Periods of economic uncertainty—and the operational uncertainty that accompanies them—can be challenging. However, savvy companies understand that they are expected, and rather than panic, these organizations prepare for such cycles. There are many ways to do so, including finding a flexible business model, streamlining procedures, and baking flexibility into business processes.
A big part of that flexibility should be building an adaptable workforce. Companies can cross-train employees to be prepared to take on different tasks as needed, embrace remote and flexible work arrangements to tap into a wider talent pool, leverage automation to reduce dependency on human labor, and develop a contingent workforce.
Using a contingent workforce to increase or decrease the number of workers on any given team as needed is particularly important. There are several ways to do it, including hiring freelancers or independent contractors individually or through agencies, creating a talent pool through internships, training programs, and similar opportunities, and taking advantage of the excellent talent available through outsourcing agencies.
Outsourcing is perfect for periods of economic uncertainty because it allows companies to quickly hire needed resources when things are ramping up and let them go as they ramp down. Benefits include reduced labor costs, access to professionals with the latest technology skills, and a drastic reduction in the time and effort needed to search for train, and onboard new employees. In the following sections, we explore in detail these and other benefits.
Time and Cost Savings
Outsourcing some business functions can help companies reduce operational costs, especially in the costly area of labor, in the ways listed below. This cost savings is especially helpful during periods of economic uncertainty when companies are seeking ways to trim expenses to maintain profitability.
- Labor. Hiring employees and paying for their salaries and benefits is expensive. Outsourcing firms remove these costs from company operations, often with the result of companies incurring significant savings on labor. Further, companies know exactly how much they will pay, depending on how many resources they use. Savings can be even higher if companies work with outsourcing firms in countries with low labor costs.
- Infrastructure. The need for physical infrastructure is reduced when companies outsource things like data storage and management. Companies that do so can reduce or eliminate the need for on-site servers and data centers and associated maintenance costs. Organizations that outsource labor can do with a smaller physical space to work in, or in some instances, none at all. The result is reduced costs associated with both computing and human infrastructure.
- Economies of scale. Outsourcing agencies typically specialize in one or just a few specific services or functions, allowing them to achieve economies of scale. As they distribute their costs over multiple customers, they reduce the cost per unit of service. Companies that hire them benefit from this process because the cost of the outsourced services are lower than what they would pay to retain the same services in-house.
- Access to specialized technology. Another aspect of economies of scale is that outsourcing agencies can buy expensive technology and solutions with the knowledge they will put them to full use for numerous customers. Thus, these providers often have the latest tools, infrastructure, and software licenses needed to deliver specialized services at a much lower cost than companies would pay to provide them in-house.
- Streamlined processes. Again, outsourcing agencies often do one or just a few things very well. Therefore, they have established processes, procedures, and best practices that can help businesses improve efficiency and reduce costs. For example, payroll is a process that involves many steps. A payroll processing provider can perform all of them quickly and easily while simultaneously ensuring compliance with changing regulations, ensuring accuracy, and enabling scalability as organizational needs change.
This strategy can cut costs even further because HR departments spend less time and resources on the cumbersome task of recruiting, hiring, and training new employees.
Flexibility
Outsourcing enables companies to be more flexible and adaptable, which is always important, but more critical during periods of economic uncertainty. For example, during these times, demand for products or services may fluctuate more than usual. This situation can make it challenging for companies to find the right number of people to hire and the right number of resources to use.
With outsourcing, they can quickly scale up or down these elements as needed without having to permanently invest in additional resources or deal with the complexities of hiring and firing employees. For instance, retail establishments are typically hit hard during periods of economic uncertainty because consumers and businesses alike are looking for ways to cut costs. Using outsourcing, such companies can bring on additional staff to cover busier times and quickly let them go when business slows down. This process enables businesses to manage the unpredictability of these cycles.
Outsourcing also offers geographic flexibility in that companies can expand into new markets without committing to establishing a physical infrastructure or directly hiring a large number of employees. Instead, outsourcing providers located in different regions can enable businesses to access untapped markets, provide cultural insights, and discover new opportunities.
Scalability
The slowdown of orders and inquiries that often comes during times of economic uncertainty may drive the need to scale offerings up or down quickly, depending on varying needs. However, scaling operations can be challenging and disruptive, as in the case of significant layoffs.
Outsourcing allows companies to scale up or down their workforce without the disruptions associated with internally hiring a large number of workers at one time or letting employees go. In these cases, companies can rely on outsourcing partners to provide additional resources or expertise when needed and end their assignments when needed. This scalability without internal disruptions ensures business continuity and gives teams the perfect number of human resources to achieve their goals.
Scaling technology works the same way. When companies outsource things like data storage, management, and analysis, they can quickly scale up or down their use of these services based on their needs.
Access to Specialized Expertise and Technology
Savvy companies see times of economic uncertainty as times of opportunity. It is during these periods—when they may not be as busy with standard day-to-day operations or the expected number of sales—that they can take the time to focus on foundational activities that will serve them well in the future.
Outsourcing can help in these situations because businesses can get access to the talent they need without having to make a firm or permanent investment in those resources. For example, a software development company might hire outsourced engineers to create a type of software the company isn’t sure it wants to start developing regularly, such as an enterprise application developer exploring the possibility of creating apps.
In addition to specific human resources, companies can gain access to specialized technology. Because they are commonly focused on one area of expertise, outsourcing providers typically have advanced technologies and infrastructure that they use to support it. By hiring outsourcing providers, companies can take advantage of these resources without making the substantial investment required to have them in-house. This strategy is particularly beneficial during periods of economic uncertainty when revenue is uncertain and companies want to reserve their capital by avoiding large investments.
However, for companies that do want to make major investments during periods of economic uncertainty, outsourcing services can help here too. Businesses that want to take advantage of a particular set of economic conditions to grow can do so by implementing new technologies quickly and efficiently. Outsourcing providers often have the expertise, talent, and best practices to swiftly integrate new hardware, software, or digital platforms. This kind of solution can enable a company to take advantage of unusual opportunities that might arise during uncertain economic conditions.
Risk Mitigation
During times of economic uncertainty or geo-political threats, the degree of risk increases for many companies. Take the example of a luxury goods manufacturer. Such businesses are often among the first to see a reduction in revenue based on decreased sales as consumers dial back their spending. This reduced revenue puts these companies in a position of having to dial back their own spending and prioritize which programs and initiatives to continue, which ones to pare down, and which ones to cease.
A reduction in revenue may have additional repercussions. For example, the same luxury goods manufacturer may face challenges with inventory management. They must walk a fine line between retaining enough raw materials to manufacture their products and having excess materials that go unused. The latter scenario ties up capital and negatively impacts profitability. Economic uncertainty can add to this problem in the case of supply chain disruptions.
Another risk is greater competition, which may intensify as fewer companies fight to retain customers as other businesses leave the same space. Companies may deploy aggressive strategies like heavy discounts or forceful promotional activities to gain new customers. These actions present a challenge to others’ ability to maintain high-quality standards, reputational agility, and profitability.
Finally, during times of economic uncertainty, banks, and other financial institutions may be less willing to lend money, making it more challenging for companies to secure credit and financing. The manufacturing company may have difficulties obtaining necessary loans, securing working capital, or refinancing existing debt. Such situations put the company at risk because, without these forms of financial support, it may be unable to perform the necessary actions—such as research and development—needed to ride out the economic storm.
Outsourcing can help companies mitigate these and other areas of risk in the following ways:
- Using outsourced resources, companies diversify their operations, which reduces the overall risk they face during challenging economic times.
- Companies can reduce the risk of hiring employees by utilizing outsourced employees on an as-needed basis, which increases flexibility and reduces the amount spent on hiring and maintaining internal staff.
- Companies can work with outsourced experts in inventory management, who can deploy advanced forecasting techniques and analytics to accurately predict demand patterns.
- Companies can address the challenge of intense competition by using outsourced workers to perform non-core tasks. This process enables the company to focus on its core competencies, innovate, and maintain a high level of quality that attracts customers away from others offering similar products or services.
- Outsourcing can even help with the issue of lack of access to credit and financing. Companies can hire outsourced financial experts to assist with financial management and reduce or even eliminate the need to borrow.
Focus on Core Competencies
Focusing on core competencies gives companies a competitive edge during times of economic uncertainty. As mentioned above, focusing on what they do best enables companies to do it even better and give customers more of what they want. These activities strengthen their ability to attract new customers and encourage existing customers to spend more. Such benefits are even more important in situations involving shrinking competitive pools.
Outsourcing can help by taking certain tasks outside of the company. For example, a retail company might offload such tasks as IT support, customer service, payroll processing, and other administrative functions. Using this process also has the effect of increasing the effectiveness of internal decision-making. Companies can be more strategic in their planning without having to worry about certain processes.
At the same time, outsourced providers can contribute expertise at a time when certain areas should be emphasized. For example, the same retail establishment might temporarily hire marketing experts or enjoy software outsourcing benefits by working with external tech experts to aid their internal team, determining the best way to compete in a shrinking market.
Enhanced Productivity
Many of the benefits of outsourcing that we have already discussed contribute to enhanced productivity, even during times of economic uncertainty. For instance, hiring workers who specialize in one area provides a boost in the efficiency of that area. Further, a focus on core competencies enables companies to see where they might trim initiatives or programs that are no longer useful or take on outsourced employees on a more permanent basis.
Access to advanced technology and infrastructure can speed up production and increase and decrease time to market. This benefit can be especially important during times of economic uncertainty when competition is particularly fierce. Finally, companies that outsource during times of economic uncertainty can optimize costs, which leaves financial resources available for productivity-enhancing initiatives, such as employee training, process improvements, or technology upgrades.
Improved Customer Experience
All of the above benefits can contribute to improved customer experience, which enables companies to weather economic storms much more easily. For instance, the COVID-19 pandemic forced companies to innovate in how they deliver their services, resulting in the proliferation of curbside pickup and other similar enhancements. The companies that did these things well thrived, while their competitors didn’t.
Customers also appreciate the enhanced customer care that comes when companies outsource to providers who offer robust solutions like self-service, chatbots, and other advanced technological functions. As the business effects of the pandemic recede and we move toward the next evolution of customer experience, outsourcing can help businesses move in new directions.
See the Glass as Half Full
According to a recent Forbes Business Council post, “times of difficulty and hardship can be an ideal environment for innovative businesses to thrive. Fearless innovators who challenge the status quo and embrace change can make a crucial contribution to our global economy and create new products that can help us navigate disruption.” While it may seem counterintuitive to think of challenging times as those in which businesses can thrive best, the most successful companies know that this is in fact the case.
Consider the opportunities businesses can take advantage of during such times. Slow business might mean the chance to tackle projects that have been sitting on the back burner for way too long. They might include a much-needed diversity revamp, a shift in spending priorities, or intensive research and development.
During such times, providers of raw materials are looking for customers, so those who have enough cash might be able to negotiate great deals on things that they’ll need when the lull inevitably passes. These ideas are just a few for companies that want to look at periods of economic uncertainty as times when the glass is half full.
As we have seen, outsourcing, including software development outsourcing, can contribute to such a strategy in many ways. Rather than being seen as a desperate move that companies only make when they run out of other options, outsourcing can be seen as a supportive measure that companies can take to strategically improve and come out better on the other side.
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