‘Do what you do best and outsource the rest’ – Peter Drucker (1989)
Outsourcing involves the contracting out of a business process to another party. Small businesses routinely outsource their payroll processing, accounting, IT, marketing, and many other important functions — often because they have no other choice. Many large companies turn to outsourcing to cut costs.
‘Do what you do best and outsource the rest’ – legendary management consultant Peter Drucker (1989). From Drucker’s perspective, a company should outsource functions in which it has no special ability and take advantage of a specialist provider’s knowledge and economies of scale to improve performance and achieve the service needed.
The benefits of outsourcing include:
- Reduces capital costs – Outsourcing cuts costs by converting fixed costs into variable costs so capital is released for investment elsewhere in your business.
- Focus on your core business – Every business has limited resources, and outsourcing can help your business to shift its focus from peripheral activities toward work that serves the customer.
- Increases efficiency – An outside provider’s cost structure and economy of scale can give your firm an important competitive advantage.
- Reduce labour costs – Outsourcing lets you focus your human resources where you need them most.
- Levels the playing field – Most small firms simply can’t afford to match the in-house support services that larger companies maintain. Outsourcing can help small firms act ‘big’ by giving them access to the same economies of scale, efficiency, and expertise that large companies enjoy.