Outsourcing in 2021 looks a lot different than it did 10 years ago. It doesn’t just involve moving factories and call centers overseas. It can include things like hiring gig workers, tag-teaming customer-support tickets, or using an accounting firm to handle payroll.
As the definition has expanded and the cost of labor has increased, so has organizations’ reliance on outsourcing. Sixty-eight percent of U.S. consumer products companies now outsource some business functions, and 37 percent of small businesses do. Outsourcing is often touted as a panacea for slashing costs and supercharging growth. But is it really all it’s cracked up to be?
Where Insourcing Really Shines
Leaders are often swayed by how much they can save by outsourcing core business functions. They’ll cite what they’ve saved in employee benefits, FICA, unemployment tax, sick leave, and overtime. They rarely consider what outsourcing might be costing them.
The truth is that keeping critical business functions in-house gives you better oversight, greater control, and often better results. Depending on the size of your organization, you might even save money by cutting out the middleman.
It should go without saying that you shouldn’t outsource your core competency. Anything that differentiates your business from your competitors should be kept in-house. Take Amazon, for instance. “The everything store” is no longer the only online retailer that sells everything from T-shirts to treadmills. But Amazon has differentiated itself by offering fast and free shipping that customers have come to rely on.
To control that aspect of its business, Amazon has begun insourcing its logistics. Amazon now delivers two-thirds of its own packages, rivaling the capabilities of FedEx, UPS, and the United States Postal Service. Logistics is now a major part of what Amazon does because they do it better than anyone else.
Not only does vertical integration save Amazon money. Taking charge of that business function also allows them to ensure a better customer experience. And what you invest in taking care of your customers can pay huge dividends over the long run.
Here are three business functions you should consider bringing in-house — even if you’ve outsourced them in the past:
Marketing is often one of the first things businesses decide to outsource, and in some cases this makes sense. The marketing landscape is extremely complex, with new platforms and channels emerging every year. Many businesses are too small to justify the expense of a large marketing team. Larger companies may have a marketing department in-house but outsource certain functions (such as digital advertising) to an agency.
But as your company grows, it can make sense to bring your marketing back in-house. For one thing, the monthly retainer for an agency or multiple agencies can add up quickly. It’s often cheaper to pay an employee to handle your social media, inbound marketing, PPC ads, and email marketing.
By keeping these responsibilities in-house, it helps ensure a unified strategy. When you have one agency managing content marketing and another doing social, communication can be a challenge. It’s also time-consuming for your internal staff to keep agency partners in the loop and provide fresh marketing material. Finally, if an agency does media buying on your behalf, you could be paying more by going through a middleman. By insourcing your marketing, you can exert greater control over that aspect of your business.
Sometimes, it’s the most unlikely companies that benefit the most from insourcing. It might seem strange for a law firm to bring its marketing in-house, but that’s exactly what Florida-based Anidjar & Levine did. The legal industry is highly competitive — especially in the area of personal-injury law. Being able to pivot quickly to capitalize on new marketing strategies provides a huge competitive advantage. Advertising was also the law firm’s second largest expense. Bringing this function in-house allowed the firm to negotiate better deals by developing direct relationships with advertisers.
2. Customer Support
Customer support is another core business function that more and more companies are choosing to outsource. It’s not uncommon to call the cable company about your bill only to be routed to a call center in the Philippines. But choosing to outsource customer support is not only a disservice to your customers. It might not save you that much in the long run.
While call-center reps’ wages are much lower overseas, outsourcing companies often package their services with all kinds of hidden fees. You could be paying hefty management fees, service costs for agents, as well as fees for additional languages and channels. Off-shore calls also result in more errors, which can drive up your average ticket cost.
But perhaps the biggest hidden cost is losing a direct relationship with your customers. You lose the opportunity to hear important customer feedback that could help you improve your product or service. When your customers have a problem, they may walk away from a support interaction without feeling heard. Even worse, an off-shore agent might not be able to resolve their issue satisfactorily. After all, nobody knows your product or service better than your own team members.
As advancements in AI make chatbots better and more lifelike, these can be a welcome addition to your support strategy. Rather than outsourcing customer support, consider a mix of automated chatbots and in-house human agents. Chatbots are inexpensive, and they can answer simple questions and help troubleshoot 24 hours a day. This frees up your human agents to field more complex customer issues over the phone or via chat.
In an effort to grow faster, many companies decide to outsource at least some aspect of sales. They may hire a company to manage their renewals or work with an agency for outbound sales. While it is possible to cut costs and close more sales via outsourcing, it’s not always the right choice.
For one thing, some business models simply can’t support outsourced sales development reps and internal account executives. Outsourcing is generally a bad fit for short sales cycles or for businesses with low average contract values. It can also be difficult for outside reps to effectively communicate the benefits of highly technical or specialized offerings. The more complex your product or service, the more an experienced in-house sales rep is worth.
An interaction with a salesperson is usually the first (and sometimes only) experience a customer has with your company. Salespeople can make a lasting impression. Do they seem knowledgeable about the product they’re selling? Can they answer any questions satisfactorily? Do they seem trustworthy? Will they stay in the loop throughout the relationship to ensure a positive experience? If the answer to any of these questions is “no,” you may lose out on potential customers.
As organizations look to cut expenses, outsourcing is usually one of the first options they consider. But many companies don’t understand the hidden costs of outsourcing: miscommunication, workflow bottlenecks, and a lack of direct customer contact. Certain aspects of your business benefit from the care and expertise of an in-house team. You shouldn’t view well-trained, knowledgeable staff members as an expense but rather as an investment.