility for filling the positions required to service a client’s needs. This includes advertising roles, cultivating talent pools and screening and interviewing candidates. Likewise, quality outsourcing providers look after the onboarding process and ongoing training, which can be significant expenses in their own rights.

Infrastructure:

for every team member a business employs, there is an associated cost in kitting them out with the tools they need to do their jobs. The likes of computers, office furniture and software licences can require an investment in the thousands of dollars for one employee, let alone dozens of them, hence why many executives are more than happy for their outsourcing providers to foot the bill and direct such savings to other areas of the organisation. Outsourcing also allows companies to reduce or avoid the cost of providing staff with physical space to do their jobs as providers have their own workspaces.

Scalability:

many businesses know the pressure that comes from unexpected or seasonal spikes in demand and the costs associated with quickly recruiting people to meet them. Outsourcing is a cost-effective strategy to tackle such hurdles as it allows businesses to access individual staff or entire teams at a reduced cost to doing so in-house. Similarly, organisations can seamlessly scale down when circumstances change and avoid the need to break leases, pay out benefits or store or sell office furniture, IT equipment and other infrastructure.

Labour management:

labour costs do not end with paying wages and providing workers with the space and tools to do their jobs. Labour management is a significant expense in its own right, with an increase in staff numbers necessitating a concurrent investment in people and tools to ensure they deliver peak performance. Outsourcing providers bear such costs including the likes of Labour Management Systems (LMS) that comprise enterprise tools to help better plan their daily work and processes, while value-adds such as process reengineering and improvement can also be included.

Hidden costs of outsourcing

While there is no doubt outsourcing delivers significant financial benefits, there are several hidden costs that companies should be conscious of before signing on with a provider.

Getting started:

it does take time – and a financial commitment - to educate a new outsourcing partner about the work they are expected to perform. While the financial benefits will come in the long-term, be prepared for a few weeks or even months of paying for less than 100% efficiency.

Poor performance:

while there are many quality outsourcing organisations, some providers overpromise and underdeliver. To avoid this scenario, do plenty of research such as seeking proof of concept, setting clear KPIs and taking action sooner rather than later should concerns arise.

Surprise expenses

companies need to know exactly what is covered in a contract as some outsourcing providers may charge for work not expressly outlined. Make every effort to avoid being surprised by additional charges by teaming up with partners that have a clearly defined approach to billing.

Summary

Outsourcing is an ideal solution for large companies looking to reduce costs in the current economic climate. Paying less for the same, if not better, levels of support would be the stuff of fantasy if not for the fact countless organisations are already doing just that.

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