Tight labor market makes strategic outsourcing a growth imperative

Businesses face a host of obstacles to finding and retaining top talent in the current economy. Low unemployment and potential limits on immigration by the incoming presidential administration are among the factors contributing to a tight labor market that will challenge companies into the foreseeable future. At the same time, strong business conditions signal opportunity, requiring companies to adopt innovative strategies to maintain growth and stay competitive.

“With the economy at full employment, firms will want to slow the pace of hiring as the mismatch between workers’ skills and employers’ needs, as well as workers’ availability, still predominates when it comes to hiring,” says RSM US Chief Economist Joe Brusuelas in the Q4 2024 RSM US Middle Market Business Index report.

The index, which tracks the economic sentiment of midsize companies, advanced in the fourth quarter, reflecting robust business conditions. RSM economists expect the index to move upward in the first two quarters of 2025 amid the expected easing of regulations and an expansionary fiscal policy, including tax cuts and higher government spending. Meanwhile, 64% of MMBI respondents said they are planning to boost wages over the next six months, indicating the continued premium on skilled workers.

So how are growth-minded businesses set to navigate growth amid the difficult hiring environment?

One solution is strategic outsourcing—a transformative tool that enables businesses to scale efficiently, focus on core competencies, and adapt seamlessly to growth opportunities such as mergers and acquisitions (M&A) or initial public offerings (IPOs). Strategic outsourcing leverages specialized skill sets and advanced technology to position businesses for long-term success.

Traditional vs. strategic outsourcing

Outsourcing has long been a business fundamental, but its role has evolved significantly. Traditional outsourcing involves contracting out entire functions, like customer service or manufacturing, to reduce costs. While effective for operational efficiency, this approach often lacks the adaptability required for a fast-changing business environment.

Strategic outsourcing is a more nuanced approach. It goes beyond cost savings, targeting specific functions to enhance capabilities and support high-level business objectives.

For example, a company preparing for an IPO might outsource compliance and regulatory reporting to professionals who have more experience and a deeper knowledge base compared to in-house teams. Similarly, a business undergoing rapid growth might outsource human resources or payroll functions to enable internal staff to focus on scaling operations.

Strategic outsourcing often includes high-level advisory services that offer businesses the agility to address complex challenges while staying focused on their core mission. In this way, strategic outsourcing goes beyond cost reduction. It has the potential to transform an entire business and accelerate growth.

“Companies have to think more holistically,” says Deanna Balkcom, a director at RSM US LLP. “They may benefit from engaging with a provider who can really help them drive toward their goals in all functional areas or across them. They can engage on a deeper level.”

Reasons to consider strategic outsourcing

Several factors make strategic outsourcing a compelling option for businesses. These include the following:

• High operational costs: Rising expenses in areas such as technology, compliance and talent acquisition often strain internal resources, making strategic outsourcing an attractive alternative.
• Talent challenges: Hiring and retaining skilled professionals has become increasingly difficult, particularly in specialized areas. Strategic outsourcing provides immediate access to knowledgeable professionals.
• Major projects: Complex undertakings, such as IPOs or M&A activities, often require capabilities that overwhelm businesses, especially if they lack the experience to tackle these projects in a detail-oriented manner.
• Scalability issues: Companies that struggle to scale up or down efficiently can benefit from strategic outsourcing’s flexibility and speed. Businesses can adjust their resources as needed.

Benefits of strategic outsourcing

Strategic outsourcing delivers value across multiple dimensions, empowering businesses to overcome challenges while pursuing growth. A managed service provider (MSP) can provide experienced professionals who focus on niche functions and offer modern tools that are often too costly or time-intensive to develop internally. For example, outsourcing regulatory compliance to a specialist firm provides access to subject matter experts and state-of-the-art software tailored to regulatory needs.

Further, by outsourcing noncore functions, internal teams are freed to concentrate on mission-critical initiatives. This enhanced focus supports growth strategies, from expanding into new markets to innovating product lines.

In addition, strategic outsourcing alleviates pressure on a company’s employees by supplementing staff members with external professionals. Because overburdened teams are a recipe for burnout and turnover, strategic outsourcing can improve talent retention. It also allows HR departments to shift their focus from administrative tasks to strategic initiatives like employee engagement and culture building.

“Every business has to perform functions that are not central to its mission,” says Marni Rozen, an RSM principal. “They can outsource those tasks to subject matter experts who can do it better. More importantly, they can be very strategic about what they outsource. Maybe it’s the whole function, or maybe it’s certain aspects of different functions. They can develop a strategic approach.”

Building a strategic outsourcing plan

Implementing a successful outsourcing strategy requires careful planning and alignment with business goals. Companies can begin by evaluating their strategic vision and operational requirements. Businesses should identify areas where strategic outsourcing can deliver the greatest impact. Leaders can assess which noncore functions can be outsourced without compromising the business’s unique value and identity. Common areas for outsourcing include HR, payroll, information technology support and compliance.

The next step is to select the right advisor. Companies will want to choose an MSP offering the experience, cultural alignment and technology capabilities that match the organization’s needs. This step is crucial. A strong MSP will create a phased implementation plan that takes into account the company’s priorities and goals. The resulting roadmap should outline key milestones, success metrics and change management strategies.

The ROI of strategic outsourcing

The return on investment from strategic outsourcing can be measured through both quantitative and qualitative metrics.

On a quantitative level, strategic outsourcing often results in significant cost savings, including reduced recruitment expenses, streamlined processes and lower overhead. In addition, strategic outsourcing often results in faster resolution times and improved compliance, which reduces the risk of costly errors and penalties.

In terms of qualitative metrics, improved employee satisfaction is a vital yet intangible benefit. By relieving internal teams of functions for which they have insufficient experience, strategic outsourcing fosters a more engaged and motivated workforce. Additionally, strategic outsourcing enhances business continuity by reducing the company’s reliance on internal staff members for critical tasks that require skills beyond their training.

“There are specific ROI measurements that companies can use, and lots of data they can access to see how well their approach is working,” says Rozen. “But it’s also helpful to ask questions like ‘Are my employees happier?’ or ‘Are projects getting completed with less stress?’ You can look at both levels of ROI.”

Competitive advantages

In an increasingly competitive marketplace, strategic outsourcing provides several key advantages. Perhaps the most striking benefit is that businesses that outsource gain access to the tools, resources and experience associated with leading organizations, thus enhancing their market position.

In addition, outsourcing noncore functions enables businesses to allocate resources toward strategic priorities such as product development and an improved customer experience. Strategic outsourcing can also help companies create a sophisticated infrastructure that appeals to top-tier talent.

The takeaway

Strategic outsourcing is more than a cost-saving measure—it’s a differentiator in today’s business environment. By outsourcing noncore functions, businesses can become more agile, efficient and growth-oriented. Whether preparing for an IPO, navigating an M&A transaction, or simply striving to remain competitive, companies that embrace strategic outsourcing can focus on their business and achieve their goals.