Outsourcing involves handing over non-core business processes to another company.
Unfortunately, outsourcing can lead to reduced productivity and security risks, both of which negatively affect business. As a result, many companies are reconsidering outsourcing.
Fortunately, there are many cost saving outsourcing substitutes that you can go for instead.
This article includes:
(Click on the links to jump to a specific section)
- 7 Popular Alternatives to Outsourcing
- Why Should You Seek Alternatives to Outsourcing?
Let’s dive in.
7 popular alternatives to outsourcing
Let’s take a look at some of the best alternatives to outsourcing (more about outsourcing here):
1. Adopt an extended team model
Extended teams are individuals or groups of professionals who act as extensions of the in-house team and take up equal responsibility for completing the project on time. You can control the way they work and be a part of the project actively.
They usually operate externally to compensate for the skill gap in your organization.
For example, if your team of developers is inexperienced in JAVA and C programming, you can hire an extended team. With the extended team, you can take on and complete JAVA and C programming projects.
Usually, you can also let go of your extended programmers without any employment compensations when their services aren’t required anymore.
Hiring an extended team can also reduce your employees’ workload and help them concentrate on their core competencies like conflict resolution.
And unlike outsourcing or freelancing, where the relationship ends after completing the project or task, extended teams have a long-term commitment to companies.
Additionally, extended teams usually work for only one company at a time. They can fully dedicate their efforts and resources to one company, just like a full-time employee.
While you can hire skilled employees from any corner of the world, the type of extended team you need will depend on your business requirements.
The extended team model is an effective alternative to outsourcing because of its advantages. Here’s a detailed look at those benefits:
A. On-demand scalability
An extended team lets you scale your workforce as quickly as you like. The employer can easily hire them during the length of the project and disperse them after completing the project.
However, most companies don’t have a short-term relationship with their extended team and employ them even after completing the project.
On the other hand, scaling with an outsourcing partner can be difficult. You may have to inform them well in advance about expanding or contracting the team – making it challenging to scale immediately.
B. Efficient assistance
Your extended team works closely with your in-house workers and understands your business goals clearly. And if your in-house team has limited experience in a specific area of a project, you can ask the extended team to guide them.
In contrast, your outsourcer might not be aware of your company’s culture, practices, objectives, and more. As a result, they may find it difficult to assist you properly.
You can also avoid in-house employee burnout since your extended team can take on extra responsibilities.
C. Increased transparency and collaboration
Extended teams offer better transparency and collaboration than outsourced partners.
Not only do outsourced teams work from a different location, but they also might not dedicate all of their attention to one company at a time. As a result, your in-house team may face challenges communicating with the outsourced team, hindering efficient collaboration.
On top of that, you can’t readily know the status of the work without consulting the outsourced team.
On the other hand, with an extended team, you can access any documents related to your project anytime, even if they work remotely. They give you direct access to all project information and ensure high transparency.
D. More control
When you outsource a project, you’re handing it over entirely or in part to another company.
You might not have control over the techniques they use to finish tasks or the software they use, even if it’s your project.
This lack of control can create conflict or misunderstanding between your in-house and outsourced teams. You may also feel you could have done the project better, which can leave you unsatisfied.
However, you’ll have complete control over all processes of your project if you hire an extended team. You’ll have a say in the software they use and the procedure they follow. It gives you the autonomy to guide your project even if you aren’t directly involved.
E. Lower costs
Extended teams are also cheaper than outsourcing because they can take on tasks that your in-house team can’t complete due to lack of skill, time, etc.
For example, let’s say a software development team coded half of a project before they got stuck.
If they decide to outsource, the company will have to pay for the whole project as they can’t outsource the uncompleted part alone. The economical way to go about it could be to hire an extended team to complete the coding.
Such flexibility of the extended team model makes it a great alternative to outsourcing for startups as it can improve their bottom line.
2. Hire a student
Hiring high-school or college students is one of the most cost-effective ways to complete tasks. Due to their in-progress qualification, they ask for lower salaries than qualified professionals.
You can easily find students who’re skilled developers, designers, or willing to do labor-intensive work like attending to customers.
Additionally, students and younger people tend to be more tech-savvy. You may not need to train them on IT basics, and they can easily take off on your in-house technology.
3. Hire family
By hiring a family member, you can reduce the effort and time you would otherwise spend on finding an outsourcing partner.
Additionally, hiring a family member can reduce the tax you pay to institutions like FICA (Federal Income Contributions Act). For a deeper understanding, you can do thorough research on the tax benefits of family members in your state or country.
In some cases, the hired family member will work for you at reasonable rates without asking for any benefits like a paid vacation or sick leave. These reduced costs make it an excellent alternative to outsourcing.
4. Use the barter system
You may be familiar with the idea of bartering — the exchange of services or goods in return for services or goods.
When done right, bartering can be a good substitute for outsourcing.
For example, let’s say you’re running a social media marketing agency and looking for a designer to work on your website. In return for their designing service, you could offer them free campaigns to help them get more clients.
This way, you can save on the website development costs and take on a new client.
5. Hire people with disabilities
People with disabilities can add much-needed diversity to a workplace.
Additionally, companies can get certain benefits from the government for employing people with disabilities.
Here are some of the benefits the government offers:
- A non-refundable credit for small businesses.
- Claim a reduction of $15,000 a year.
- A tax credit ranging from $1,200 to $9,600 depending on the hired employee and length of employment.
You can also employ experienced senior citizens or retired veterans in the field you’re hiring.
6. Hire a freelancer
You can easily find a suitable professional for your freelance job from any part of the world via platforms like LinkedIn or Amazon Mechanical Turk.
According to a survey conducted by Upwork, a large freelance platform, 68% of over 1000 average managers had employed freelancers in 2018.
Hiring freelancers not only gives you access to talent at lower costs but also reduces the amount you spend on infrastructure, office supplies, and electricity.
7. Hire remote employees
Since the COVID-19 pandemic, remote teams have become the norm.
As remote employees don’t work from an office, you can reinvest the money you would’ve spent on office supplies, rent, and electricity into hiring top-notch employees.
In addition, remote employees are less likely to arrive late to work since they don’t need to commute to the office. And less employee downtime means increased productivity.
Homesourcing also allows your employees to work from a place of comfort, which further boosts their productivity.
However, the distance between you and your employees (in-house employees, extended team, or freelancers) can make it difficult for you to help them be productive and monitor their progress.
Fortunately, you can do this and more with a tool like Time Doctor.
What’s Time Doctor?
Time Doctor is a performance and productivity management software used by large companies like Ericsson as well as small firms like Thrive Market to boost productivity.
With Time Doctor, you can:
- Track time using their interactive time tracker.
- Manage employee distraction using idle time tracking.
- See what your employees are working on in real-time with the screenshots feature.
- Track employee unproductivity from reports.
- Identify absenteeism using attendance reports.
- Streamline payment process using the payroll feature.
- Know which websites and applications your employee uses with website and app monitoring
Time Doctor lets you manage your extended team, freelancers, and remote employees with ease, no matter where they’re working from.
Why should you seek alternatives to outsourcing?
Outsourcing is a strategy in which a third-party company is hired to handle a business process.
Customer support, software development, invoicing, health care, manufacturing, and IT outsourcing are most common among businesses. Even investors of private equity, real estate, and hedge funds can outsource administrative tasks to optimize their operations.
In addition to streamlining processes, outsourcing can also reduce the cost of running businesses. The total expenditure of running business operations will vary depending on the labor cost, office rent, electricity charge, and other factors, which vary from country to country.
However, not all outsourcings are cost-effective.
For example, let’s say you own a UK-based call center and decide to outsource your customer support.
If you’re looking to improve your customer experience, you can outsource this task to the USA since there’s no language barrier. But this could cost you more than running an in-house customer service department.
On the other hand, if you outsource to the Philippines, you may get a similar service level at a lower cost point. Clearly, you can save a lot of money if you outsource to the right country.
Now depending on the country, you outsource to, outsourcing can be classified into:
- Nearshoring: When the company you hire is based in a neighboring country.
- Offshoring: When the company you hire is from a faraway country.
- Onshoring: When the company you hire is based in the same country as you.
Want to compare nearshoring and offshoring?
Check out our Nearshoring vs. Offshoring guide.
Sure, outsourcing offers several benefits to businesses. But it also has some downsides that might make you want to look for alternatives to outsourcing.
5 Major disadvantages of outsourcing
Here are five major disadvantages of outsourcing:
A. Delayed service delivery
Only a long-term association with an outsourcing supplier will reveal how reliable they are. You could face situations where they don’t submit tasks within the promised time — delaying the entire chain.
B. Poor security
Outsourcing involves giving another company access to your business information.
For example, an outsourcing company might have to hand over crucial customer information to their service provider. This puts their customer privacy at risk due to the high chances of a data breach.
C. Lack of flexibility
Outsourcing can limit work flexibility due to cultural and time zone differences between you and your partner, reducing the quality of the outsourced service.
For example, it could be difficult for a US-based IT company to get an immediate response from their Indian outsourcing partner — because of the time difference.
The communication hold-up can affect the quality of the outsourced service, which diminishes the benefits of outsourcing.
D. Management challenges
Internal changes in your outsourced company can affect the service they provide, which can also influence your business.
For example, you might not collaborate effectively with your outsourcing service provider if they have a work-from-home model. Such an arrangement could complicate communication between your in-house and outsourced team, which can hinder productivity.
Changing market conditions can cause your outsourcing partner to scale down or change business processes, affecting their service quality.
For example, your outsourcing partner may decide to expand their business. This can take up time from your project, decreasing the work quality and causing delayed submission.
Outsourcing is a popular solution to expanding business efficiently. However, not all companies profit from the practice.
For a business owner who has one’s hands full, outsourcing successfully can be challenging.
Fortunately, the outsourcing alternatives in this article can improve the quality of your human resource at a lower cost. These practical methods are popular across the globe due to their high success rate and convenience.
Use our comprehensive list of alternatives to make a strategic decision that suits your business requirements and budget best.
Andy is a technology & marketing leader who has delivered award-winning and world-first experiences.