Outsourcing can build better business for SMEs

Any organisation, either small or big, faces problem to keep pace with the technological development. Even though, big players can overcome with the technology-led transformations but for small enterprises an up-to-date technology platform is still a constraint. Every entrepreneur or businessman eyes for a top-most position for his/her organisation but the quick course of technology makes it difficult for SMEs to remain on top of trends.

 

In such scenario, small businesses may consider to pass on or outsource some or all of their IT systems or processes. With the adoption of outsourcing practice, SMEs will not only experience mass reduction in cost but it also allows them to focus on their core expertise like IT, Hotels, Health etc while hiring other people or respective organizations to manage other services like data entry, employee database, housekeeping, customer support and so on.

 

 

 

What is Outsourcing?

 

Outsourcing is the process of contracting out certain non-essential or non-core processes of a company to a third-party with proven expertise in the field.

 

 

 

The key market segments in outsourcing are business process outsourcing (BPO), IT outsourcing (ITO), knowledge process outsourcing (KPO) and HR outsourcing.

 

 

 

Business Process Outsourcing (BPO): In this segment, business-related activities or the non-core business like data backup, customer service and maintenance are outsourced.

 

 

 

Technology Outsourcing: This segment incorporates the outsourcing of  IT-related activities of the company. Various IT companies have started dedicated business practice focused small and medium businesses (SMBs) and offer complete outsourced solutions including hardware, software and applications designed for small businesses. IT outsourcing reduces initial capital constraint of the SMEs.

 

 

 

Knowledge Process Outsourcing (KPO): Over the years, KPO emerged as a new process to outsource knowledge-related work to third party service providers who holds specialization in this field. This includes processes of high level of domains like data analytics and investment research.

 

 

 

Finance and Accounts Outsourcing: The financial aspects of a company including account keeping and auditing are outsourced to the professional service providers within or outside one's country. For SMEs, cost of hiring CFO is a larger problem so now-a-days several SMEs are opting for outsourced CFOs.

 

 

 

Human Resource (HR) Outsourcing: The outsourcing of the basic HR functions like payroll processing, formulating and implementing

HR policies, hiring and induction, employee training, performance management system, etc. to an external service provider, is in today. The outsourced HR function makes it affordable for SMEs to have systems and processes that are hitherto utilised only by large corporations.

 

 

 

Why to outsource?

 

It is believed that single-mindedly concentration on the most important task is the key to great success, achievement in businesses. Besides, various business theories also indicate that focus on core areas of the business provides advantage over the rivals sending-off non-core activities to be performed by other firms.

 

 

 

Apart from this, there are other reasons that why companies opt outsourcing:

 

(a) Perks up company’s focus on core business – The adoption of outsourcing allows owner to concentrate on core business activities. It not only allows managers to set priorities of business more clearly and reap more profits out of it.

 

 

 

(b) Reduces operating costs – This is best part of outsourcing that it reduces overhead costs and capital expenditures of the company. For instance, by outsourcing, a firm could not only save salary costs but also pension and other benefit costs.

 

 

 

(c) To deploy competitively priced resources – Outsourcing also lets companies to deploy resources that are cheaper than that offered by the competitors and those are more attractive on the back of added incentives.

 

 

 

(d) Reduce risk – Outsourcing also reduces peril s like appointing right person for project, capital cost, labor cost, and focus on core business.

 

 

 

(e) Quick initiation of new projects – This is an another positive aspect of outsourcing strategy. A proposed business idea for the enrichment of the company may be outsourced for quick implementation because starting a new project in an organization may take months.

 

 

 

Why has the SME market not embraced outsourcing to a greater extent?

 

Outsourcing practice is under utilized by SMEs as small businesses contracting with outsources is a costly deal. But it is not important to contract with big outsource service providers, SMEs can turn up to micro outsourcers, wherein firms can attain  process efficiencies and cost savings by outsourcing tasks  to skilled freelancers or independent businesses (service providers) based locally, nationally.

 

 

 

Benefits of micro outsourcing for SMEs:

 

- To gain process efficiencies and increased effectiveness

 

- Reduces overhead costs and capital expenditure

 

- Firms can deploy resources which are more attractive because of added incentives

 

- Access to skilled resources

 

In the wake of technological development, outsourcing strategy has become more accessible tool for small businesses and has made it a powerful impact on their growth, productivity and bottom lines.

 

 

 

Right time to Outsource

 

Small companies are short in time and workforce and in order to grow their business they opt to outsource their regular work like accounting, payroll processing, distribution and many other functions. SMEs should adopt outsourcing practice so as to take advantage of this emerging phenomenon.

 

 

 

Some companies have in-house staff to handle daily activities, but in order to undertake new projects that don't call for another full-time employee companies may need outside help. To be more precise, when current employees are unable to manage the day-to-day business and are also not capable to build the business satisfactorily, then the company should mull over outsourcing strategy.

 

 

 

Conclusion

 

Several small companies outsource their regular work like accounting, payroll processing, distribution and many other functions. However, big companies outsource to cut down the cost. SMEs should adopt outsourcing practice so as to capitalise on this emerging phenomenon as it is an effective method to help businesses to reduce costs and improve processes.