To Outsource or Not to Outsource?
Amplifi Solutions weighs up the pros and cons of outsourcing for business growth amidst a perfect storm of rising inflation, interest rates, corporation tax and bruised investor confidence.
There’s no doubt that all companies will experience growing pains at some stage of their development, but they are more prevalent in the current economic climate. One way to mitigate some of these pressures is through the careful consideration of which business functions to outsource, and those to retain in-house.
Roger Daynes, Relationship Manager at R&D tax credit specialists, Amplifi Solutions, explains 6 outsourcing pros and cons worth considering before handing over business tasks to outsourcers.
6 Outsourcing Pros
1. Scalability to match peaks in business demand and then drop back down if that demand lowers. Therefore, businesses can gain access to the specialist skill set necessary for specific projects.
2. Access to a larger talent pool. When hiring an employee, you may only have access to a small, local talent pool. This often means you have to compromise. Outsourcing gives access to talent in other parts of the world.
3. Costs could be reduced by temporarily contracting skills, which would help combat the pressure from inflated salaries and the higher expectations from investors to reduce cash burn.
4. Early-stage companies can access the required skills and benefit from faster innovation, commercialisation and resultant scale-up, whilst being able to operate a lean workforce.
5. Freeing up management time to focus on core value-creation.
6. The freelance, gig-economy is growing at a pace and may be a more attractive working-model for many highly skilled, highly sought after workers who otherwise might be hard to retain in-house.
6 Outsourcing Cons
1. The organisation doesn’t own that skill set, so there is less opportunity for knowledge sharing.
2. Security risks: Outsourcing to a company in a different country can also increase security risks, particularly if the country has weaker data protection laws or a higher incidence of cybercrime.
3. Heavily outsourced organisations can find it challenging to get investment or passion for tasks, business goals or the company culture, they also may lose out on problem solving team collaborations.
4. Might financially impact the amount you can receive from some grants.
5. R&D tax credits are substantially more valuable for employee expenditure, rather than on contractors (54% more valuable). There are further cuts forecast (from April 2024) for the use of offshore contractors.
6. The need to ensure any intellectual property (IP) is protected, to avoid confusion around who owns it. This is a common issue in, for example, software development.The organisation doesn’t own that skill set, so there is less opportunity for knowledge sharing.
In conclusion, companies have the daily challenge of navigating a path in a market that is made unique by unprecedented challenges and an abundance of choice. The key to long-term success will be the mitigation of risk every step of the way; deciding which functions are performed in-house, and which can be outsourced, will be central to achieving that.
Amplifi Solutions supports a range of high-growth businesses to navigate the research and development tax credit incentive, among them Aveni, Bounce Back Drinks and Gibson Robotics.