UNDERSTANDING OUTSOURCING. It’s Different to What You Think.

The term outsourcing refers to the contracting out of a business process to an external provider. This is often referred to as Business Process Outsourcing or BPO. When businesses outsource to suppliers outside of their own country, it is often referred to as offshoring or offshore outsourcing. Virtually any conceivable business practice can be outsourced for any number of reasons, in any industry.

Outsourcing is the strategic utilization of external resources and workforce to complete tasks that were traditionally handled in-house by the staff of a company. In simple terms, because not all jobs can be done in-house, outsourcing makes it possible to delegate specific parts of a project or service offering to efficient service providers who are experts in that particular field.

To further break it down, outsourcing is the process by which a company seeks or requests the support of an external firm to help handle specific tasks so that they can remain focused on the core aspects of their business.

Imagine you’re a software developer or a healthcare service provider and your core strength lies in developing awesome applications or delivering best-in-class healthcare services. But there are other important parts of your business like payroll processing, IT infrastructure, customer service teams etc. To handle these in-house, you may need to employ 10-15 full-time employees, which is a huge stretch of your operating budget! So what do you do? Employ fewer people than you need and make do with an inefficient support department. Or Employ the 15 you need and struggle to pay the salaries each week?

Outsourcing is the third option – the better and more practical solution. It gives you the chance to get the services you need at less than half the cost and to have experts deliver the results you need.

How Do You Outsource?

There are 3 main types of outsourcing which are onshore, nearshore or offshore.

• Onshore refers to outsourcing done within the borders of a country.
• Nearshore refers to outsourcing to a company in a neighbouring country.
• Offshore outsourcing occurs when you outsource to a country far away – usually a whole different continent because it is significantly cheaper. A perfect example would be a company based in Australia outsourcing jobs nearshore to the Philippines.

What Should Be Outsourced?

Anything can be outsourced. You probably don’t realize it but you already outsource some parts of your processes as a company. Let’s take your website, do you have a team of web designers, builders and digital marketing experts in-house running it? Or is it outsourced to another firm? The same can be said for your lawyers, cleaners, security staff and accountants.

In the manufacturing industry, it is now very common to see businesses moving from one country to another. The cereal you had this morning was made across the border, your socks were made in Turkey, your coffee in Kenya and most of the mobile gadgets you use were made in China.

How Does Outsourcing Work?

Outsourcing has been around for a long time, the internet has only made it so much easier to execute. Technological advancement and the easy accessibility to hardware, software, and internet connectivity have made the world one global village, so outsourcing is now so much easier. People can work from just about anywhere and seamless communication can now be done across longer distances than ever before.

BPO, KPO and ITO? What Do They Mean?

These refer to three different types of outsourcing:

• Business Process Outsourcing (BPO) involves getting a third party to handle certain operational functions, e.g., customer services, payroll, accounting, administration etc.
• Knowledge Process Outsourcing (KPO) requires more advanced technical skills. Services that can be outsourced under this category include legal services, content writing, data research and analysis, research and development and intellectual property.
• Information Technology Outsourcing (ITO) involves tech-based functions such as software and application development, network administration and web development.

Why Do Companies Outsource?

The simplest way to put it is that companies outsource because it reduces their overhead to produce a product, thus increasing their profit margins. It’s purely a business decision.

Here is a thorough breakdown of the reasons why people outsource:

1. Reduce or control costs — 44%
2. Gain access to IT resources unavailable internally — 34%
3. Free up internal resources — 31%
4. Improve business or customer focus — 28%
5. Accelerate company reorganization/transformation — 22%
6. Accelerate project — 15%
7. Gain access to management expertise unavailable internally — 15%
8. Reduce time to market — 9%

Although outsourcing had been viewed as a way to lower costs and gain efficiencies, it is increasingly becoming a strategic tool for companies.

Leading companies understand that outsourcing some functions can help them gain a competitive advantage by allowing them to access expertise or innovative technologies they don't have in-house, or by helping them deliver products or services more quickly. It also enables them to shift resources to the areas of the business that are most critical. Outsourcing offers both cost efficiency and increased workload flexibility. 

At Outsourcing Alliance, we offer quality BPO services. With our wide range of services, we can ensure that your company will become more efficient, more productive and definitely more profitable. We can meet your specific needs with proven results. Please visit our website at www.outsourcingalliance.com or call us at +613 9016 3739 for more information. You can also email us directly at gerald.mccormack@outsourcingalliance.com.