History of Outsourcing: Pros & Cons
Updated: Feb 27
“MASTER YOUR STRENGTHS, OUTSOURCE YOUR WEAKNESSES”
Although outsourcing as a concept dates back to
the Roman Empire, when the SPQR outsourced grain and agricultural production while focusing on urban development and public works, strategic outsourcing only began in the ‘90s.
The main aim was not only to reduce costs but to hire experts in the field, which would complement the existing and future capabilities of the business.
In the early 2000s, however, this evolved into transformational outsourcing when on top of their expertise, the service providers were expected to find new ideas, generate innovations, and improve productivity, which has become the model of a successful business structure.
What Does Outsourcing Mean in Business at present?
Today outsourcing is a multi-billion dollar service that refers to the practice of contracting out a business process or service to an external provider rather than performing it in-house. This can include anything from manufacturing and customer service to accounting, PR, marketing, and IT services.
Outsourcing can take many forms, from simple one-off tasks to long-term strategic partnerships. Depending on the company's needs and budget, it can also involve onshore or offshore providers.
According to a Gartner survey, 74% of Logistics leaders expect their logistics outsourcing budget to increase in the next two years, and some of the most outsourced jobs are:
1. IT (37%)
2. Digital marketing jobs( 34%)
3. Development-related activities (29%)
4. HR jobs(24%)
For more such valuable stats, read our blog
Since Marketing and PR are two vital aspects of a company's failure or success and a prominent part of the annual spending, working with creative and innovative providers who can deliver faster results can make or break a company. Most of the time, outsourcing your PR and marketing services to a reputed agency may be your best choice. Here we give you a deep understanding of all you need to know about Outsourcing and how it is useful in many verticals, including a company's PR and marketing efforts.
Outsourcing remains a popular business strategy, particularly in the IT sector. IT outsourcing, in particular, has a long history, dating back to the 1950s when large corporations began using computers. Today, IT outsourcing is a multi-billion dollar industry.
Reasons businesses should consider outsourcing?
Cost savings: Outsourcing can be a cost-effective way to perform certain functions, particularly in countries with lower labor costs. By outsourcing, companies can save money on salaries, benefits, and infrastructure.
Full access to specialized skills and expertise: Outsourcing can provide access to skills and expertise that may not be available in-house. For example, a small business may not have the resources to hire a full-time IT professional, but they can outsource their IT needs to an external provider.
Focus on core competencies: Outsourcing non-core functions help companies to focus entirely on their core competencies and strategic goals. This can help them stay competitive and innovative in their industry.
Flexibility and scalability: Outsourcing can provide companies with flexibility and scalability. For example, a company can outsource customer service during peak periods to handle increased demand without hiring additional staff.
Outsourcing can help reduce costs in several ways:
Lower labor costs: Outsourcing to countries where labor is cheaper can result in significant cost savings. For example, companies in developed countries like the US, UK, or Canada may outsource some of their operations to countries like India, the Philippines, or Mexico, where labor costs are significantly lower.
Reduced overhead costs: Outsourcing can also help reduce overhead costs such as rent, utilities, and equipment. This is because external service providers are responsible for providing their facilities, equipment, and infrastructure, which can significantly reduce the cost of maintaining them in-house.
Access to specialized expertise: Outsourcing allows companies to access specialized expertise that may not be available in-house. This can help companies avoid the cost of hiring and training specialized staff and can also help them to complete projects more quickly and efficiently.
Scalability: Outsourcing can help companies scale their operations up or down as needed. This means that they can quickly adapt to changes in demand without investing in additional resources or infrastructure.
What is better: outsource or in-house?
When companies have to choose, they must weigh the pros and cons of each approach. Outsourcing and in-house operations each have their own set of advantages and disadvantages.
Let's see some pros and cons of outsourcing and In-house benefits and disadvantages.
Cost savings: outsourcing can be more cost-effective as companies can take advantage of lower labor and overhead costs in other locations.
Access to specialized expertise: outsourcing can provide access to specialized expertise that may not be available in-house.
Scalability: outsourcing can help companies scale their operations up or down quickly as needed without investing in additional resources or infrastructure.
Focus on core competencies: outsourcing non-core functions allows companies to focus more on their core competencies and strategic initiatives.
Communication and language barriers: outsourcing to other countries can result in communication and language barriers, affecting project outcomes.
Quality control: outsourcing can lead to reduced control over quality and project outcomes, especially when working with vendors who may have different standards or practices.
Dependence on vendors: outsourcing can make companies dependent on vendors, creating risk if the vendor goes out of business or fails to deliver services as expected.
Security risks: outsourcing can expose companies to security risks if the vendor is not properly vetted or if sensitive data is not protected.
However these can be avoided when you employ best practices in choosing the right PR and Marketing agency suited for your business.
Control over quality: keeping operations in-house allows for greater control over quality and project outcomes.
Stronger team relationships: in-house teams can develop solid relationships and camaraderie, leading to greater collaboration and productivity.
More accessible communication: working in the exact location can facilitate easier communication and collaboration, leading to better project outcomes.
Greater flexibility: in-house teams can quickly adjust to project needs or requirements changes.
Higher costs: keeping operations in-house can be more expensive due to higher labor and overhead costs.
Limited expertise: in-house teams may not have access to specialized knowledge or require significant training to acquire new skills.
Lack of scalability: in-house teams may be unable to scale operations up or down quickly as needed.
Distraction from core competencies: maintaining non-core functions in-house can distract companies from focusing on their core competencies and strategic initiatives.
Overall, outsourcing or keeping operations in-house will depend on various factors, including cost, expertise, quality control, and scalability. Therefore, companies should carefully evaluate these factors before making a decision.
In summary, outsourcing has a long and complex history that continues to evolve as new technologies and business practices emerge. While certain risks and challenges are associated with outsourcing, many companies see it as a valuable tool for improving efficiency and reducing costs. To decide whether outsourcing is the right choice for a company, it's essential to carefully evaluate the costs and benefits of outsourcing, assess the risks involved, and consider the company's strategic priorities and long-term goals. In some cases, outsourcing may be the most cost-effective and efficient way to meet business objectives, while in other cases, keeping operations in-house may be the better choice. Ultimately, each company must decide based on its unique circumstances and needs.
While property developers talk about locations, marketing and PR talk about connections. —Growing a business is possible when you know whom to talk to.
OUTSOURCING —this can easily be the best strategic move you have ever made to boost your business.
P.S.: Outsourcing vital functions to industry experts can be less expensive than hiring an in-house team.