Outsourcing to build capability

Outsourcing is the contracting out of a business function to an external provider, rather than doing it yourself. Businesses of every size outsource certain functions. You don’t need to own a bank to have a bank account or run a cell network to make a call. A rapidly growing business can also use outsourcing to add expertise, either by introducing a new service or by contracting out a particular business function.

Mature businesses may see outsourcing as a way to reduce costs and gain efficiencies. They may contract out activities already done in-house, such as human resources or information technology services, or they may find an outsourcing solution that creates a new customer benefit, such as a 24-hour customer hotline.

Business owners often outsource to focus on their core business.

What tasks can be outsourced?

The first task is to conduct a thorough review of your business practices and look at where you’re spending the most money. When you do this, keep the following in mind:

• For each task, consider how much time you’re spending on it or your employees, and ask if that time wouldn’t be better and more profitably spent elsewhere.
• Decide if it’s cheaper to outsource the task than to pay an employee to do it

The great thing about outsourcing is that it frees you up to spend more time in activities that grow your business.

Short-term projects

If you have a need for either new skills or more staff to fill a sudden increase in sales, and you’re unsure if you need a full-time person, consider hiring contractors for a short-term project. Whether it’s for a couple of weeks or a few months, hiring a contractor fills the gap and lets you identify if the need is permanent. If the demand or need subsides, you can end the contractor’s role without the same issues as with a full-time employee.

By bringing in a contractor for short-term projects, you’ll:

• Gain access to their expertise. A key benefit of hiring contractors for many businesses is the ability to quickly adapt to changing skill demands.
• Gain access to people fast. If you’re hiring, you can probably get a consultant more quickly than an employee who is required to provide notice to existing employers.
• Decide whether the demand for the skill is sustainable and, if so, eventually hire a full-time employee.
• No need to provide the usual employee benefits such as holiday pay, sick pay, employer taxes, pension or superannuation payments.

Hiring contractors for short-term projects allows your business to remain flexible, responsive, and cost-effective while addressing immediate needs.

Build capacity and capability

Contracting doesn’t always have to be for labor. You can also contract other businesses to help with any short-term demand issues. For example:

• Having similar businesses take any surplus demand you are unable to handle.
• Access specialized machinery or equipment that is uneconomical to buy or lease, but you could borrow or pay another business to access.
• Be able to consider new work, joint ventures or projects you currently either can’t deliver or don’t have the capacity to deliver on your own.

When you partner with another business, it can help you expand your capacity and capabilities, enabling you to meet demand and explore new opportunities without the long-term commitment.

Making contractors cost-effective

Contractors often quote a set hourly rate or a project rate. To make sure you’re getting value, you should:

• Watch out for scope creep, where the contractor quotes a low price to get the work, then expands the work or takes longer than you thought.
• Eliminate any unforeseen blowouts, such as allowances, materials, and product selections, by limiting the contractor’s ability to buy on your behalf.
• Pay in installments each time a specific task within the project has been completed to your satisfaction.
• If you’ll need them for a longer period, ideally, re-negotiate a lower rate, as usually the longer the term, the better value it should be. You’d expect to pay more for a person for a day than for a year.

Getting the most out of contractors is about making smart decisions when you hire them (reference and reputation checks), ensuring you have a clear description of what you want them to do, and working out clear contract agreements.

Next steps

• Review your current business operations and pinpoint functions that are time-consuming, costly, or outside your core expertise that could be handled more effectively by external providers.
• If facing a sudden surge in demand or skill requirements, consider hiring contractors for specific projects to allow flexibility without committing to full-time employees.
• Look for other businesses that can help you manage overflow work, share resources, or collaborate on new projects to build your capacity without the long-term commitment.
• When working with contractors, set clear expectations, manage scope creep, and structure payments in stages to ensure you get the value you expect.

It’s worth any business owner’s time to take a careful look at the range of tasks in their business and seriously ask themselves whether keeping employees on staff to perform those tasks is cost-effective, or whether they could be done faster, cheaper, and more effectively by outsourcing them. Although this is particularly true of administration and IT, it’s still worth your time to decide if other tasks could be delegated to a contractor as well.