Economic recession as an outsourcing catalyst
According to the latest reports, today's US economic situation leaves a lot to be desired. While economists are talking about a recession, every entrepreneur needs to have a backup plan and focus on ways to minimize the possible consequences for their businesses.
What changes can the economic recession potentially introduce into your business? According to the recent data on the US economy, the recession is going to have an inevitable influence on the increase in the level of unemployment and salary decrease. There will be less money to spend, fewer open positions, and fewer opportunities for employers to hire relevant personnel. All these factors and the reasons for their occurrence are quite obvious. Still, minding these changes is only half the matter. To keep our businesses stable, we need to think about what can be done today.
Being analytical by nature of their activity, entrepreneurs adjust their business practices to the challenges of the times. The business practice we bring up in this article is outsourcing, since its main purpose is to help companies cut labor costs and keep a focus on their main activities. As Peter Drucker, a management consultant, said back in the 90s: “Do what you do best and outsource the rest."
The reason outsourcing as a business model is never outdated is simple. Because it works. In terms of digitalization, a wide range of healthcare, financial, technological, and ecommerce companies outsource the lion’s share of their activities to contractors. We don’t expect health-related or retail companies to develop their web and mobile applications by themselves. But the truth is that their profit certainly depends on their presence across digital platforms. Thus, instead of arranging a department of software developers and other IT professionals or expanding the existing one, such companies approach outsourcing agencies.
Outsourcing as a business practice during a recession
The strategy of outsourcing as a validated business approach was established back in 1989. Since then, the aspects of its utilization have changed a lot. It is closely associated with the challenges companies are facing. Today’s competitiveness and profitability are linked not only to the quality of the goods and services and their effective promotion. The digital era has brought new tasks, advertising tools, and sales channels that companies need to manage. Corporate websites, mailings, and mobile applications are now integral parts of the product you promote.
As we know, outsourcing is the business practice of partnering with a third-party company to produce goods and perform services. And we want to emphasize that this third-party company doesn’t have to be from another country. There is a cliche that if a company decides to outsource the projects, it certainly approaches some foreign company. However, it isn’t necessarily performed this way. Today, US companies, for example, are partnering with onshore or nearshore outsourcing agencies (for example, Canadian) to cut costs and stay practical.
The primary idea of outsourcing is the reduction of labor costs. When we approach an outsourcing agency, it hires and utilizes resources not affiliated with our company to accomplish our tasks. Such agencies usually have their own compensation structures with those specialists, which makes it possible to complete certain tasks for less money.
Every entrepreneur should be honest while assessing their capabilities. You may have goals and objectives for business development that cannot be implemented onsite. The idea of having a department for every need of your business has already become obsolete. Outsourcing allows businesses to focus on their core competencies while professionals handle their ancillary requirements.
Advantages of Outsourcing During a Recession
How can outsourcing help your company break its way through increased economic instability? The company’s success is always about its profitability and the quality of its products. These are two main variables we cannot neglect, even in times of economic instability, which, according to the numbers, we are destined to face in the near future.
No matter how conservative the company is, there are some processes that are not efficient enough to be implemented onsite. Especially in terms of global digitalization. In times of economic downturns, outsourcing becomes even more relevant, or, let’s say, akin to a lifebelt for business. The key point here is that by utilizing outsourcing practices, you can cut costs for activities you don’t directly provide, save time for your main tasks, keep the personnel you need, and still get or maintain the vital digital platform for your promotional needs. It doesn’t work as simply as it sounds, but if you have a financial plan, you are already several steps ahead of your competitors and market turmoil.
Time and expense
The major advantages of outsourcing are time and cost savings. It specifically concerns indirect business expenses, such as, for example, the development of the website, mobile application, design, or any necessary enhancements to your existing software products and services. Whatever industry your company is in, such indirect expenses are inescapable in the digital era.
When a company chooses to outsource its non-core activities, it automatically avoids any expenditures on equipment. We shouldn’t forget that digital, accounting, or marketing projects are performed with the help of technology-specific software and adapted equipment. It is needless to say that in times when the prices for all goods and services will skyrocket, such expenditures will hardly be repaid, not to mention the experienced workforce needed to utilize this equipment.
The second valuable resource you and your current employees have is time. Taking it to accomplish tasks and reach goals is definitely more efficient than looking for new personnel or interviewing potential employees.
Retention of current personnel
Outsourcing will allow you to refrain from dismissals and retain your current in-house employees. Any economic recession results in an increase in the level of unemployment, partially because companies make a decision to cut their staff. Outsourcing enables CEOs to decline or at least postpone such actions, preserving company stability.
Core competencies
Another aspect of outsourcing is that it allows companies to get things done without taking a direct part in the process. It helps companies’ CEOs and CTOs focus on their core competencies. No matter how hard the economic situation is, your company has its main idea – the product, so you need to proceed with planning and achieving your objectives.
A larger pool of talent and experience
In terms of a global crisis, outsourcing allows you to hire a team of highly professional specialists you would be unlikely to find onsite or afford to employ. By means of modern technologies, the outsourced personnel can easily be present at daily or weekly meetings, share their achievements, and keep in touch with the onsite members of your team. Another advantage here is that such specialists usually have many years of experience participating in various projects.
Opposite business strategy
Outsourcing is not the only option in times of economic downfall. Postponement of promotional activities and dismissal of personnel are the measures that can be taken in contrast to outsourcing. The idea of cutting costs is certainly efficient, but it takes much consideration and planning to make the right cuts.
Some companies start reducing prices for their goods and don’t invest in promotion. In such cases, businesses usually lose their market position. The idea of business is to continue being profitable. It means that if you want your company to endure the crisis, you have to make business – advertise, sell, and invest. The postponement of activities means gradual stagnation.
Businesses that continue investing in their goods and services are likely to recover faster and more efficiently than their competitors.
Conclusion
While making a switch to outsourcing still seems to be a tough decision for many companies, the fact remains that it is a step in the right direction. An economic recession is not the end for your business. It is a challenge you need to overcome.
Due to the COVID-19 global pandemic, outsourcing as a concept has now become easier for us to perceive. It has turned out that in numerous fields, there is no negative correlation between the physical presence of the employee at the office and professionally performed work. According to statistics, today, the level of outsourcing of IT-related tasks has increased and is rising exponentially each year. Evidently, the CEOs' and business owners' tension formerly associated with outsourcing is gradually relieved.