Small Business And Outsourcing, Advantages Essay

4037 words - 17 pages

ADVANTAGES OF OUTSOURCING
CORE COMPETENCY
Most small businesses are stemmed from individual or individuals having expertise, knowledge, talent, or technical background in a skill set or trade. This is what is known as core competency. Hanfield and Nichols (2002) describe core competencies as the activity that is best suited for the individual or partners to perform. An example would be electricians that have electrical experience and they start their own electric company providing residential wiring, electrical hook-up, lighting, and fixtures to their customers. Their core competence is electrical work and not accounting or human resource. Therefore, it would make sense to outsource other activities or function of the supply chain in order to focus on the core competency of what they do best which is electrical work. Saxena and Bharadwaj (2007) emphasize that understanding the companies’ core competencies is the basic form of strategic decision making to determine what activities or processes that need to be outsource. When owners don’t focus on their core competencies, they are taking risks that their revenue stream will plateau or even suffer. The decision to outsource activities outside of the core competency allows owners to focus on their trade or skill to increase revenue and maximize profits. Barrar and Gervais (2006) discuss the need for companies to focus on core competencies and to outsource non-essential activities to be effective in conducting business. When you spend too much time on other activities other than your core competency, your company begins to suffer with no opportunity to grow. Therefore, outsourcing can aid in decision making for owners to focus their attention on the business and serving their customers more efficient.
LABOR COST
When most people think of outsourcing, one of the first things that come to mind is reducing employee cost. One of the most expensive costs a business will incur is labor cost if not the most expensive cost. Recruiting, hiring, and training new employees can become a burden for some businesses. Also, the additional cost of health benefits and payroll taxes can be costly to any small business. As more potential employees graduate with higher degrees, the cost of salaries will increase. Therefore, the need to outsource for small businesses to keep prices down and stay competitive is vital to success and “seeking low labor costs could easily become a mantra at the expense of common sense” (Pyndt & Pedersen, 2006, pg. 208). Most of the tasks that are generated by your employees could fit either highly repetitive task, specialized knowledge task, or highly skilled task. An example of highly repetitive task could be something that requires a lot of data entry or key punching. An example of specialized knowledge task could be a computer programmer that writes code for your company. An example of highly skilled task could be your CFO or legal expert. All three of these types of task can be...

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