Outsourcing vs Hiring: When Should Australian Businesses Choose Each?
An increase in enquiries, transactions, or administrative activity can put Australian businesses under pressure to hire new employees. However, once hired, they will stay with the organisation even during periods of decreased demand. For certain functions, there is another option – BPO services.
However, the decision to outsource rather than hire is not always made to find the cheapest solution in dollars per hour.
Reasons for Growing Businesses Facing the Decision of Outsourcing vs Recruitment
The growth does not come to all business functions at once. One company can have increased call volume after launching its new product, while the accounting department has to deal with a pile of invoices.
Hiring may seem like the natural choice. Especially when employees are already working beyond their capacity.
Before agreeing to hire one more employee, managers should understand if the situation is caused by regular work, a seasonal peak, or inefficiency in certain processes. Each case needs a different solution.
Comparison of the Real Cost of Outsourcing and Recruitment
A comparison of the salary of an employee and the outsourcing price misses many expenses related to hiring and managing both options.
Additional Costs Involved in the Hiring Process
The employer will have to cover recruitment, onboarding, superannuation, leave benefits, training, equipment, software, and supervision. During low-demand periods, the business will pay for unused capacity.
Impact of Outsourcing on the Cost Structure
The provider takes responsibility for staffing, infrastructure, and managing a part of the workforce. The client will have to invest in process documentation, transition, supervision of the provider, and minimum requirements of the contract.
| Cost factor | Hiring | Outsourcing |
|---|---|---|
| Recruitment and onboarding | Managed and paid internally | Usually managed by the provider, client will have to perform transition |
| Infrastructure and equipment | Usually provided by the employer | Usually covered by the provider |
| Workforce management | Responsibility of the manager | Shared through contractual management |
| Flexibility in terms of capacity | Requires making staffing decisions | Depends on the contract terms |
When it is Better to Use Business Process Outsourcing
The idea of outsourcing should be considered if the process is clearly defined and an external team is able to perform it without making key decisions. There are four circumstances that indicate such a situation.
Fluctuating demand.
Seasonal sales, promotional campaigns, or changing enquiry volumes can cause a period of high demand. Additional capacity can be needed if staffing can be adjusted according to the agreed parameters.
Routine and repetitive processes.
Customer support, data entry, and administrative processing usually are performed according to documented procedure. Such activities are easier to transfer and supervise than those which involve a lot of judgement or undocumented knowledge.
Urgent need for capacity.
If there is a well-established provider with appropriate staffing and systems, he may be ready to start the work faster than the business will be able to recruit and train employees. The lead times still need to be checked.
Limited management capacity.
Another internal team will need supervision, scheduling, and performance management. Outsourcing can decrease some day-by-day responsibilities. However, the business still will need to allocate a manager who will take care of the supplier.
When Hiring Makes More Sense Than Outsourcing
Permanent hiring can be more beneficial in case if the job involves a lot of knowledge of the company or requires interaction with other departments or senior management. Planning of strategy, negotiating with clients, or performing other activities involving commercial judgements may not be easy to perform independently of the internal team.
Sensitive jobs may require more control than certain outsourcing arrangements can give. Some issues can be solved by introducing security controls. However, not everything can be transferred.
If the demand is constant and predictable, a full-time employee will provide better stability and productivity. The business will be responsible for training, prioritising, and professional development of the employee.
Fixed Staffing Costs vs Flexible Operational Capacity
Permanent staffing gives the predictability of availability but leads to the permanent obligations of employment. An outsourcing service can offer a different approach – the business will purchase certain amount of work, coverage, or staffing capacity which can be adjusted.
Imagine an Australian retailer receiving two times more enquiries from the customers than regularly during a major sales campaign. Hiring additional support staff permanently may lead to underemployment of these employees after the peak. A provider who will be able to provide additional coverage for some period can be a more suitable option.
Minimum fees, notice period, and volume limitations can limit the adjustment opportunities. When evaluating outsourced operations, it is important not only to check the terms of the contract, but also to evaluate if the service level is maintained through the change of demand.
Operational Risks Related to Business Process Outsourcing
The outsourcing changes the approach to controlling the work. Poorly documented procedures may lead to inconsistent answers, mistakes, or delays in processing of unusual cases.
Data protection and security should be especially carefully considered when customer or financial data is involved. Dependence on the supplier is also an important factor. Replacing a poorly performing provider may take longer than expected.
Before the process is transferred to the supplier, businesses should come to an agreement on the responsibilities, escalation process, reporting, access control, and measurable quality of service expectations. The phased transition will give an opportunity to identify issues before the large volumes are processed.
How to Determine What Business Functions Should be Outsourced
Each function should be evaluated separately. Business process outsourcing (BPO) does not have to cover the whole department. The finance department, for example, may decide to keep forecasting and approval inside the company while using an external service for processing invoices.
Six questions can help to make the decision:
- Is the demand predictable?
- Can the process be documented and repeated?
- What is the total cost of each delivery method?
- Who will supervise the work?
- What risks related to operation or compliance are involved?
- How much is the function connected to strategic decisions?
If the answers show the advantage of outsourcing, a contained process with well-defined quality criteria should be tested. The results will be evaluated, and then the decision will be made on further actions.
Making the Best Decision on the Way of Long-term Business Development
Outsourcing and hiring are different ways of obtaining the operational capacity, each having its own costs and management responsibilities. The better decision will depend on the nature of the work, patterns of demand, total cost of delivery, and required control.
For many businesses, the right decision will be a combination of both approaches. Internal employees will be responsible for specialist knowledge, seniority, and sensitive decisions. The external provider will handle the defined operations. The goal is to make an effective model of staffing.