Why Do Companies Outsource Jobs?
To shed light on the reasons behind job outsourcing, we’ve gathered insights from ten industry professionals, including Presidents and Chief Executive Officers. From outsourcing for project-specific expertise to saving time contracting reputable experts, this article provides a comprehensive look at why companies choose to outsource jobs.
- Searching for Project-Specific Expertise
- Finding Cost-Effective Specialization
- Fostering Diversity Through Outsourcing
- Harnessing Top-Tier Talent Quickly
- Preparing for Business Expansion
- Managing a Heavy Workload
- Connecting Through Cultural Adaptation
- Using Outsourcing as a Lower-Risk Option
- Outsourcing in Response to Inflation
- Saving Time Contracting Reputable Experts
Searching for Project-Specific Expertise
When we manage the development and roll-out of a new project, we seek people with deep knowledge and skills in a specific area of expertise to help us with project roll-out and execution. This might be an individual whose services would not be needed on a long-term basis. Examples are computer programmers, graphic artists, and people with specific internet marketing skills.
One example was the reorganization of a Native Enterprise. In this situation, we pulled together an execution team that included a furniture designer, a business planner/marketer, a Native Master’s Level drug and alcohol counselor, and an engineering instructor from a local university. This competitive project was also responded to by global consulting firms whose general knowledge fell short of the specialties required.
With regard to the team, it was a life-enhancing experience for everyone involved, including the Natives we served.
Dianne Crampton, President, TIGERS Success Series
Finding Cost-Effective Specialization
I believe that the main reasons are specialization and cost. I’ll illustrate this with an example from my marketing company that specializes in SEO. Engaging in SEO requires a lot of paid software support, such as Ahrefs for data metrics, Figma for UI design, and more.
Each software costs at least $100 per month, so the monthly software cost is at least $500 to $1,000. Additionally, for beginners, many of the software features are unfamiliar, leading to strategy analysis errors and increasing the time required for SEO to take effect, thereby increasing the overall cost.
Apart from software costs, employing specialized personnel costs at least $2,500 per month, and when you factor in training and management costs, the labor cost is at least $3,000 or more.
If you outsource an SEO project, it typically starts at around $1,000 in the market, and it can also provide performance guarantees. When you calculate it this way, the advantages of outsourcing become quite apparent.
Fostering Diversity Through Outsourcing
A major barrier for organizations driving innovation today is the lack of representation among their employee teams.
This leads to homogeneous ideas and limited empathy with a brand’s end customer. Outsourcing offers a unique opportunity to bring in the diverse voices needed to spark new ideas and have an outsized impact.
For one of our clients, their IT team was about 75% less representative than their customers. With a set of highly intentional strategies, they realized outsourcing was a faster solution than the traditional attrition-backfilling method.
They brought in a new set of voices (outsourced), which ultimately impacted their culture and their service to the rest of the company, and therefore, their customers.
Harnessing Top-Tier Talent Quickly
From my perspective as a managing director at an executive search firm, one key reason I see companies opt to outsource jobs is when they want to harness specialized expertise, especially for a shorter period of time.
In the dynamic world of executive recruitment, businesses often need to find top-tier talent quickly. This demands a deep understanding of the industry, access to extensive networks, and the ability to assess executive candidates thoroughly.
Furthermore, outsourcing provides flexibility and agility. Companies may need to bring in talent quickly, but they might also need to scale down or pivot in response to market changes. Outsourcing allows them to do this without the complexities of managing a large in-house team or committing to long-term employment contracts.
Preparing for Business Expansion
When working with clients as an outsourced marketing resource, I often find that they fall into one of three categories. However, the most common reason I find is that the existing team doesn’t have the internal capability to expand into a new area that the business is trialing or looking to expand into.
This is common when using paid advertising or search engine optimization for the first time. The initial size of the investment can be prohibitive to hiring directly and can have a huge impact on the presence and reputation of the business online if not done well.
For that reason, companies choose to outsource this work in order to get the foundations of the strategy in place and assess the future resource requirements in their teams.
Managing a Heavy Workload
As a content marketer, I often outsource the jobs we don’t have time to handle. There’s an “in-between” area that forms when the workload is just a little too heavy.
It’s not enough work to justify hiring a new content writer full-time, and it’s just enough that my team can’t handle it. This makes for a handful of one-off cases where outsourcing a job makes the most sense.
Connecting Through Cultural Adaptation
From an HR viewpoint, a unique reason companies outsource jobs is for cultural adaptation and localization. This isn’t just about translation, but understanding local nuances and preferences. For instance, streaming platforms might outsource content creation to local filmmakers to connect deeply with regional audiences. Tech companies could outsource app development to align with local user habits.
While outsourcing, it’s important to understand a few things:
1. Conduct detailed market research to understand local preferences and cultural sensitivities.
2. Train and onboard outsourced teams with company values.
3. Maintain regular communication.
4. Gather and act on local feedback.
Cultural adaptation through outsourcing can be a strategic move, ensuring that businesses are not just globally present, but locally relevant.
Using Outsourcing as a Lower-Risk Option
One of the main reasons that companies outsource their jobs is that it is the lower-risk option. Instead of trying to spend thousands of dollars to bet on the best available culture fit, businesses are selecting the more flexible option by hiring freelancers.
Outsourcing in Response to Inflation
The cost of maintaining a domestic workforce is becoming increasingly difficult, and outsourcing is not just going to ESL workers abroad in countries like the Philippines and Central America. It’s also going to productivity software that helps reduce the time to conduct specific operating procedures.
We hired a developer to implement robotics-process automation, which helps shift our current domestic labor force to tasks and skills that are hard to outsource, such as in-person client visits and surveys. We are not cutting jobs, but we are constantly shifting the job descriptions.
Saving Time Contracting Reputable Experts
Channeling external expertise without investing in attracting, hiring, training, and managing in-house hires is a big reason many companies outsource certain jobs. While I believe talented individuals and teams can work just as well as outside contractors for most positions, companies need considerable time and resources to create high-functioning teams and run in-house departments smoothly.
When you outsource an operation, it frees you to focus on other aspects of your business without having to worry about your employees’ efficiency or productivity. Well-reputed contractors and agencies usually have organized processes in place, and you can trust them to deliver professional work without questioning their competence or needing to micromanage.
This is not to negate the credibility of in-house hires; it’s just a quick solution for managers who have a lot on their plate and would rather get some work done immediately than build a long-term department that functions internally.
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