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Outsourcing has been one of the hottest trends in business in the last 15 years. Many companies have been established to handle the demand from employers looking for ways to improve the flexibility of their workforce. The question is, does outsourcing help and do the firms that provide the service work?

What is Outsourcing?

When a company goes outside their employee workforce to find someone to perform a particular task, they are said to be “sourcing” that person’s expertise and skill set. Since they are going outside the company, they are “out-sourcing” the work.

In business terms, outsourcing is essentially hiring a contractor or a consultant to participate in a particular job or task and only paying them for their work on that task. From a financial standpoint, this is meant to allow the company to avoid the costs of employing someone, which can include insurance, payroll taxes, additional support, benefits and so forth.



Recruiting

Companies that exist primarily to provide consulting services for companies that outsource their work are known by a number of names. They are called recruiters, outsourcing firms and consulting firms, but they all generally provide the same service. They provide access to skilled workers and manage their employment so the outsourcing company doesn’t have to make those people employees.

Does it Work?

While it is true some projects are less expensive to complete if they are developed and managed by consultants, other projects can be more expensive, especially if they rely on institutional knowledge or industry-specific requirements. Consultants can find themselves in a position where they need to catch up on the specifics, which takes additional billed time that may not have been part of the original budget.

The key to ensuring success with consultants seems to be well-planned and specific project requirements. Tasks that are more open-ended or that have less well-defined end goals can rapidly become very expensive, as consultants often bill at rates far above the equivalent employee’s pay rate.

Advantages

What outsourcing firms can do for companies is provide very quick access to someone with a high level of expertise. It can be very hard to find someone as qualified in the open employment market, especially in a world where it seems every job opening attracts dozens or hundreds of applications from people who are often just as likely to be unqualified as they are to be right for the position.

Capital Leverage

If an outsourcing decision can be tied to a specific project that can provide a high enough return on capital, it may be the case that outsourced task can be paid for with working capital or credit from a firm like Business Credit and Capital. Like leverage in the securities markets, this happens to be one of the few areas where borrowed money can be a tremendous advantage to a company looking for a way to expand its capabilities on a per-initiative basis. 

Like all business practices, hiring an outsourcing firm isn’t a guarantee of success. It has its advantages and disadvantages, and it is up to the company to decide if one or the other is the better path.

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