3 Ways outsourcing could help you to achieve your Business Goals ..!
Many corporate used outsourcing as a tool for cost cutting and improve the bottom line of the financials when they struggled to generate profit. This worked well when back end process outsourcing was started almost 30 years back. This happened from developed economies where the employee cost is high to a lesser developed place where the employee costs are cheaper compared to the other side. While this formula is still working in the SME sector in many types of outsourcing, lets analyze how can we use outsourcing as a tool for business growth in the SME sector.
Outsourcing in SME sector happens majorly at the same geography and to another SME organization. Its more of a local tie up with some organization which is known by person. Many times, it happens in regulatory, tax and technical matters. Now there is a clear trend change in the SME segment and organizations are willing to come forward in outsourcing their back-end operations such as Payroll, Collections and in some cases the customer care as well. Let’s see what’s the benefits of outsourcing an activity for a Small or Medium player in the industry.
1. Business Continuity
Every business needs to deliver on a continuous basis and when it comes to SME sector finding the right employee, training them on it and making him or her delivering what is expected is typically takes 3-6 months of time. Since the right talent is scarce in the industry, he can be offered a better package or position at any time from another organization. Once the trained employee leaves, the entire burden comes to his manager again. It’s not the burden of hiring, the first headache is to deliver his deliverables continuously till the next employee comes to the same level. This cycle continuous and it happens in every 18 months as one employee typically stays 12-24 months in a small organization which will work negative and in the reverse direction of your growth potential. You as a business owner or your first level manager, who has the primary responsibility for growth has to step in to solve this issue and stay in back end affairs. Outsourcing companies takes this burden and they are in a contract to deliver irrespective of their employee availability. These companies keep enough back up for these kinds of uncertainties. The best part is their teams are doing the similar kind of work for many other clients and its easy for them to bring one for your work.
2. Expert Services
Efficiency comes with experience and focus. With the introduction of e-commerce, online selling platforms, digital marketing, robotics etc. the business becomes more competitive. It used to be more of relationship in the local market rather than many other measurements in the services to drive sales. The technology has changed the environment where there is a clear need of efficiency in whatever we do. The word focus gets attention here, until & unless you are that big. Hotels & Restaurants are focusing on specific cuisines and dishes, Traders on very niche products and Service businesses are also drilling down to the very specific areas. If we analyze the success of many businesses in the SME sector, they have succeeded in defining the customer group and creating a strategy only for that group rather than being generalists. When the business focus on a very specific activity, the supporting functions should also work with that level of expertise. In this situation, outsourcing is the best solution rather than bringing, training & managing a team for your operations and waiting for them to generate efficiency. When you outsource to a niche market player in that particular area of service, he has already built up an expertise and system with his own focus. What you outsource here as your secondary and non-revenue generating operations, is his front end, highly focused and revenue generating activity. You might take years to get that level of expertise in between. Your busy schedule of your core business might never take you there also. Making your business load light by outsourcing the non-core activities is the very first step to grow. The prudence is the realization that, if you need to fly high, you need to make it light. Let’s take learnings from Uber, Ola, Swiggy, OYO, Alibaba, Amazon, Flipcart, etc . Just with a platform with a completely new level of outsourcing they scaled up the business to multibillion levels in months rather than trying to do it themselves. The same is true for L&T where they act as supervisors and managers in their project execution, Telecom companies outsource the active & passive infrastructure to other experts, IT companies do this in their network and server security, the examples and success stories are countless in this strategy. If you try to do it yourself, you will reach there by next week, where you could have reached by next minute.
3. Cost Efficiency
The history of outsourcing starts from cost efficiency and this formula is still true. The difference here is, you get a lot more extra along with cost efficiency. When we think about costs, there are different aspects and the top position goes to management costs. The management costs are the cost of the time, resource and thought process to be allocated to manage the activity inside, compared with doing it outside. I give the highest priority is the space it occupies at the brains rather than any other aspects. Given the fact that, one person can think only one think at a time and we all have only 24 Hrs in a day, the direction of our thought process matters. Businesses in the SME sector are supposed to be always in a hurry to grow which requires significant amount of “Time to Think” on “How to Grow” rather than “How to Manage”. When you do something inhouse, you spend more time on How to Manage where as you could have spent same amount of time and energy on How to Grow. Many business owners trapped into this at one level and even without their knowledge, they spent every day, hour and minute on How to Manage. Many of us subconsciously believe that, our job is to manage all aspects of business by ourselves. With outsourcing, we can create a self-policing system in the business which makes sure the growth is automatic. The management costs are intangible but it is realistic atleast up to the current revenue earning capacity of the business. The other costs which should be considered along with this is the costs to set up the process internally. Rent for additional space, System, Utilities, Hiring & Firing Costs, Costs of two resources when the resignation happens, training costs, Employees long term costs etc. are still some of them. The research shows that the cost of managing the employee is almost 200% of the salary of that employee. The third aspect of cost efficiency is the entry and exit costs when you are trying for a scale up. Putting all your capital to build the system is not prudent for a business man when you are scaling up, rather, you can focus on business side and test the depth of the water.