Outsourcing: Why Everyone’s Doing It

Outsourcing is a business strategy wherein a party outside a company is hired to provide services and specific goods which are traditionally performed in-house by the company’s staff and employees. The term is derived from the combination of “outside” and “resourcing”.

As a practice, outsourcing is usually undertaken by companies as cost-cutting measures- cutting labor costs including personnel salary, technology, overhead, and equipment. It affects a  wide range of jobs from manufacturing, customer support, to back office operations. Companies that undertake outsourcing are able to focus on their business’ core aspects, off-shooting the non-core operations to outside organizations. 

Companies nowadays outsource tasks and services. Often, they outsource technical support and IT services such as application development and programming; call service functions and outsource customer service. Other types of work which are frequently outsourced by companies include financial functions like payroll processing and bookkeeping; human resources tasks, and manufacturing processes. Entire divisions can also be outsourced, such as an entire IT department.  Outsourcing business functions is sometimes referred to as business process outsourcing.

Understanding Business Process Outsourcing

Businesses, either from small startups to large companies, choose to outsource processes to keep up with the highly-competitive business climate. Companies adopt BPO practices in two areas: front-office operations and back-office operations. 

Front-office operations represent a company’s customer-facing division. This is  composed by the sales, marketing, and service departments. It depends on back office operations for support in the form of IT, accounting, human resources, and secretarial functions. It also refers to outsourcing tasks that entails customer services like tech support and marketing.

Back-office operations, on the other hand, involves a company contracting its core business operations like HR, IT services, and quality assurance to third parties who make sure that the business functions smoothly.  This form of BPO primarily deals with a business’ in-house necessities like billing and payroll.

Companies find BPO attractive in the sense that it allows them to have greater operational flexibility. Outsourcing non-core and administrative tasks enable companies to re-focus their time and resources to core competencies like product leadership and customer relations, which in turn result in industrial advantages. 

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Based on the vendor’s location, the BPO industry is divided into four categories. Businesses can attain a holistic process optimization through a combination of these:

1. Offshore - these vendors are located outside the company’s own country. For example, U.S. companies may tap offshore BPO vendors in the Philippines.
2. Nearshore - these are the vendors that are located in countries nearby the contracting companies’ country. For instance, the United States may consider a BPO in Mexico as a nearshore vendor.
3. Onshore - this refers to the vendors that operate within the same country as the contractor, regardless of the difference in city or state. A company in Seattle, Washington, for example, can utilize an onshore outsourcing vendor in Seattle, Washington or Huntsville, Alabama.
4. Process automation from Software-as-a-Service (SaaS) companies - this outsourcing category wherein companies let you outsource the softwares you use to run processes rather than outsourcing the business processes themselves. 

Outsourcing is an integral part of numerous successful business models, particularly for companies that don’t have sufficient resources and services needed at hand. Businesses often outsource to increase their flexibility and presence, and most especially to save costs.

Businesses need to constantly strive to improve their processes and adapt to the most recent technological advances if they want to survive the ever-changing digital marketplace. This is why BPO is crucial to their success; it offers businesses access to innovative technological means and enables these companies to generate quick and accurate reports, improve productivity, and reassign the resources whenever the need arises. Let’s take a look at the different types of outsourcing services you might want to consider for your business:

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Types of Outsourcing

1. Professional Outsourcing

 This refers to the practice of contracting professionals and individual specialists to handle multiple small tasks without the goal to outsource an entire function.

Also called body shopping, this includes legal, accounting, purchasing, information technology (IT) and administrative support. A company that uses professional outsourcing only pays for the services being provided while having access to high quality resources, thus reducing overhead costs effectively. This kind of outsourcing is one of the most well-known types of outsourcing given its potential for high cost savings. 

2. IT Outsourcing

The use of external service providers to deliver IT-enabled application services, infrastructures, and business processes for business outcomes is called IT outsourcing. It’s one of today’s most common services today  which involves subcontracting outside organizations to handle a business’ IT needs ranging from software development to support and maintenance.

3. Manufacturing Outsourcing

This is the process of hiring people outside the company to assemble the parts or build an entire product. The services under manufacturing outsourcing are typically industry-specific. Take an automobile manufacturer for example, who may have outsourcing arrangements for building and installing windows in their models. Such arrangements can result in faster assembly time and remarkable cost reductions.

4. Project Outsourcing

Some companies find it difficult to manage or complete a part of a specific project. At times, this is due to the insufficient number of in-house people with the needed skills to work on those projects. That’s why many companies outsource their projects to project management companies. 

Reasons why companies outsource 

Cutting back on resources, creating space for more growth, cost-saving, remaining at the top of industry ranks -  these are some of the reasons why companies outsource their jobs and services. 

Outsourcing a company’s services to external providers allows it to focus on current priorities, leaving the back-office work to professionals  minus the time wasted in performing admin tasks like general accounting and accounts payable.This freedom allows teams to spend their time wisely by directing their efforts in delivering their outputs instead of undertaking routine tasks that take up their working hours.

1. Save time and effort and focus on core competencies

 An eight-hour shift sometimes seems too short, especially when there are endless tasks to handle, like responding to emails, bookkeeping, and encoding data. Multi-tasking is draining most of your team’s effort, energy, and creativity. Team members who have a low morale tend to perform poorly.

Outsourcing allows your talents to focus on specific tasks to improve their quality and productivity. It frees up their time so they can focus on their core responsibilities. When used properly, it gives you an edge among your competitors. Also, your team can enjoy work-life balance. 

2. Save costs on back-office tasks

Perhaps the most obvious reason why companies outsource is to save money without the risk of lowering production and losing people. One great advantage of outsourcing is the savings of not having in-house staff. 

3. Scale faster by hiring quality talents offshore

Building your business and growing your client base are 2 of small-sized to mid-sized companies’ top priorities. Admin tasks sometimes pose as roadblocks to these successes, given that they take up a lot of time and resources but don’t directly contribute to the attainment of these goals. 

Outsourcing providers can employ a team to perform necessary tasks so companies won’t have to worry about their non-core responsibilities like hiring, training, and retaining employees.

4. Save on office space

There’s no need to find a bigger office to maximize your functions-through outsourcing, you may save up on office rent costs because you may be able to rent a smaller space or none at all. Remotely working with you and your employees is possible when you outsource.

5. Access talent from anywhere around the globe

Outsourcing makes it possible for you to meet and work with professionals outside of your local area. You can even contract the best workers in the industry and find talents in countries where workers charge less and where living costs are cheaper.

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It’s all about FAQs…

For sure, every person who has owned, ran, or worked in a business environment has heard about outsourcing. The BPO industry expansion is ongoing - and more and more outsourcing providers are offering more complex and advanced services and tasks.

Now, we’ll look at some frequently asked questions about outsourcing to better understand what it is and how it helps businesses. 

1. How can outsourcing help your company?

Outsourcing small, multiple tasks to third parties removes unnecessary workload and stress  from your in-house team and removes the pressure of having to hire and train more employees on your end. It  allows them to focus on what they do best and deliver quality work. It ensures that your team stays motivated, productive, and focused on their job.

It also poses significant benefits like cost savings, efficiency gains, and an overall greater competitive edge among competitors.

2. What services can be outsourced?

The services that can be outsourced are countless. These may include but are not limited to lead generation, customer service, payroll, accounting, web chat, marketing, web design, and more. Setting one or two days per week for mandatory check-ins would be very helpful in checking and addressing your employees’ workplace concerns and difficulties. 

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3. What are the pros and cons of outsourcing?

Some of the perceived pros of outsourcing include:

Improved focus on core business functions - it allows staff to focus on their main tasks rather than on miscellaneous admin work, therefore enhancing productivity. 

Controlled or low labor costs- costs savings allow you to allocate budget on other area of your business

Lessen employee turnover- employee turnover is difficult and costly. Outsourcing enables you to promote employees (provided with a raise and new responsibilities)  and delegate repetitive tasks. Delegating tasks adds a layer of consistency to your company.

Access to the latest technology and equipment - Outsourcing vendors, aside from highly professional employees, invest in better technologies and equipment as a core part of their business and advantage over other vendors. Given the chance to use these technologies optimizes your daily functions and helps improve your efficiency and profitability. 

Outsourcing also has its fair share of cons:

Shifts in the time zone -  offshoring to a location with a different timezone puts friction in working hours and communication. You will need to adjust meetings to schedules that work for everyone. 

Confidential data exposure- Despite living in an age where data protections exist, subcontracting tasks that involve personal data collection like customer information still poses risks for data privacy issues. To avoid this, you have to make sure to include a security protection clause in your contract or have a separate non-disclosure agreement to be signed.,

Hidden costs -  while outsourcing is a great way to save costs, some providers have hidden costs embedded in their lengthy contracts. This is why you need to read and understand the terms fully before signing and discuss costs upfront with your vendor. Failure to do so will have you paying up for unexpected costs.

4. What service types do outsourcing companies support?

Outsourcing companies typically support customer interaction services, knowledge process outsourcing, IT-enabled services, research process outsourcing, and legal process outsourcing. 

Other outsourcing companies also specialize in different areas like IT and software operations, back-office transactions, knowledge services, human resource services, and finance and accounting services.

5. Does outsourcing make you lose control over your service quality?

Definitely not. In fact, you’ll be able to maintain and even improve your service quality given the right outsourcing partner-especially when he/she is an expert in recruiting and training their staff. 

The right outsourcing partner coupled with proper management and good placement of quality control processes will bring forth a balanced approach in meeting your key performance indicators (KPI) minus the risk of compromising customer satisfaction.

When choosing an outsourcing team for your organization, it’s best to pick the one that matches your tone of voice, corporate culture, and level of expertise. Your provider must nail these three basic rules for outsourcing .

In the end, it’s all about choosing the right outsourcing partner to succeed

All businesses sizes benefit from outsourcing. May it be operational flexibility or professional representation, there’s a lot of useful reasons why outsourcing is worth doing-especially when you aim to boost productivity, enhance your team’s morale and motivation, save on operational costs, acquire quality talent globally, gain revenue, or efficiently run a business all in all. 

Outsourcing  is one of the best ways to get work done fast at a lower cost, but like everything, it has its own risks. Don’t let drawbacks stop you from exploring possibilities to grow your business, anyway. Think of all the areas where your organization can benefit from outsourcing and explore the services that best suit your company’s needs. Your success depends on choosing the right outsourcing provider that’ll boost your overall competitive ad and profitability. 

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