Top 16 myths and misconceptions of outsourcing

What are the most common myths and misconceptions of outsourcing?

The most common myths and misconceptions of outsourcing say it means lost control, poor quality, and job loss, but the facts show otherwise.

• Outsourcing does far more than cut costs.
• It works for small firms, not just big ones.
• As a result, the right partner can help your business grow.

Common misconceptions of outsourcing – updated!

Many people have heard of outsourcing. Still, many do not understand it. So they judge it based on myths they hear from others. As a result, biased views spread and grow.

We have updated this article for you. So read on and enjoy.

Common outsourcing myths:

We debunk these common outsourcing myths, so you do not have to:

• Outsourcing myth #1: Outsourcing makes you lose control of your business
• Outsourcing myth #2: Outsourcing only an exercise in cutting operational costs
• Outsourcing myth #3: Outsourcing guarantees lack of product or service knowledge
• Outsourcing myth #4: Only accessible to big businesses
• Outsourcing myth #5: Outsourcing will compromise your company’s privacy and security
• Outsourcing myth #6: Outsourcing means offshoring: there is no difference
• Outsourcing myth #7: Outsourcing delivers low-quality services and outputs
• Outsourcing myth #8: Outsourcing weakens the economic status of the country
• Outsourcing myth #9: Outsourcing contributes to the unemployment rate
• Outsourcing myth #10: Outsourcing is unethical
• Outsourcing myth #11: Outsourcing is not a long-term solution
• Outsourcing myth #12: Outsourcing is only for established businesses
• Outsourcing myth #13: IT outsourcing is way too complicated for small businesses
• Outsourcing myth #14: Healthcare BPOs can increase expenses
• Outsourcing myth #15: In-house sales force is cheaper than outsourcing
• Outsourcing myth #16: Outsourcing your sales force destroys company branding

One popular myth says outsourcing only cuts costs. It also claims that only cost-focused firms use it. If left unchecked, this view can skew your decisions. In addition, many firms fear outsourcing because it shares private data with third parties. We cover that myth below too.

So what does outsourcing do? It lets a third-party provider perform a task for a client. Handing work to others worries many firms. For example, they often question the quality of the provider’s work.

Are the outputs aligned with company goals? Does the provider deliver high quality? Is company data safe with them? This article answers all of these questions.

Beyond security and quality, many worry about scope. Is outsourcing only for big firms? Will you lose control? Is it only for established businesses?

These questions can make or break a decision. So uninformed leaders may miss the chances outsourcing can bring.

Outsourcing myths debunked

Business Process Outsourcing (BPO) has long been clouded by myths. People often gather biased views from weak sources. So they believe hearsay and naysayers.

Online sources are often to blame. There are many one-sided arguments posted online. So it is better to consult experts when you weigh an outsourcing decision.

Despite the myths, the industry keeps growing. In fact, the global outsourcing market is projected to reach about $525 billion by 2030. So the sector stands on a strong, steady base. For more data, see the latest outsourcing statistics.

So do not fret. This article debunks 16 myths and misconceptions of outsourcing. Left unanswered, these myths could hurt your future business choices.

Outsourcing myth #1: Outsourcing makes you lose control of your business

Firms of any size let providers handle specific tasks. That is how outsourcing works. For example, a company may outsource accountants for payroll or receivables. Those accountants only work on the assigned tasks, no more and no less.

So they get no real authority over other matters. The key word here is significance. Two questions help you check:

1. Do they have real control over key business areas?
2. Do they have real sway over upper management?

If they do, then maybe they are not a BPO at all. Firms hire BPOs to reduce non-value-added work. These are tasks that do not raise the quality of products or services.

Non-value-added tasks are also called non-core tasks. Their opposite is value-added work. These tasks add value to a product or service. In addition, they help achieve the firm’s core goals.

So how do you tell them apart? Value-added tasks share these traits:

1. The task causes a real change in the product or service.
2. The task is not rework. So it is done right the first time.
3. Customers would pay for this task.

Example of outsourcing misconceptions

Let us use an example. Say Arizona Electronics has a deal with New York Manufacturers, Inc. to build one of its phones. New York Manufacturers will buy, process, assemble, and pack the product. So which tasks are value-added and which are not?

First, processing direct materials is value-added. Assembly and packaging are also needed to make the product saleable. So these are value-added too. Still, some processes only keep the line moving.

For example, processing a purchase order, using storage, moving finished goods, and quality checks are not value-added. Yet they are still needed for operations.

Non-value-added tasks add to cycle time. That is the total time to deliver a product or service. So firms should cut these tasks to lift efficiency. As a result, the value-added ratio goes up.

To measure this, first build a process map. Next, mark which steps add value. Then add the total cycle time in hours or days. After that, add the time for all value-added tasks. Finally, divide value-added time by total cycle time.

Outsource non-core activities

Keeping non-value-added tasks low helps cut costs. However, letting a BPO handle them helps even more. So it keeps your lines moving well.

Hiring full-time staff only for non-core work wastes resources and talent. The main reason firms hire BPOs is to gain more control of their people. They want in-house talent free from tasks like payroll slips.

So when a BPO handles non-core work, the firm gains full control. As a result, staff focus on the mission, vision, and goals.

In fact, the Deloitte Global Outsourcing Survey found that 78 percent of respondents felt positive about their providers. So most firms that outsource are not stifled by their partners.

Outsourcing myth #2: Outsourcing only an exercise in cutting operational costs

The last myth showed how outsourcing frees your talent for growth. However, BPOs do not only handle tasks like payroll and customer service.

Yes, BPOs can cut costs. Still, cost is not the only benefit. BPOs provide services and talent. So firms can hire them for strategic goals. For example, some offer crisis management for scandals or issues. To see the full picture, review the advantages and disadvantages of outsourcing.

Outsourcing doesn’t just save costs

Cost cutting is just one of the benefits of outsourcing. In fact, it mainly targets fixed costs. For example, say Arizona Electronics wants better IT. It hires an IT expert for $50,000 to $90,000.

Beyond that expert, a full team needs tools and facilities. So that means more fixed salary costs.

On the other hand, an outsourcing company costs a fraction of that. So Arizona pays far less than it would for new in-house staff. In addition, the provider supplies strong talent for the job.

In other words, the client gets top service at a lower cost.

Firms can also outsource financial and management consultants. This is smart when a company is growing. Remember, BPOs profit from talent. So when a BPO helps a client through trouble, its credibility grows.

So cost is not the main reason outsourcing is popular. BPOs offer many benefits beyond savings. In fact, the Deloitte survey found firms outsource to cut costs (59 percent), focus on goals (57 percent), and solve capacity issues (47 percent).

Outsourcing myth #3: Outsourcing guarantees lack of product or service knowledge

People who use call center support often complain about quality. For example, they may feel an agent cannot solve their concern.

Agents usually follow a set script. This becomes a problem when the issue is not solved. So over-reliance on scripts can suggest weak product knowledge. As a result, outsourcing gets a bad name.

Many firms question whether providers can do the work well. Still, starting a BPO is not easy. Some think you just gather people who can do a task.

However, outsourcing runs much deeper. It is not just doing a task. It is doing it with real experience and expertise. So BPOs learn their services deeply, then offer them to firms that need them.

The core of outsourcing is care for its services and clients. The goal is to do the job right, at the best quality. Because of this, BPOs commit to constant learning.

If their knowledge is outdated, they would enter a battle with sticks against tanks. So they keep their skills sharp.

In the Deloitte survey, more than 50 percent said third-party advisors added value. For example, they helped with strategy, business cases, vendor selection, and contracts.

Outsourcing myth #4: Only accessible to big businesses

BPOs may prefer bigger clients. Still, they do not shut out small firms. In fact, small and medium-sized firms (SMEs) are top BPO customers.

Because of the cost savings that SMEs can get from BPO services, the industry welcomes all sizes. SMEs are growing firms. So BPOs pick SMEs with potential. Why? Because they want to be long-term partners. Learn more about outsourcing for small businesses.

In fact, the Deloitte survey found that 27 percent of firms that outsource have one to less than five billion in yearly revenue. It also found that 23 percent have 25 million in yearly revenue. So both big firms and SMEs use outsourcing.

Outsourcing myth #5: Outsourcing will compromise your company’s privacy and security

Many articles mention privacy breaches with outsourcing. At first glance, some fear a BPO could see the firm’s true image. It may sound scary. So this fear drives the privacy myth.

In business, trust is key to a lasting bond. BPOs work by earning client trust. So they earn it through honesty and integrity.

A BPO wants strong, firm trust. Yes, firms take a risk when they share financial data. That risk cannot be fully avoided. So firms must find the right provider to lower it.

In addition, BPOs must use this data for the client’s best interest. Data safety is their top priority. If they mishandle it, clients lose faith. As a result, such firms would not survive.

Of course, BPOs aim to last. So privacy protection is now a point of competition. Firms should not worry, as long as they choose the right partner.

The Deloitte survey also found that only 23 percent said cybersecurity risks affect their outsourcing choices. So more firms trust their providers to keep data safe.

Outsourcing myth #6: Outsourcing means offshoring: there is no difference

Outsourcing and offshoring are two different things. As defined, outsourcing is a deal between a client and a third-party provider. The provider then delivers services to the client. Offshoring, on the other hand, means doing a job in another country. Still, the workers stay part of the firm.

Offshoring saves money because some countries have lower wages and taxes. So lower rates are a key offshoring benefit.

Outsourcing vs. offshoring

Do not be fooled. Firms can still hire BPOs in other countries. For example, US firms can hire BPOs in the Philippines and India for support. So you might say that sounds like offshoring.

The key is the status of the party doing the work. Here is a simple guide:

• STEP 1: Does the company pick another entity to do a task?
• IF YES, STEP 2: Is that entity in another country?
• IF YES OR NO, STEP 3: Is the entity a subsidiary or a partner company?
• IF YES, then it is offshoring.
• IF NO, then it is outsourcing.

There is also a mix called offshore outsourcing. It blends both, so it combines their benefits.

Offshore outsourcing means hiring a third-party provider in another country. So the work is done abroad, and the provider is a third party.

To sum up, offshoring and outsourcing are not the same. They overlap only through offshore outsourcing. So the key difference is the status of the provider.

Outsourcing myth #7: Outsourcing delivers low-quality services and outputs

The main goal of outsourcing is quality and integrity. Take an accounting firm as an example. One service area is financial statement (FS) preparation.

Publicly listed firms need outsourced accountants to prepare their FS. These firms are listed on the stock exchange. So they have public duties to shareholders.

Some shareholders are not involved in daily work. So the FS is their only way to judge the firm. In addition, future investors use the FS for analysis.

Because a lot is at stake, accounting firms send their best people. These experts know FS preparation well. They also stay current on standards, such as IFRS and GAAP.

So firms can trust that their FS is done with care. If accounting firms delivered poor work, their credibility would drop.

In fact, the Deloitte survey compared data over time. Concern about poor service quality fell to 20 percent, down from 48 percent in an earlier year. So the industry keeps improving.

However, saying all outsourcing is low quality is simply false. The best way to lower risk is to choose the best provider.

Outsourcing myth #8: Outsourcing weakens the economic status of the country

Some people say outsourcing kills the economy. That view is biased and partial. To an economist, outsourcing can strengthen a country’s economy.

Recall that outsourcing is a cost advantage. In addition, firms can refocus in-house talent on key goals. So this combination lifts productivity and efficiency.

Productive firms offer better goods and services. As a result, the market grows healthier. So goods and services reach fair prices without hurting profit goals.

More from Outsource Accelerator: Read our white paper exploring why and how outsourcing is a win-win for all involved.

A healthy market brings more investment and jobs. If firms improve, the country secures their longevity. So thanks to outsourcing, businesses last longer. As a result, tax revenue and skilled jobs grow.

Outsourcing myth #9: Outsourcing contributes to the unemployment rate

This myth claims jobs are lost when firms outsource, especially offshore.

However, the data often tells a different story. In many years, unemployment stays low even as outsourcing grows. For example, strong job markets can add millions of workers while firms outsource.

More from Outsource Accelerator: Read our white paper exploring why and how outsourcing is a win-win for all involved.

So if outsourcing created mass unemployment, how do jobless rates stay low? In fact, outsourcing helps firms expand. When firms grow, they create more jobs. So cutting costs through outsourcing makes growth possible.

Also, outsourcing does not always mean offshore outsourcing. There is a branch called onshore outsourcing. For example, US firms can use onshore outsourcing by hiring BPOs in the United States.

Outsourcing myth #10: Outsourcing is unethical

In many Western countries, offshoring became a dirty word, nearly a synonym for job loss. There is also concern for the welfare of outsourced workers. For example, people worry about work conditions and low pay. However, this common myth is far from the truth.

The outsourcing workforce in the Philippines is paid very well, compared to their community and economy. In fact, they can earn much more than people in similar non-outsourcing roles. In addition, the Philippine government is very protective and pro-labor in its policy.

The industry offers a great place to work, strong facilities, and a clear career ladder. So the money they earn is a good salary, relative to their cost of living.

Outsourcing is a win-win

This topic is so important that we have written several papers on it:

• Outsourcing is a Win Win Solution – a white paper
• How a USD $300 Monthly Salary Supports Decent Living Standards in the Philippines
• Comprehensive Guide to Payroll Salary Compensation, Benefits, and Allowances in the Philippines

Outsourcing myth #11: Outsourcing is not a long-term solution

Some think outsourcing is short-term only. They focus on the non-core tasks that get outsourced. Still, BPOs also offer strategic services. For example, they provide financial consulting, supply chain support, and resource planning.

BPOs want long-term clients. Long-term clients mean steady revenue and cash flow. From the client side, long-term contracts help too. Through them, BPOs learn the firm’s full structure.

By learning your goals, strategy, and vision, a BPO can offer aligned solutions. In addition, BPOs are trained to match the client’s wants. So over a long deal, these solutions get more accurate.

As a result, a long-term partnership lifts the quality of outsourced work. So both sides gain.

Outsourcing myth #12: Outsourcing is only for established businesses

A common myth says only the big players can outsource. That sounds true at first, yet it is false. The market for outsourcing does not depend on how old a firm is. So whether you are starting out or not, outsourcing does not judge.

In fact, small firms often need BPOs the most. BPOs can offer consulting, advisory, and other services to keep a business growing. For small firms, the main challenge is longevity. Most failures come from mismanagement, complacency, fraud, and weak customer loyalty.

BPOs can help solve these. Their solutions serve both short-term and long-term goals. For example, BPOs can send management experts to review a business plan. Then they offer fixes to keep it viable. Many problems trace back to agency issues.

Agency problems arise when interests conflict in management. When they do, agency costs appear. So these costs damage the whole business.

In an agency problem, there is a clash between shareholder wealth and manager wealth. When this grows, the good of the whole firm suffers.

Outsourcing can help realign these interests toward the firm’s best interest. For example, financial and management advisors can assess the problems. So this shows why outsourcing helps.

If you look closely, third-party advisors bring integrity and neutrality. As a result, they can fully assess the firm and propose fair solutions.

Outsourcing a powerful tool for small business

Outsourcing can help a startup find its market. Backed by experience with other clients, BPOs can build a workable marketing plan. So it matches a startup’s capacity.

Because BPOs handle services like marketing, the owner can relax a bit. So the BPO does its job, while the owner keeps the business running.

Outsourcing can be the key to becoming established. Startups are still learning almost everything. For example, they learn how to control costs and reach breakeven early. That takes time.

So BPOs help firms make better choices and improve processes. A startup’s goal is to keep operating as a going concern. In addition, third-party experts guide the team based on wide experience. So the startup can soon stand on its own.

Finally, startups must keep finances and controls strong. Hiring accountants can help build a fraud-resistant system. So firm controls protect a startup’s money from theft or fraud.

Outsourcing myth #13: IT outsourcing is way too complicated for small businesses

The Deloitte survey showed that 72 percent of respondents currently outsource IT. So IT keeps evolving, and demand keeps rising.

In the age of the internet, firms can access data from anywhere. They can move large data sets in under an hour. With this power, many firms see a chance to improve processes.

Sadly, small firms are often left out of the IT conversation. Yet every business has data needs, big or small. Small firms are still growing, so they need careful tracking. In addition, IT can simplify complex processes.

Small firms can start with bookkeeping software or spreadsheets. They can also build a custom program for their needs. So IT outsourcing matters for small firms too. Size is not the question here.

IT outsourcing firms learn a company’s needs, then build the right setup. So work gets more efficient. In addition, accuracy and security improve.

Common outsourcing myth: IT can’t easily be outsourced

Common outsourced IT services include software development, web hosting, support desks, database management, and infrastructure. These matter for firms of any size.

For example, small firms can cut fixed salary costs with an outsourced support team. On-call support means you pay only for what you use. Compared to that, an in-house specialist may cost $90,000 without the results you want.

In addition, firms save on employee benefits for in-house IT staff. They also worry less about staff being unavailable. Because support is often 24/7, firms get steady help.

Outsourced IT staff can also build a transaction processing system (TPS) to cut manual work. An in-house team for a TPS is costly. So it is often better to outsource to proven firms.

Small firms need every cost-saving trick. IT solutions are one way to cut costs. So consulting the right IT firm can help a small business grow.

Outsourcing myth #14: Healthcare BPOs can increase expenses

Healthcare is one of the most important sectors. It handles medical and health services. Hospitals deal with many patients each day. Their main job is to provide care and hospitalization.

However, hospitals have many other functions. One key function is revenue cycle management (RCM). Hospitals must treat patients fast, which creates a problem. How can they track all these patients? A strong healthcare BPO can help.

RCM focuses on the money side. In short, it tracks the medical billing of patients. While doctors care for patients, RCM makes sure all services are billed. Learn more about revenue cycle management and how it works.

An RCM system uses billing software to track usage and charges. Hospitals often grow fast, faster than many service firms. As they grow, managers may lose control and see cash flow drop. Still, a strong RCM makes things better.

Here are the reasons outsourcing RCM is a smart step for a healthcare provider:

1. Constant changes in regulations

RCM teams work with insurers to check patient benefits. When policies change, so do the transaction rules. So in-house RCM feels the full weight. Staff get more work on their desks. In addition, hospitals must train them on new rules.

However, an outsourced RCM keeps up with these changes. So there is no need for in-house training. As a result, hospitals rest assured their revenue is handled well.

For example, the IFRS 15 revenue recognition standard changed how firms record revenue. In-house staff would need training and seminars. So that means more cost. However, outsourcing firms keep their people updated ahead of time.

2. Reduction of clerical errors in revenue recognition

Errors may be big or small, yet every cent counts. An in-house RCM team can get stressed, so they make more errors. Because in-house RCM is costly, hospitals hire only a few people. Then the work piles up.

So an outsourced RCM helps reduce errors in revenue recognition. In addition, it helps keep revenue accurate.

3. Cost-cutting is inevitable

Poor revenue tracking hurts the profit margin. So an efficient RCM helps measure revenue as it is earned. With better collection, income figures reflect true performance. For example, a low figure may just mean poor measurement. So outsourced RCM managers help cut costs and improve accuracy.

Outsourcing myth #15: In-house sales force is cheaper than outsourcing

An in-house sales force runs deeper than it seems. The truth is, it is not cheap at all. To build one, a firm hires full-time staff for the marketing plan.

It sounds good, yet the costs add up fast. First, the firm pays about $70,000 a year in base salary. Then come benefits. In addition, vacations, holidays, and sick pay add more. Roughly, that reaches $90,000 a year, which is a lot.

Entry-level marketing grads are cheap but inexperienced. On the other hand, pros are experienced but costly. So the build-or-buy choice depends on your budget.

However, the benefits of an in-house versus outsourced sales force are often similar. This holds when both teams are skilled. So the price gap is the deciding factor.

Outsourcing your sales force opens access to many marketing solutions. These firms are backed by deep experience in building and running plans.

In addition, an outsourced sales force can move faster. The firm has a strong knowledge base to draw on. Meanwhile, an in-house team may struggle to gather the same information.

Outsourcing myth #16: Outsourcing your sales force destroys company branding

People say only you can sell your product best. However, that is not always true. Even a strong product needs a sales force to build and sustain its brand.

A marketing mix is vital for branding. Its four Ps are Product, Place, Price, and Promotion. So an outsourced sales force can help develop a better market position. Their edge is a broad knowledge base.

Outsourcing can help build a well-crafted marketing plan. It starts with the selling proposition. In addition, these firms hold data from past client surveys. So this knowledge shapes better solutions. Understanding rivals and customers relies heavily on data.

An in-house team would spend more time on surveys, interviews, and research.

However, providers already hold deep, acquired knowledge. So their staff can consult in-house experts. This is hard to build internally. In fact, it can take years to grow a strong sales and marketing knowledge base.

Outsourcing your sales team can be a game changer

The sales force must solve marketing problems. Rivals are always the top hurdle for similar products. With their experience, outsourcing firms apply short- and long-term fixes. So the product stays competitive.

Branding is a shared effort between client and provider. An outsourced sales force helps translate the client’s message to the customer.

The bottom line is to choose the best partner. So pick a firm that leads in marketing and promotion. Still, an in-house team is not discouraged. For example, startups should use sales and marketing outsourcing for proper guidance.

Established brands can hire these firms too. So outsourcing helps every company, not just the established ones.

Outsourcing myths dispelled

Outsourcing has become a major driver of growth worldwide. Still, myths have long clouded its image. Yes, outsourcing has strengths and weaknesses. However, firms that want to grow should use it to their advantage.

More from Outsource Accelerator: Read more about outsourcing success stories here

Remember, outsourcing is a choice, not a must. So firms should run a cost-benefit analysis first. However, one challenge remains in these changing times. Providers must keep innovating to serve clients better. For a quick primer, see the top reasons companies outsource.

Frequently asked questions about outsourcing myths

Does outsourcing mean losing control of your business?

No, it does not. Providers only handle the tasks you assign. So you keep control of your core goals and decisions.

Is outsourcing only about cutting costs?

No, cost is just one benefit. In addition, outsourcing brings expertise, capacity, and strategic support.

Is outsourcing the same as offshoring?

No, they are different. Offshoring keeps workers within your firm abroad. Outsourcing hands work to a third-party provider.

Can small businesses use outsourcing?

Yes, small firms often benefit the most. For example, they gain expert help without high fixed costs.

Is outsourcing a long-term solution?

Yes, it can be. BPOs want lasting clients. So long-term deals help them align with your goals.

Key takeaways

• Most myths and misconceptions of outsourcing do not match the facts.
• Outsourcing keeps you in control and offers more than cost savings.
• It is not the same as offshoring, and it suits small firms too.
• In addition, the right partner protects quality, data, and branding.
• Finally, run a cost-benefit analysis and choose a trusted provider.