Outsourcing (also sometimes referred to as “contracting out”) is a business practice used by companies to reduce costs or improve efficiency by shifting tasks, operations, jobs or processes to an external contracted third party for a significant period of time. The functions that are contracted out can be performed by the third party either onsite or offsite of the business.
This is not limited to manufacturing jobs. Customer service jobs, such as those in a call center, and computer programming jobs are also outsourced by companies seeking ways to reduce costs. A large number of companies outsource at least some functions of human resources tasks, such as employee benefits management and payroll.
Outsourcing can also involve the purchasing of components from another source, such as components for computer equipment. The component can be purchased for a lower cost than it would be for the company to manufacture that component themselves, and the component may be of higher quality.
IT services can also be outsourced. For example, cloud computing and software-as-a-service (SaaS) offer companies access to computer services and tools that were once managed in-house by a company’s IT department.
Benefits of Outsourcing
1. Focus On Core Activities
In rapid growth periods, the back-office operations of a company will expand also.
This expansion may start to consume resources (human and financial) at the expense of the core activities that have made your company successful. Outsourcing those activities will allow refocusing on those business activities that are important without sacrificing quality or service in the back-office.
Example: A company lands a large contract that will significantly increase the volume of purchasing in a very short period of time; Outsource purchasing.
2. Cost And Efficiency Savings
Outsourcing is a good option when you have back-office functions that are complicated in nature, but the size of your company is preventing you from performing them at a consistent and reasonable cost.
Example: A small doctor’s office wants to accept a variety of insurance plans. One part-time person cannot keep up with all the different providers and rules, so the task is outsourced to a firm specializing in medical billing.
3. Reduced Overhead
Overhead costs of performing a particular back-office function are extremely high. Consider outsourcing those functions which can be moved easily.
Example: Growth has resulted in an increased need for office space. The current location is very expensive, and there is no room to expand.
Outsource some simple operations in order to reduce the need for office space. For example, outbound telemarketing or data entry.
4. Operational Control
Operations whose costs are running out of control must be considered for outsourcing. Departments that may have evolved over time into uncontrolled and poorly managed areas are prime motivators for outsourcing. In addition, an outsourcing company can bring better management skills to your company than what would otherwise be available.
Example: An information technology department that has too many projects, not enough people and a budget that far exceeds their contribution to the organization. A contracted outsourcing agreement will force management to prioritize their requests and bring control back to that area.
5. Staffing Flexibility
Outsourcing will allow operations that have seasonal or cyclical demands to bring in additional resources when you need them and release them when you’re done.
Example: An accounting department that is short-handed during tax season and auditing periods. Outsourcing these functions can provide the additional resources for a fixed period of time at a consistent cost.
6. Continuity & Risk Management
Periods of high employee turnover will add uncertainty and inconsistency to the operations.
Outsourcing will provide a level of continuity to the company while reducing the risk that a substandard level of operation would bring to the company.
Example: The human resource manager is on an extended medical leave and the two administrative assistants leave for new jobs in a very short period of time. Outsourcing the human resource function would reduce the risk and allow the company to keep operating.
7. Develop Internal Staff
A large project needs to be undertaken that requires skills that your staff does not possess. On-site outsourcing of the project will bring people with the skills you need in your company. Your people can work alongside them to acquire the new skill set.
Example: A company needs to embark on a replacement/upgrade project on a variety of custom built equipment. Your engineers do not have the skills required to design new and upgraded equipment.
Outsourcing this project and requiring the outsourced engineers to work on-site will allow your engineers to acquire a new skill set.
What can be outsourced?
Scheduling, travel arrangements, data entry, typing and other administrative tasks can usually be handled by a virtual assistant or administrative service. While these tasks are crucial to the proper functioning of any business, they are not usually core business activities.
Lead generation and customer service.
Sales calls are often a matter of numbers; more calls equal more sales and leads. Once the initial outreach has been made, closing the sale can be handled by the internal sales force. A talented salesperson’s skills can be better utilized to close sales and handle clients, rather than make cold calls. It can also be a great deal more efficient to outsource customer support than it is to maintain a qualified support staff, especially for product-based companies.
Accounting and financial duties.
Accounting firms or individuals can help with many financial services including bookkeeping, invoicing and accounts payable and receivable, as well as financial reporting, analysis and planning. Outsourcing payroll processing alone can save considerable hours, headaches and dollars. Many financial contractors will bundle these tasks for even greater savings.
Effective marketing determines how both brand and company reputation are perceived in the marketplace. A marketing firm or consultant can often provide an outside perspective that an internal marketing staff cannot. Professional freelance writers can develop higher-quality, polished content that will improve marketing efforts. Website design, brand development, press releases and online marketing duties such as social media, blogging and search engine optimization are good candidates for outsourcing as well.
It can be extremely expensive to handle IT operations in-house. The average business has limited ability and knowledge to manage all of its IT needs. Unless you’re an IT company, IT is a maintenance and repair function, not a core business activity. The potential advantages of outsourcing IT tasks are enormous.
Employee acquisition and human resource functions can easily be administered by an outside agency. Outside firms are more skilled at advertising, screening suitable applicants and checking references. Using an HR or employment service to manage employee benefits can also be wise, since they must stay up to date on the latest employment laws and standards.
The possibilities are endless and cant be fit in one article alone.
Choosing a Good Outsourcing Partner.
The need for optimizing your business is inevitable to break the cut-throat competition in your industry. It is important to simplify and streamline the business process for easy access, utility and convenient back-up. This process has to be time saving and efficient. This is where you need the support of an expert BPO service.
There are many Companies to choose from, the most important aspect of this article is choosing a firm that fits all your needs. Professionalism, Expertise, Technology and Transparency are some of the key factors expected from all BPOs around the world. With the help of a qualified BPO provider’s quality support, your business can reach greater heights. To improve your competence.