What is outsourcing?
When it comes to businesses these days, one has to be efficient to be successful, and that is often where outsourcing comes in. One of the deciding factors that is responsible in making a business grow to “great” from “merely good” is how one utilizes modern process management techniques.
Business Process Outsourcing (BPO) is the modern way of running a successful business where you utilize all factors and ideas to benefit your business the most.
This article will tell you how outsourcing works and how it helps your business, also business areas you can outsource, types of outsourcing, and a few more tips before you take a plunge into the industry.
What is outsourcing and how does it help your business?
You might ask, “What do you mean by outsourcing?”
BPO has been making its way in the business industry, changing how processes work. We can describe outsourcing as a modern practice of contracting a particular business process or work processes to a service provider outside the company. It can include various services depending on what your business needs.
However, business function outsourcing services are more about filling supplementary business processes. It includes accounting, payroll, data recording, telemarketing, customer support, and other tasks that are not considered as part of the core business functions.
From small start-up companies to massive corporations, outsourcing’s explanation is that it can provide plenty of benefits and advantages, especially when it comes to getting ahead of the competition in the industry.
We can also define business function outsourcing as a business strategy to help cut process costs and spending while simultaneously growing the business and increasing its profits. Because of that, there is a rapid growth in the BPO industry.
But, how does it really help businesses not just to strive but also gain success in their respective fields and niche?
Two types of outsourcing services
To explain how outsourcing works, you need to understand the two basic types of outsourced services – the front office and back office works.
The business’ front office services are all about contracting customers and services that involve it such as tech support and marketing.
Customers come into immediate contact with the front office employees. It is usually the company’s reception and sales area.
Back office services, on the other hand, pertain to the internal processes such as billing and purchasing. While these services work differently, outsourcing functions as a process that can combine unlike services, making them work together instead of working independently.
Each of these services, when not kept in tight reins, can cause a huge drain in both the company’s resources and budget. Any cost-cutting method or strategy is always helpful, and outsourcing is well on its way in that case.
BPO allows businesses to fulfil their processes and obligations to both their employees and customers while keeping a tight control of their overhead costs at the same time.
BPO also has a significant potential of freeing up employees’ valuable time within the company from doing time-consuming everyday tasks, giving more of that time to creating better strategies for business growth.
The basic point of outsourcing is to bring in external specialists and knowledge to take over the business functions that would otherwise crowd the employees’ task lists or those that are not performed well because of the lack of employee expertise.
With this understanding on how outsourcing can be integrated in a business structure, there are a number of significant advantages of using this approach on various kinds of businesses.
Planning ahead: why do you need to outsource?
One of the most obvious benefits of an outsourcing process is to reduce business costs and expenditures. It gives a company the means to keep their overheads on a tight rein while also growing the business at the same time.
BPO doesn’t only provide advantages in terms of core products and services either. It also helps optimize the business’ complimentary areas, as well as the knowledge of the new and emerging markets and trends to get ahead of industry competitors.
Advantages of Business Process Outsourcing
From small start-up businesses to much larger corporations, outsourcing work can provide countless benefits. Companies of various sizes can outsource their processes as the business demands continue to grow.
BPO serves as an innovative service that helps businesses get ahead of their respective industries.
1. For solopreneur
In truth, outsourcing works not only for those multinational companies as what most people believe. Even solopreneurs can take advantage of what is outsource and how it works.
Running your own company or brand can be taxing at the best of times. Whether you like what you do or you are passionate about it, there will be times that daily tasks add up, making you think that there’s not enough time everyday to do everything.
Making a business successful is not an easy feat even with a lot of employees to do specific works, even much more when you only have yourself to run the whole process.
The main benefit of offshore sourcing for solopreneurs is increasing the efficiency and speed of business processes. You can’t handle all specific business operations by yourself all the time and still expect that your company will be efficient and successful. With a reliable external service provider handling the menial tasks within your company, you will be able to significantly free up your time to focus more on core business functions and duties. You will be able to maximize your time, as well as your resources, to produce high-quality services or products.
2. For SME companies
There is a growing trend of small and medium business enterprises which significantly boost economic growth. They also carry a potential to grow even more with the advantages of offshoring activities.
While most people believe that outsourcing can be expensive for small scale businesses, that is not true at all. BPO is considered as a cost-efficient business solution that can work not only for large companies, but also for SMEs. Even a small business can cut its overhead cost and payroll costs by outsourcing certain business functions.
For small businesses, there are certain problems and issues regarding the expertise of employees toward specific business tasks. It can often hinder the company’s growth. Through BPO, SMEs won’t have to worry about acquiring specialized tasks for their employees, such as accounting and IT services.
Business function outsourcing guarantees that your company would have a high-quality output from professionals. When asking how outsourcing works for SMEs, it will include gaining high flexibility as well as financial freedom. Aside from being cost-effective, it also makes business processes efficient, saving time and resources significantly.
Furthermore, it gives freedom to choose what business tasks you want to retain within the company and what to outsource from service providers. You won’t have to worry about the burn of having too much to work on a daily basis anymore.
3. For Large corporations
What is an outsourcing company, especially a big one, benefit from this business strategy?
Large corporations are often hard to work around as there is always an influx of business tasks to accomplish. There are far more deciding factors to consider to achieve the company’s success. As such, it is mostly hard and taxing to have a seamless business operation.
“What is an outsourcing advantage for large corporations?” The main reason why they should consider choosing to outsource some of their business processes is to lower their costs. It significantly reduces expenses for certain functions such as manpower costs and equipment costs.
Large companies tend to have a big number of employees and with that, there is also a huge amount allocated for traditional manpower costs including work and compensation benefits. However, with outsourcing, fixed costs like this can be reduced. Financial resources can be directed to revenue-producing processes to achieve business growth.
Work efficiency is also a touch and go when it comes to large corporations as it is hard to have a tight rein on all employees and business functions. With outsourcing, you get advantage in terms of time-driven operations. It also eliminates the need for in-house employees to multitask, now giving more time to focus on developing strategies and competencies to achieve operational demands.
No matter how large a business is, there is still no guarantee that all business expertise is covered by in-house employees. BPO provides this access to industry experts and trained personnel specializing in a particular niche to improve the business’ performance.
10 Reasons why you need to outsource parts of your business
Outsourcing has served small to large companies the greater good for their businesses. It has become a common strategy for the 21st century companies, giving them countless benefits.
1. It reduces and controls the operating costs but increases revenues
As mentioned, the most common advantage of business function outsourcing is reducing the business’ operating costs while simultaneously increasing sales and revenues.
It is possible because outsourcing offshore eliminates the need to hire permanent or full-time employees for business operations who are all listed on the payroll even during times when their services are not required within the company.
Outsourcing provides businesses a flexible workforce who will only work and will only be paid when needed, thus reducing operating costs significantly.
2. It helps you maximize the use of external resources
Aside from reducing labor costs, BPO also gives businesses means to maximize the use of their external resources, cutting other expenses, such as shipping and materials costs. By moving certain business processes elsewhere wherein such materials are easily obtained, costs can be a lot cheaper.
It also reduces or eliminates infrastructure costs as it will become the responsibility of your outsourcing firm.
3. It enables the company to gain access to world-class capabilities
How outsourcing works a part of your business elsewhere or overseas can give you access to put your business within the increasing global market. International sales can improve your company’s total revenue.
Depending on where you send a part of your business functions, you can also take advantage of the time zone differences, building offices that would be operating in other world business schedules. It can make your company operate 24/7.
4. It can free up internal resources for other purposes
Outsourcing your business to external service providers can give your company resources that otherwise aren’t available in-house. It can also free up your business resources that would otherwise be used in fulfilling back-end functions.
Having experts in their particular niche working on certain parts of your business, those functions can be well taken care of, leaving you with no worries on using your resources for salaries, recruitment, and training of employees in those areas.
5. It requires little to no initial capital investment
When you utilize business function outsourcing, you wouldn’t have to drain a lot of cash to start that particular business function you wish to contract from external service providers.
It eliminates the need to put in a huge capital investment for things like infrastructure, employee recruitment, and training, as well as the daily production expenses.
6. It provides you access to trained or expert specialists
With outsourcing, you will have access to experts and professionals in their respective fields. It can be beneficial in a lot of ways.
These expert specialists are the best in the industry, giving you a guarantee that you get a high-quality output that would otherwise be sub-par when produced in-house due to lack of training and expertise by employees.
7. It allows you to focus on the core competencies of your business
Keeping all your company’s business processes in-house can often be complicated and make things busy. These back-end operations can also get overwhelmed by external issues and would often require significant attention and funds to be able to run seamlessly.
Contracting parts of your business functions to external service providers doesn’t only cut your business’ overhead costs. It also gives you extra time, something you can use to focus on the core competencies of the company.
This way, you will have the means to give emphasis on business processes that are otherwise crucial in terms of sales and revenue. Business function outsourcing makes the entire business process more efficient.
There is no scrambling to finish all the tasks in a short period, making you focus on creating high-quality business products and services.
8. It reduces the training and labor costs of the employees
There are certain competencies that are crucial to business success and efficiency, but aren’t always covered in-house. It would often require hiring more employees that would cover such business processes or would provide competency training to existing employees.
However, it would all require an influx of cash and expenses. It would also require significant time to gain that expertise. However, when you outsource these parts of your business functions, you eliminate the need to train current employees.
The labor cost is also reduced as you will only need a regular workforce who are essential to the day to day operations of the company.
9. It gives you instant access to world-class skills
The global marketplace is extremely wide, and you wouldn’t be able to cover that in-house. However, contracting business processes from external service providers gives you access to skills that are global and world-class, making you competent in your field.
Getting your other business functions also lets you choose the best service provider in the industry to ensure that you get the best output possible.
10. It ensures 100 percent security in the billing process
Billing process can be often complicated and require quite the time and focus to be done seamlessly, something that admin employees don’t always have the time for. Outsourcing to a well-established billing company is your best option to relieve your business from the hassle of doing the billing process.
It is safe too. They can provide a transparent billing process and can safeguard it to secure from any hacking attempt. It guarantees that your company’s billing data is confidential at all times.
What are the business areas that you need to outsource?
You now have the idea what is the meaning of outsourcing, what does outsourcing do, and how does outsourcing work. With all the advantages in outsourcing parts of your business functions, there will be no questions like, “how outsourcing works?” or its relevance.
To further this business function outsourcing explanation, here are some distinct business areas that you can outsource from external service providers.
Outsourcing administrative tasks
Company and business administration is simply composed of day to day operational activities. More often than not, employees spend too much of their time focusing on admin tasks, leaving little to no time in developing the core aspects of the business.
It is why most companies start to outsource some of their administrative functions.
To fully understand the meaning of outsourcing services in the administrative side of the business, here are the common admin tasks that you can outsource from a third-party service provider.
· Data entry
Typing and data entry works takes a lot of employee time. Instead of spending hours of the day typing your business data, a third-party service provider can do this job for your business. Your business data can be arranged and filed without allotting many hours to do it.
· Travel management
Having a person that focuses on your travel management can come in handy, making sure that you have the necessary reservations and airline tickets you need. While there is some software that can help with this, having someone makes it easier especially when there is an issue that has to be resolved.
Running a business is hard and would usually keep you busy. Having someone that arranges and organizes your schedule always helps. You don’t have to worry when there are people you have to call or places you have to go if you have someone that regularly reminds you of these schedules.
Typing jobs, especially the bulk ones, can be time and effort consuming. Instead of doing this in-house, typing can be outsourced outside your company, freeing up the time to focus more on the efforts to grow the business.
· Personal assistant
Hiring a virtual assistant is quite the same in duplicating yourself. This way, you can be more focused in attending to the more pressing issues of growing your business.
· Data processing
Data management and processing is not an easy task. Whether it is as simple as entering data on Microsoft Excel or Word, it is usually time consuming. Fetching data whenever you need them can also take so much time, especially if you don’t have it organized.
Outsourcing data processing for your business makes everything easy as you would have all documents organized.
Outsourcing customer support
What are business function outsourcing services when it comes to improving customer support for a business?
· Sales moderation
Sales moderation is a technical business function. If you are no expert in this area, it would always help to have an expert do it for you.
· Customer service
Customer service and support is among the common outsourced tasks, especially with the growing number of complaints, concerns, and needs of the customers. It is a smart idea to have someone or a system that is focused on keeping the customers engaged and happy since they are the most valued asset of any business.
· Live chat support
Live chat support systems can also be outsourced for the same purpose in outsourcing customer service.
· Community moderation
For companies and businesses that have a rapidly increasing community online, outsourcing can be an excellent option. Instead of doing it in-house, having third-party experts handle this technical function can be convenient, saving you both time and expenses in training current employees or hiring new ones.
Outsourcing financial and accounting duties
It’s always better to keep your financial data and accounts organized all the time than trying to catch up on the duties at the end of the year when you need them. It can be time-consuming and tedious to scramble when the tax season comes.
However, maintaining an organized book takes time and focus and will usually push you to hire an in-house accounting team which can be an additional labor cost.
Fortunately, there are some financial and accounting duties that you can outsource. Here are the top outsourced services for accounting and finance.
Working with a bookkeeper outside your business is so much easier, especially with the available cloud-based accounting software these days. It would even be easier to outsource a professional for this specific business function.
You can simply send your business account data that you want your bookkeeper to organize and they will send you the reports you want.
Outsourcing the services from a bookkeeper also eliminates the hassle when it comes to taxes.
Choosing to outsource your business’ invoice processing can save you all the hassle. It can provide your company with a better business operation by giving a regular, accurate, and timely invoice management.
· Accounts payable and receivable
One of the best ways you can reduce costs and expenses in your business is through invoices, particularly in both accounts payable and receivables or AP and AR.
Business function outsourcing helps companies improve their compliance in terms of internal controls, saving a huge chunk of money. It also helps make streamlining AP and AR conveniently, without spending huge hours every day doing the job.
· Financial reporting, analysis, and planning
Financial reporting can be tedious especially if it’s not streamlined and organized well. It can also take a lot of time especially when preparing different kinds of reports and analysis to identify how the company is doing financially.
To make this process seamless and efficient, outsourcing financial reporting services can be a great option.
With outsourcing, you can save time that is usually involved in analyzing financial documents and preparing reports. It also saves you from purchasing financial reporting software.
Outsourcing IT operations and management
How outsourcing works in IT? Here are the common IT business functions that can help you understand more what outsourcing means in IT service functions.
· IT support
No matter what the size of your business, glitches in your system like crashing servers and websites, corrupted data, and malware attacks can be a pressing issue.
These are instances when an outsourced IT support system can come in handy. It is also much cheaper than having an in-house IT team.
Aside from a secure system for your business, outsourcing a network admin can also be advantageous in maintaining a seamless process within the company.
· Creative services
An excellent website can make or break your online presence. If you are not an expert, website design can be quite a challenge, so hiring a professional can be helpful.
Not only would it save you time and energy, it would also give you a quality output – a website that can provide you with high customer satisfaction.
Unless you are a professional in graphic design and digital presentations and you have so much time in your hands, outsourcing this task can do you a lot of good. A slideshow designed by a professional can go a long way; it also allows you to save up time in rehearsing the presentation.
It is always a great choice to leave web development and maintenance to an expert. Business owners should be more focused in growing the business and ensuring the quality of products and services instead of consuming a lot of time in maintaining an e-commerce website.
Outsourcing software development can be another advantage for a business in terms of improving one’s competitive edge within the market.
It’s a strategic approach for every company. Instead of the costly in-house software development, outsourcing makes an obvious choice in terms of cost-effectiveness.
Lack of in-house expertise in this area is another problem and training employees to be competitive in this regard can take a lot of time and money. On the other hand, with outsourcing, you have a guarantee that an expert or a professional is doing the job for you.
A lot of entertainment companies, small or large corporations, usually outsource animation services. One of the main reasons is to cut costs, contracting pre-production tasks from studios overseas where costs are cheaper.
Outsourcing storyboards and creative design can provide a lot of benefits. Aside from cutting time and costs in doing it in-house, outsourcing also provides access to skilled professionals outside of the company.
You can also take advantage of their international exposure and excellent infrastructure that are otherwise not available in your company.
Outsourcing human resources (HR) functions
Hiring and training new and existing employees can often be a rigorous task for the human resource department. Usually, it takes so much of the employees’ time that they can otherwise use it to give attention to core business functions.
This is why human resources are among the common tasks being outsourced. Here are some examples on how you can define outsourcing jobs in HR business functions.
· HR support
Outsourcing to a human resource support can help a business manage a wide range of HR functions that you might otherwise contract from multiple third-party service providers. That includes payroll processing, recruiting, employee training, and benefit plan management.
· Medical billing
There are a lot of advantages in outsourcing medical billing. Every reason works toward making the entire billing process easy and convenient. Instead of spending a lot of time taking care of the billing documents, employees can have more focus on their patients.
Hiring a professional to do the process also helps reduce billing errors and ensure billing compliance.
· Insurance support
Outsourcing insurance support helps drive innovation in business processes, as well as greatly improves customer service.
Outsourcing sales and marketing
· Brand development
Marketing and developing the brand of your business can take up a lot of time and effort. Since time is a precious commodity when running a business, having an expert can come in handy. An expert in this field can also help in developing a better strategy to build brand awareness.
· Press release
Press releases can be used by businesses to gain media coverage or for search engine optimization purposes. However, it takes effort given that a press release can be either good or bad and the latter will be ineffective, thus, a waste of money.
Outsourcing press release services from someone who knows how to do it right can help your business do a great deal.
· Online marketing
Social media marketing
Social media marketing is extremely helpful and advantageous in keeping the business’ relationship with current customers and connecting to new ones. However, it can often be tedious as you need to regularly post social media updates.
Finding a tech-savvy professional who can manage the company’s Facebook, Instagram, Twitter, Pinterest, and other social media platforms can save you both time and energy.
Aside from social media, creating quality content is also an excellent marketing strategy to bring your business to the market. But again, it takes time and effort to create and produce contents that will make you relevant in your chosen niche.
Fortunately, you can hire a content writer or a content marketer to do this tedious job, making outsourcing article production that much easier.
SEO and PPC
Simply making content would not bring your business on top. Especially if you want to be relevant in your field or if you want your brand to appear on the search engine result’s first page, you have to be familiar with the SEO and PPC marketing strategies.
Training an employee for this job takes time and money. A more cost-effective option is to find a professional that can optimize your content for your business.
Any type of marketing campaign also takes a lot of time and effort and email marketing is not an exception. Fortunately, you can outsource this marketing task to someone outside your business, someone who knows how to do it right.
Outsourcing back office admin and support
What outsourcing business function means to back office support? Here are some of the examples on what back office jobs you can contract from external service providers.
· Lawyers and paralegals
When it comes to cost savings, is outsourcing legal services an excellent move? With legal services outsourcing, firms can lower their costs through labor arbitrage or the difference between the labor costs of in-house legal teams and outside vendors.
· Real estate
With outsourcing in real estate, it can ensure that you have someone that is an expert and can give you best in class solutions especially when optimizing space for your business.
· Management and administration
Business management and administration involves a handful of daily tasks and usually takes the focus of employees from core business functions. Having a third-party service provider to manage these taxing tasks, you will be free to focus and improve control on growing your business
Internal guide to starting Business Process Outsourcing for your company
Learning how outsourcing works and how outsourcing works are extremely important before jumpstarting in outsourcing your business functions. You simply can’t do outsourcing and be successful in it without the necessary knowledge about the strategy.
What are the different types of outsourcing?
Aside from knowing and understanding what is outsourcing from both outsourcing jobs definition and outsourcing jobs meaning from different business areas and how it works, it is also necessary to have an idea of the different types of outsourcing.
It will enable you to choose which kind would best fit you and your business.
· Professional outsourcing
When running a company, there are times that complicated business tasks and processes can’t be accomplished by your own employees.
It might be because of a lot of factors such as the lack of training in employees to complete the task with the highest quality, lack of time, or the lack of the necessary tools to complete such tasks.
In these cases, it is more economical to outsource professionals than hiring one. Professional service outsourcing is considered as the most common type of outsourcing as it can help save massive amounts of cash on overhead costs. Common professional services being outsourced include accounting and legal.
· IT outsourcing
Offshoring IT services is among the common types of outsourcing these days. It pertains to contracting technology-related services and resources for a part or the entirety of an information technology business function.
IT outsourcing explained a common business process that is used from infrastructure, maintenance, and development, as well as customer support. Every business, whether it is a start-up or a large corporation, has IT needs as it deals with technology on a certain level.
Example of IT outsourcing is contracting an IT management team for a business, eliminating the need to build an expensive in-house IT team. It can also be outsourcing data storage as buying one for in-house use can be rather expensive and the maintenance can cost a lot of money and resources too.
You can utilize some IT outsourcing articles to find out more about how it works and why it can work for you.
Multisourcing can be applied to any business area, but is most common in outsourcing IT services. Simply put, multisourcing combines outsourcing IT services and other business functions from external service providers.
Multisourcing forms the best-of-breed teams to achieve business goals. It operates in a manner where the business creates a partner relationship with other providers and is outcome-focused as it provides a clear view on the status of the projects.
This type of outsourcing mostly requires a business to have a comprehensive strategy and a network of governance and relationships.
· Manufacturer outsourcing
The cost, if you decide to make your own products in-house, can be extremely expensive especially if the raw materials you are going to use are sourced elsewhere. Aside from the high cost of the raw materials, paying for the factory workers can also be massive, as well as the capital for infrastructure and equipment you need for manufacturing.
However, if you outsource the manufacturing process of your business, you can significantly reduce your cost as you don’t need to worry about infrastructure and equipment, as well as the labor costs.
Manufacturing outsourcing has become common, and is usually industry-specific. For example, in the auto manufacturing business, one can outsource building and installation of their car windows.
This type of outsourcing is not only applicable to such large corporations; it can also be advantageous to small scale businesses who want to compete with the bigger businesses in the market. It provides the means to scale up in manufacturing products without having to hire a lot of personnel and upgrade equipment.
However, as much as manufacturing outsourcing can significantly cut costs, it does come with a certain level of risk especially in the quality issues.
· Process-specific outsourcing
There are outsourcing processes that are specific to a certain task or an internal procedure, something more known as process-specific outsourcing. It has become common in the industry to contract an external service provider that specializes in a particular service.
For example, a retail service can outsource their delivery services to a particular company, especially for their international shipping. This type of offshore outsource method usually has a very comprehensive contract which includes detailed things like the delivery timeline, product costs, and customer contacts.
Process-specific outsourcing provides businesses the means to not only cut costs but to also have the time to focus more on their core business functions, saving the time it usually takes to fulfil customer orders.
· Business Process Outsourcing
Business Process Outsourcing is the most common type of outsourcing, and it deals with contracting any business process to a third-party service provider. It is especially common in the manufacturing industry, outsourcing necessary business operations as there are quite a bit of tasks and steps to be done to achieve a high-quality end result.
For example, equipment repair and machine maintenance can be outsourced from an external service provider instead of creating an in-house team for the job. It will cut costs, especially since it keeps you from putting in employees under your payroll for a non-daily task.
You can also outsource other common operational tasks such as cleaning services, landscaping, property management, and facilities maintenance.
· Project outsourcing
When companies are juggling several projects, it can usually be tedious, and the quality of the output can be compromised with the lack of time to focus on each one of them. In this case, a business can outsource a project to a third-party. A whole project can be contracted, or a part of it can be subcontracted.
There are various reasons why a company outsources a project, but the most common one is the lack of available people to do and finish the task or the lack of skills for the job. It is also a more cost-effective choice compared to spending time and money in training current employees.
· Offshore outsourcing
Offshoring or offshore business function outsourcing simply means contracting a part of your business process in another country, which is a strategy to lower labor expenses. There are other countries that require cheap costs to finish a certain task compared to doing it locally.
In addition, offshoring is also done to tap the global skills offered by other countries as well as enter new markets in the hopes of becoming global.
Offshoring has also become an accepted idea to overcome local regulations that prohibits particular activities.
While there are companies that find hiring offshore labor a cost-effective move in the contracting business process, some find it the opposite and they start to bring back offshoring activities locally. It is commonly known as reshoring, which can simply be described as transferring a business operation from another country to the business’ home country.
Reshoring can have several advantages, especially in cutting product shipping costs as the price of oil has risen. It also helps answer the issues of time delays, long shipping times, and custom charges in having the production service in another country.
Some businesses even go further as to bringing their outsourced services in-house which is called insourcing.
Nearshoring lies between offshoring and reshoring business functions. Instead of bringing back the outsourced services from a far-away country locally, some companies choose to move their business operations to the geographically close countries.
Its main purpose is to improve services by lessening the allotted time for shipping and time delays, which are common issues in offshoring, while still cutting costs by finding the nearest country where labor services are cheaper than doing processes locally.
Basically, this type of outsourcing combines the benefits of reshoring and offshoring, as well as combating the risks of both.
Recognizing the pricing, labor costs and internal revenues
One of the main reasons why businesses and companies outsource parts of their business processes is to save on costs and expenses while increasing sales at the same time.
Outsourcing price is usually the selling point in choosing where to outsource. However, before outsourcing a business function, it is important to specify what functions you want to outsource and the quality of output you are expecting.
It will help identify if outsourcing that function is as cost-effective as you realize compared to doing it in-house. Calculating the in-house costs of a business function you wish to outsource would also help you verify how much you are about to save.
Calculate both outsourcing costs and in-house costs, deduct the latter from the former and you will be able to derive your total cost savings.
Outsourcing vs. Offshoring: Knowing Its Difference and Importance
Business function outsourcing and offshoring work to achieve quite a similar goal of finding a business process strategy that can help businesses cut labor, operational, overhead costs, and other expenses, while simultaneously increasing revenue and sales.
However, outsource and offshore strategies differ in some ways, especially on how it works, but outsourcing is explained as contracting a business process to a third-party service provider.
Offshoring or overseas outsourcing, on the other hand, takes advantage of having an offshore center. It sends business functions to a different country.
Outsourcing vs. offshoring: what is the most preferred method?
When it comes to benefits, both outsourcing and offshoring can give advantages to the business. For one, outsourcing is a go-to business strategy for its cost advantages. It is the chief motivation of businesses in contracting work to third-party service providers instead of building an additional team in-house.
Another outsourcing benefit is saving time in doing seasonal and menial tasks to focus more on core competency and growing the company. In times that a business doesn’t have expertise of certain business activities in-house, outsource can also be an excellent option.
Offshoring also provides similar benefits as outsourcing. It’s a cost saving opportunity for offshore outsourcing companies who don’t want to invest in their own infrastructure, additional employees, and necessary equipment. When you outsource offshore, it also opens up a chance for your business to take advantage of competitive skills that can gain them a global edge in the market.
Choosing between outsourcing and offshoring mainly depends on what is more ideal and beneficial to the business. However, there is also an advantage in combining the two: offshore outsourcing. It is to take advantage of both strategies including achieving a more specialized skill that is otherwise not available in-house. It’s also a great middle ground for lowering costs and expenses, but gaining a higher productivity and revenue.
While there are countless benefits in outsourcing, offshoring, and combining both, or outsourcing in other countries as well as locally, they are also susceptible to problems and risks. While it makes the business process more convenient, it still adds complexity along with the challenge of having an external organization.
When do you outsource or offshore your business?
The strategy of business process outsource has become common in a lot of businesses. No matter what the size of a company is, whether you run it by yourself or you are a part of a large corporation, outsourcing or offshoring can be extremely beneficial.
These two can be an excellent choice for cost-cutting efforts in a business. For one, contracting your work outside the company where labor cost is cheaper can save you a fortune. Lack of expertise in a certain business function is also a reason to outsource or offshore.
There are cases that you can either outsource or offshore depending on what works best for you; for example, choosing where to contract your production. However, there are times that a particular business process can be outsourced, but is not advisable to be offshored like legal services.
Outsourcing vs. offshoring services: statistics and comparison chart
|Definition:||Outsourcing pertains to contracting certain business functions to an external service provider.||Offshoring refers to getting business processes done in a different country.|
|Benefits:||Benefits of outsourcing usually include cost effectiveness, labor flexibility, and taking advantage of specialized skills.||Companies usually offshore business processes to lower costs, get work done faster with the help of global skills, and better availability of people for the job.|
|Risks:||Outsourcing risks include misaligned interests between the vendors and clients.||Risks of offshoring often include poor communication, language differences, and geopolitical risks.|
Various options for business function outsourcing and outsourcing products are available to different business scales. There are also certain levels of outsourcing that one can do. With the ideal outsourcing explanation strategy, a business can effectively cut overhead costs, improve business processes, and improve sales and revenue.