It’s the greatest concern of 2023: the next recession. Employers and professionals are both nervous about what it could mean for business. The former are concerned that they may no longer break even, so they begin to downsize rapidly, which can leave them without crucial talent. The latter are understandably worried about the future of their careers, not just within their companies, but within their industries as a whole.
In the last few months, technology companies have seen significant layoffs: in 2022, tech layoffs reached 97,000, a rate that’s 649% higher than the previous year.
In the U.S., total layoffs rose by 13%, signaling that employers are trying to position themselves ahead of a potential recession that could sweep across the nation in 2023.
While there may be a need in some cases to downsize, it is not always the first or best choice during a period of financial hardship. Instead, filling skills gaps through outsourcing could be the ideal solution, and provide new opportunities for growth.
Understanding How a Recession Works
Some may recall working during the 2008 recession while others were still children or teenagers during that time. And although they may have similarities, no two recessions are the same.
Economists predict there is a 70% chance the United States will enter a recession in 2023, but how can we determine its impact?
First, we have to understand how we got here.
All recessions happen in five cycles:
- Peak — Prices skyrocket through inflation
- Recession — High costs lead to less sales, less employment, and lower incomes
- Trough — The lowest point of the recession
- Recovery — Gradually, rates begin to even out, and the cost of living becomes more affordable again
- Expansion — Lowered rates allow businesses to thrive in an emerging economy with competitive rates and abundant resources
Recessions are also measured by 3 D’s — depth, diffusion, and duration. These three factors ultimately conclude how severe the recession was by explaining how widespread its effects are, the impact they have, and how long they last.
With that in mind, we could say that the country is currently teetering on the edge of its the current economy’s peak. The pandemic’s effect on the cost of living, coupled with crippling business losses many companies are still trying to recover from, have brought us to the present.
Where do we go from here?
The best thing companies can do right now is to analyze their finances, and develop a recession management strategy. Many articles offer guidance on how to recession-proof a business, but in truth, no one can do that with 100% certainty.
Instead, we have to examine the nuances of every situation, every team, and every individual whose career is at stake when a recession hits.
How Outsourcing Helps During a Recession
Layoffs have a clear cost and benefit. Unfortunately, the benefit does not always last as long as companies hope. Instead of thriving by cutting thousands of dollars in salaries, they discover that a narrow talent pool in their organization has funneled their creativity and innovation.
Restricting your company to a smaller team could ultimately cost more. Rather than risk losing talent and profit, companies can explore alternatives to layoffs, including outsourcing. Tech companies, and SaaS companies in particular, can benefit from outsourcing jobs during a recession.
Choosing to look beyond the company for solutions to potential risks also creates new opportunities. Instead of feeling as if there’s no option but to let people go, companies can manage their budgets more efficiently without compromising objectives.
The Top Benefits of Outsourcing
We can look more closely at the benefits of outsourcing during a recession to highlight why it’s a good solution for companies’ risk management strategies.
Greater Cost Savings
Worrisome financial forecasts can cause businesses to lay off people prematurely. They may also not recover enough over the course of the recession to sustain operations, despite downsizing. They’re then left without the funds to recruit, hire, and onboard new talent to fill up the vacancies left in the wake.
Outsourcing allows businesses to prioritize their budgets without taking on additional costs or losing great talent. For one, outsourcing means there is no need to increase payroll by another salary. Services can be paid for as they are needed.
Second, 57% of executives indicate the primary driver of Traditional Outsourcing is cost reduction.
Outsourcing also helps companies acquire skills they need without a full team.
No one can predict when a recession will hit or when it will end. Forecasts only go so far, and no company wants to find itself blindly navigating a financial crisis. Rather than make difficult trade-offs in hopes of surviving another year, businesses can turn to outsourcing as a way to become more agile.
With outsourcing, teams can become more flexible, and the company can reallocate resources without having to resort to mass layoffs. Instead, you can focus on making changes that save costs while preserving talent and protecting people’s livelihoods.
Lower Risk of Burnout
Recession is hard on everyone. Professional and personal lives are impacted in every way imaginable. Outside of work, employees are likely dealing with concerns about housing, gas, bills, and stability. When companies lay off workers, already stressed employees are forced to shoulder more responsibilities.
All too soon, the weight of life and work in a recession can be crushing. Burnout is not only a temporary symptom of a difficult time; it is a long-term condition that builds up, peaks, and can feel unsurmountable.
Outsourcing allows companies to alleviate the burden from employees during a recession. With a reduced risk of burnout, you can expect workers to stay more engaged at work and maintain productivity levels when they’re more crucial than ever.
Keep Benefits With Employees
Laying off workers is still expensive. Although you may save a salary, you also have to pay a severance package. Rather than trade-off coverages and costs, employers can use outsourcing to maintain full benefits for their team.
Outsourcing some departments can save you from having to take others’ benefits. Instead, you can apply these to your current departments, and ensure people have the support they need during the recession.
Increase the skills and capabilities of the team
One of the greatest elements of outsourcing in 2023 is team augmentation. This service allows companies to integrate their internal teams with outsourced professionals without disruption. SaaS companies can pair up with skilled devs who speak their native language to increase productivity and product quality.
Using collaborative models, team augmentation helps companies stay productive and even thrive during a recession thanks to cost-effective assistance.
Make Layoffs a Last Resort
Although it is never easy, laying someone off is better done as a last resort than an only option. Companies that outsource can look at alternatives to layoffs that keep teams together. For example, you may consider offering fewer hours temporarily, allowing you to still pay employees while saving money.
Pay cuts and reduced hours are temporary, but layoffs have a long-lasting impact on a company. The best thing to do in any situation is consider how you can navigate around permanently altering the structure of a great business.
Thinking ahead, you can explore outsourcing before times are tough, and begin integrating it long ahead of any hardship. If or when a recession occurs, you’ll already have the tools in place to make any necessary shifts.
How to Outsource During a Recession
If you decide to outsource, start researching as early as possible. Connect with companies that have the talent your organization needs, and learn more about their services. You should inquire about pricing models and service bundling options to think about ways you may optimize your budget during a recessive period.
You should also decide early on which talents you want to outsource. These could include web development, mobile development, DevOps, or non-tech skills, like HR and accounting. During this stage of planning, you should be considering multiple scenarios for outsourcing. It can be helpful to have several scenarios mapped out, and know exactly which agencies you’d work with if they come to pass.
Next, you should establish measurable criteria for all your outsourced work. A major barrier to B2B success is a lack of clear metrics. These key performance indicators (KPIs) also function well as project expectations. By developing these factors early on in your relationship with a development studio or other firm, you can avoid highly preventable problems. Instead, the inclusion of these elements lets you start your relationship off with clear communication and shared objectives.
Although the recession of 2023 is yet to develop, it’s highly likely we will see signs of it in the first half of the year. Now is the best time for companies to start developing strategies to spare them from having to let go of amazing people on great teams. Outsourcing is an excellent alternative. It’s a flexible solution that scales to suit each company’s needs, giving them the financial breathing room they need to navigate business during a recession.