Outsourcing: Advantages, Disadvantages, and Applications

In the past few decades, outsourcing has become a hot topic of discussion amongst many business enthusiasts in different countries. Outsourcing is the process of involving a third party or external service provider (who are generally specialists in the work that is being outsourced) to perform the jobs and functions of any company.

Outsourcing has been a controversial topic since no one likes their jobs going overseas. But with the right context and if deployed shrewdly, outsourcing can prove to be an excellent measure for a company to better its bottomline and improve efficiencies. Here you can know about the bpo introduction and other aspects related to outsourcing. 

Introduction to Outsourcing

Outsourcing is known to be a standard business practice. There are negotiations and contract signing when a company hires another agency or organization to carry out a portion of their activities like operations, services, etc. Companies today are outsourcing work majorly in information technology that includes programming and application development, technical support, customer services, and call services. 

There are other types of work also which the companies can outsource like manufacturing, human resources functions, financial functions (bookkeeping payroll processing, etc.). Sometimes a company outsources an entire division, for example, the whole IT department, or chooses to outsource just a portion of it. The other names for outsourcing are “contracting out” and BPO (business process outsourcing)

BPO Introduction

BPO or business process outsourcing is done usually to fulfill peripheral or supplementary jobs and functions of a company rather than the core business functions. The services could be technical or non-technical. Any type of company, a start-up or a  Fortune 500 company, is outsourcing their work and the demand for BPO has been growing over the years.

BPO is Divided into Two Types of Services:

1. Back Office - Internal business processes like purchasing, billing, etc. are the back-office services.

2. Front Office - The services which deal with the customers of the contracting company are termed as front office services. Few examples are marketing, technical support, etc.

BPOs could also combine these services so that they work together rather than independently.

The locations of the vendor divide the BPO industry into three categories. To optimize the total process, a business can combine all three categories:

1. Offshore - This type of outsourcing is done outside of the company’s own country. For example, a company in the U.S. can outsource its work to a third party in India.

2. Nearshore - When vendors are located in countries close to the outsourcing company, it is said to be a nearshore outsourcing. For example, for the United States, outsourcing to Mexico would be considered a nearshore.

3. Onshore - In this type of business process outsourcing vendors belong to the same country as that of the company, though they might be in different cities or states. For example, a company in San Francisco, California, U.S could outsource its work to another company in Santa Clara, California, U.S or Huntsville, Alabama, U.S.

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How Does Outsourcing Work?

Outsourcing involves focussing both on business partnerships and logistics. More than the SLAs (service level agreements), outsourcing is a lot about managing relationships. It is a partnership and not just a purchasing project. It is vital to maintain a secure and trusting relationship with the company you outsource to. This effort is more complicated than merely establishing service agreements.

Experts in outsourcing lay a lot of emphasis on the exit clause of a service contract. Both parties in an outsourcing activity must know when the contract ends and that all responsibilities and obligations have been met before the contract due date.

Why Should Business Organizations Outsource?

If the number 1 goal of the executive team member is to grow the business, irrespective of being small, medium or large, then Outsourcing is one of the best strategies for team members to invest their time and energy.

For any small or medium business, growth is a very important factor, if not the most important. The day the business stops growing, the team ends up falling into a deep valley. With a limited budget, the million-dollar question is: 

How do you find those all-stars who can take the organization to the next level?
How to get on a path to consistent growth without the extreme stress and headache associated with growing a business? The answer lies in Outsourcing.

For example, let's say the CEO of a recently founded startup is looking to develop far more efficient and smooth workflow strategies than the existing one so that the team can focus more on your core business activities. The right IT partner can help this startup achieve this goal by understanding and crafting strategies that best suit the startup organization’s needs. And this in turn gives the choice to the CEO to focus only on activities that form the core aspect of the business. You also get the opportunity to develop your services, refine your product or provide better support. Outsourcing lets the team focus on what they do the best,a.k.a, Running the business.

Conditions That Indicate the Right Time for outsourcing

1. When the Need to Focus on Business is Critical.
   Adding people on the team simply to do tasks that are mundane, time-consuming and expensive limits the growth of the organization. Investing the time to attract, hire, train and retain talent in areas outside your core competencies, the executive team is using up the valuable resources that could otherwise be used to focus on business-critical activities. In this scenario, Outsourcing may be the best bet. 

Many outsourcing service providers are equipped to help with tasks outside the core competencies of the organization. Suppose even if the team is really great at accounting and solving the urgent issues that come up suddenly, will that help in growing the business? If not, then going to a third party and getting the work outsourced makes a lot of sense and allows the team to focus on the core offering of the organization.

2. When the Team Requires More Time for Strategy Building.
   Productivity doesn’t remain the same throughout the day. If a majority of the time is spent by key team members in doing the transactional task rather than strategic work, then it is not an efficient use of time.
   
   Rather than focusing the time and attention of the team members on non-core tasks that are approaching deadlines, it is better to hand those tasks over to a third-party service provider. This way it is possible to engage the team in priority based meaningful work that drives business growth. 

3. When the Organization Prefers to Lower the Costs.
   It is imperative for businesses to reinvest the money in activities where it would make the most impact. Maybe the organization needs to increase the budget of marketing in order to get more sales and generate more revenue. The team could cut down the unnecessary costs by opting for outsourcing that fits the bill. Lowering costs is one of the biggest benefits of outsourcing non-business activities to third-party service providers. This could give the space to free up more budget that can be reinvested in revenue-generating activities of the organization.

Advantages of Outsourcing

Some of the major benefits outsourcing brings to a company are:

• Expertise and Swiftness - Most of the time vendors are those who specialize in the area that is outsourced to them. The vendors usually possess better equipment, specific talents, and skills which are not present in the contracting organization. Hence the company which outsources can get more quality work done in less time.

• Companies can Concentrate on Core Processes - If a company outsources its supporting work to vendors, it can devote more time to focus on its core business processes. It brings about more quality work and in turn, more profit to the organization.

• Share Risks - Risk analysis is one of the most crucial parts of a project campaign. If a company can outsource a part of that work to vendors who know that area, they can share the risk mitigation responsibility. Since the vendors are experts in their areas, they can formulate an enhanced risk mitigation plan.

• Reduce Costs - Since you outsource, your need for hiring diminishes. This reduces the heavy load of recruitment and operations costs. Outsourcing piecemeal work is always cheaper than hiring full-time staff. Your ongoing investments in internal infrastructure are also reduced due to outsourcing.

• Get Work Done Around the Clock - If the outsourced vendor is overseas, your business could run even when you are sleeping. Though initially, logistics could be an issue, you get tremendous benefits with the different time zones and holidays.

• Simplify Project Management and Work Relationships - With outsourcing, the relationship with workers can be contractual and simplified. This could mean better yields. If you outsource work through specialist freelance websites, most of the time, you are provided with a dynamic platform that helps you efficiently manage projects. Things like; when is the work due, when it is done, when the payment has to be made, etc. are all automated through these intuitive platforms which free up your time for more crucial work.

The best advantage of Outsourcing is achieving Growth which is the ultimate goal for any organization. And this can only be achieved when the team is free to focus on activities that drive the biggest ROI.

This includes creating new products, developing and refining the service, improving your scalability, strategizing ways to make your systems far more efficient, creating lucrative offers and marketing strategies. Outsourcing to the right partners is one of the most beneficial strategies to stabilize the workflow of an organization and set it on a path of consistent growth.