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Updated: 25th April 2023
The chances are you know all about outsourcing and could reel off a ton of outsourcing examples at the drop of a hat. But did you know that high-growth firms are more likely to outsource to agencies, firms and freelancers than no-growth firms (according to the Hinge 2022 High Growth Study)? Or that a whopping 70% of B2B decision-makers have outsourced key services (according to YouGov)?
That’s right, outsourcing isn’t just about employing a third party to handle tasks you don’t fancy doing yourself – instead, it can be a strategic decision that helps you attain specialist skills and grow your business in ways that you might not be able to with in-house talent alone.
Here, we’ll cover everything you need to know about outsourcing – from what it is to how to decide which areas of your business to delegate to a third party.
What is outsourcing?
Outsourcing is when a business delegates a task or responsibility to a third party. While it can happen in-house (for example, a team might decide to delegate a task to another department), it usually happens externally, with one brand outsourcing to another.
Companies can choose to outsource almost any aspect of their business – from HR to marketing, customer service to manufacturing (which would also be categorised as a supply chain partnership).
Data from YouGov shows that IT is the most frequently outsourced function in the UK, with over a third of British businesses (34%) having at some point outsourced it to a third-party supplier. Payroll isn’t far behind at 28%.
Why do brands outsource?
Often, brands will choose to outsource because they lack the time, money, resources or expertise to carry out a task in-house. This might be because the brand is looking to scale and they don’t currently have the in-house resources required to do so. Or it could be because a brand is too small to warrant appointing a full-time employee for the task.
Remember, hiring employees requires you to fork out more than just an employee’s salary – you’ll also need to consider the cost of a workspace, equipment, training and benefits. Plus, you’ll need the correct insurance and to cover HR requirements such as sickness, absence and holiday requests. None of these are required if you decide to outsource to another brand.
On top of this, there’s a battle for top talent in many industries. If you’re struggling to attract highly skilled professionals to work for you in-house, outsourcing could be a fantastic way to attain specialised talent you wouldn’t otherwise be able to access.
For tech brands, another consideration could be the need to avoid a single point of failure. If a brand builds all its own technology and processes, and relies on them to manage and protect its own technology and processes, that can become problematic when something goes wrong. In fact, this is a lesson that was demonstrated loud and clear by Facebook's worst-ever outage. By partnering with tech providers, companies can better avoid a single point of failure and they'll have more options if things do go wrong.
At the end of the day, there are many different reasons why a brand might choose to outsource an element of its operations. Although outsourcing is often seen as a cost-cutting measure, there are many more considerations – from the opportunity to learn from a partner’s expertise to the freedom to focus on what you do best or the ability to access a flexible workforce without the long-term commitment.
How does an outsourcing partnership work?
Usually, outsourcing involves one brand paying another to carry out certain responsibilities.
We know what you’re thinking: what actually makes this a type of strategic partnership as opposed to just a standard customer/supplier relationship? It’s a good question and one that doesn’t always have an easy answer.
Usually, a strategic outsourcing partnership involves a more intimate relationship than simply paying another brand to fulfil a specific quota. It will often involve both brands sitting down with one another to regularly evaluate how the partnership is working and what they can do to make sure it brings maximum benefit to both parties. Ideally, the partners should also have a shared vision and strategy, and there shouldn’t just be one brand taking on all the risk.
Another factor that we’d argue could be grounds to classify an outsourcing agreement as a strategic partnership is if a third party becomes an integral part of a business’ identity. For instance, if a business outsources customer service, its partner brand will be communicating directly with its customers on its behalf. To do this successfully, the partners would have to work closely together to align on elements like tone of voice – that sounds like a partnership to us!
Ultimately, there’s no clear definition so the answer won’t be black and white. But it’s worth noting that an outsourcing partnership doesn’t actually have to be transactional at all.
Instead, brands could do an ongoing skill swap (for example, a computer repair shop could offer a discount on repairs in exchange for website design). Or they could come to an agreement whereby they both agree to use the other’s services exclusively, in exchange for a discount. The options are endless!
What’s the difference between an outsourcing partnership and a supply chain partnership?
A supply chain partnership is when two (or more) brands team up from different parts of a supply chain. Essentially, it allows businesses to outsource the manufacturing of products to a supplier, saving them time, money and resources.
In a way, supply chain partnerships are a type of outsourcing that involves delegating the manufacturing of a product. However, they come with their own unique set of benefits, challenges and considerations – so, they’re often seen as their own unique partnership type.
Have a read of our selection of supply chain partnership examples to see what these partnerships can look like in practice.
Outsourcing pros and cons
Up until now, we’ve pretty much only focused on all the good things that this type of B2B partnership could bring to your business. But it’s not all sunshine and roses. Before you take the plunge, make sure that you weigh up these pros and cons.
- Prioritise: Outsourcing allows a brand to focus on gaining more revenue by doing what it does best.
- Save time: By outsourcing lengthy tasks and operations, brands can save time. And as we all know, time is money.
- Scale: Outsourcing tasks like customer service and telemarketing can allow a brand to scale more quickly than it otherwise could, given its limited resources.
- Gain expertise: Delegating tasks to dedicated experts can improve quality, especially when it comes to areas that require a great deal of knowledge, like IT or finance.
- Learn from a partner: In some cases, outsourcing to a third party can be a great way of upskilling your in-house team, as they learn from your partner brand.
- Leverage reputation: In some cases, partnering with a well-known brand can help to improve the reputation of your brand and its products.
- Quick solution: Outsourcing could allow you to get a new function up and running within a few days – plus, you’ll be gaining an expert as opposed to someone who needs to be trained up, saving you time in that regard too!
- Flexibility: Rather than committing to a permanent hire, outsourcing lets you choose how much support you need and for how long, altering it to your needs as you go.
- Differing priorities: The brand that’s outsourcing will usually be most concerned with quality, while the supplier will usually be most concerned with cost. This can lead to conflict.
- Sacrifice in quality: Partnering with the wrong brand could lead to a compromise in quality.
- Impact retention and acquisition: If quality is compromised due to outsourcing, this could negatively affect your retention and acquisition.
- Lack of control: Outsourcing requires trust. You can’t always see exactly what your partner is doing, so you’ll need to be able to trust them to deliver the results they’ve promised.
- Higher costs: Outsourcing expertise such as IT support and accounting may cost more per hour than hiring a full-time employee. Small businesses that only need a few hours here and there will likely save in the long run but as you grow, it’s important to reassess your ROI.
- Loss of identity: It’s important not to outsource the aspects of your brand that set you apart from your competition. This could see you losing part of your brand’s identity.
How to decide what to outsource
There isn’t a ‘one size fits all’ answer when it comes to what tasks you should outsource and when. Every brand is different and has different needs. However, if you’re wondering whether or not you should outsource a task, here are some questions to ask yourself to help you decide.
- Which tasks do you find most painful or time-consuming? Relinquishing these may allow you to focus on what you do best.
- Which tasks are a drain on your finances or resources? Delegating these tasks could help you boost your profitability or allow you to redirect those funds or resources elsewhere.
- Which tasks could a supplier do better? Consider whether there are elements of your business operations that a supplier could do to a higher quality than you. Where do you lack expertise or top talent?
- Where would you feel comfortable relinquishing control? Outsourcing to a supplier requires you to give up some control – you won’t be comfortable doing that in all areas.
- Where would you most appreciate flexibility? Outsourcing could give you the flexibility to scale your resourcing up and down in line with demand, as opposed to committing to a long-term hire.
- Which tasks are most integral to your identity? These are tasks you should avoid outsourcing, as this could take away from your magic sauce!
Ultimately, it’s really important to recognise which aspects of your brand set you apart from your competition – these are areas of your business that you should avoid outsourcing and should stay in tight control of. On the other hand, processes that play more of a functional role for your brand are processes that should be strong contenders for outsourcing. Doing so could help you to gain expertise, increase efficiency and save time or money.
Just be aware that deciding which tasks to outsource and which to keep in-house shouldn’t just be a one-off process. Instead, it’s important to regularly reassess the benefits of delegating to a supplier (or maintaining a task in-house) as your business needs shift and change. For instance, as your business grows and gains more employees, you might find it becomes cheaper to move some tasks back in-house, particularly when it comes to things like HR and finance.
All in all, outsourcing can come in lots of different guises. While some outsourcing partnerships border on the transactional, others are fully-fledged strategic partnerships that involve brands working together to receive a similar level of benefit.
To learn more about outsourcing, make sure to check out our outstanding outsourcing examples. Or, if you’re feeling ready to outsource some processes of your own, why not start the hunt with Breezy? Simply book a demo so we can show you how Breezy can recommend thousands of potential strategic partners that could be the perfect fit for your brand.
Imogen is a copywriter and content writer with over two years’ experience writing about the exciting world of strategic partnerships, as well as running her own business. She loves learning about new topics as she writes, and has enjoyed penning articles on industries ranging from mortgages to events, theatre to home improvements and everything in between.View more by Imogen Beech