The Power of Outsourcing: Unveiling its Mechanics and Advantages

Outsourcing has been instrumental in driving substantial growth for numerous businesses. Its effectiveness is undeniable, as it has played a pivotal role in transforming our modern economy into a highly competitive landscape that accommodates businesses of all types and sizes. Astonishingly, even startups can now enter the global arena and thrive with the aid of outsourcing. Presently, a significant 37% of small businesses have embraced the practice of outsourcing at least one business process, reaping a multitude of economic advantages.

When you are a startup striving to establish your presence or a mid-sized business contemplating global expansion, maintaining a competitive edge can be a daunting task. The responsibilities of managing your expanding workforce, along with the projects aimed at enhancing the core competencies of your business functions, can quickly become overwhelming. Moreover, the accompanying expenses continue to mount.

If you are curious to uncover the pivotal question of why companies turn to outsourcing, read on for enlightening insights.

What is the Concept of Outsourcing?

Outsourcing entails a strategic decision made by companies to ensure the uninterrupted operation and expansion of their business. It involves the practice of procuring products or services from external entities such as third-party companies, freelancers, or contractors, which would otherwise be handled internally.

Typically, the services or products that are outsourced are those considered non-core or non-critical functions that demand significant time and effort. These tasks or projects often require highly skilled professionals whose hiring would impose a substantial financial burden on companies. Moreover, when it comes to specialized or occasional projects, engaging the services of a freelancer or contractor is deemed more practical than recruiting an in-house resource.

Which Business Functions Can Be Outsourced?

Companies have the flexibility to outsource various aspects of their operations, ranging from individual tasks and specific departments to entire business functions. This approach enables them to swiftly enhance their skill set and expertise. As a result, they can engage the services of established companies to handle crucial areas such as logistics, IT support, customer service, technical assistance, marketing, procurement, and even HR functions.

Subcontracting jobs first gained recognition in 1989 and have since become an integral part of the business landscape. Its popularity has surged as businesses of all sizes increasingly recognize its advantages. This practice has revolutionized the way companies conduct their operations in the present day. By outsourcing, they can reduce expenses and acquire the essential capital needed to enhance their operations and attract potential investors.

Types of Outsourcing: Exploring the Varieties

As outsourcing has evolved over time, it has given rise to different types tailored to accommodate the ever-changing demands and requirements of businesses. To harness the advantages of outsourcing and maintain a competitive edge in your industry, it is crucial to first assess your specific business needs. Once you have identified which aspects of your business can be delegated to external resources, the next step is determining the most suitable type of outsourcing for your organization.

There are two fundamental perspectives to consider: location and relationship. These perspectives form the basis for the various types of outsourcing. Let's delve into their definitions and explore the distinctions between them.

Location-based Outsourcing: Exploring the Different Approaches

Location-based outsourcing is a facet of outsourcing that primarily revolves around the geographical distance between the client (the business seeking third-party services) and the outsourced resources. Let's delve into the various types of location-based outsourcing and understand their definitions and distinctions.

1. Onshore Outsourcing: Also known as onshoring, this type of outsourcing involves relocating jobs or acquiring local service providers within the same country as the client's headquarters. Onshore outsourcing is often referred to as domestic outsourcing.
2. Onsite Outsourcing: Onsite outsourcing, or simply onsite, entails engaging a local company to send experts who will work at the client's office for a predetermined period of time.
3. Offshore Outsourcing: Offshore outsourcing, commonly known as offshoring, involves contracting or acquiring a portion of the business process in a distant country. This strategy aims to reduce labor costs and leverage a broader pool of experts.
4. Nearshore Outsourcing: Nearshore outsourcing, also referred to as nearshoring, involves relocating work or jobs to neighboring countries that are geographically close to the client's headquarters. Businesses opt for this approach to minimize shipping delays and facilitate efficient time allocation.
5. Multisource Outsourcing: Multisource outsourcing, or multisourcing, encompasses the simultaneous use of multiple location-based models. It combines the advantages of onsite, onshore, nearshore, and offshore outsourcing while mitigating associated risks.

Relationship-based Outsourcing: Exploring Collaboration Models

Relationship-based outsourcing revolves around the management of ownership and agreement between the business and the BPO service provider. Let's explore the different collaboration models within this perspective.

1. Staff Augmentation Model: The staff augmentation model, also known as extended teams or co-sourced teams, enables you to lease workers from your BPO partner to assist with specific projects or tasks. In this model, you retain complete authority and management control over the work being done for you.
2. Managed Team Model: The managed team model involves a collaborative project between the client and the BPO partner. With this model, you can delegate some of the management and decision-making responsibilities regarding the project to your service provider. The specific tasks are determined based on the agreement between the parties. Your outsourced team operates independently from your in-house team, and a designated outsourced project manager serves as the main point of contact for all communications from the provider's end. This model allows your BPO partner to share the risks associated with the project.
3. Project-Based Model: The project-based model represents the traditional approach to outsourcing. In this model, you entrust the complete responsibility for a project to your BPO partner. They assume control over the project's execution and delivery, while you focus on other core aspects of your business.

Other Categories of Outsourcing

1. Business Process Outsourcing (BPO): BPO stands as the most widely recognized form of outsourcing, with the number of BPO companies steadily increasing as businesses embrace this practice. It involves entrusting non-core business functions to a third-party service provider. Typically, BPO focuses on repetitive tasks like customer service, technical support, and various administrative responsibilities.
2. Professional Outsourcing: Professional outsourcing refers to the engagement of highly skilled experts in specific professional domains to work for your business. This type of outsourcing covers areas such as accounting, legal services, procurement, information technology (IT), administrative support, and other specialized fields.
3. Manufacturer Outsourcing: Manufacturer outsourcing entails contracting a third-party service provider to handle the manufacturing processes required for your business. This could involve the production of goods or components necessary for your operations.
4. Process-Specific Outsourcing: Process-specific outsourcing involves delegating particular tasks, processes, or internal procedures to a third-party company or service provider specializing in that specific field. It can also include the transfer of control over civic services, such as fire, police, armed forces, and other services provided by not-for-profit organizations. This form of outsourcing is commonly referred to as process outsourcing.

Significance of Outsourcing

Outsourcing holds immense importance as a strategic business decision that yields a significant impact on an organization. It provides remarkable flexibility without compromising on quality. By outsourcing, businesses gain access to talent pools that may not be readily available locally, allowing for swift and efficient hiring of expert teams or specialized professionals on a predetermined timeline and budget. This enables businesses to grow at their desired pace.

Outsourcing also grants businesses the opportunity to tap into the global workforce without the burden of exceeding their financial means. It offers a convenient means of accessing experienced and highly skilled professionals. This proves especially valuable for businesses operating in fast-paced environments, as outsourcing provides cost savings, addresses capacity limitations, offers convenience and flexibility, boosts productivity, and facilitates accelerated sales growth.

Advantages of Outsourcing

Outsourcing offers substantial benefits to businesses, extending beyond mere cost savings. While cost optimization is a common motive, there are several reasons why companies choose outsourcing and how it can benefit your own organization.

1. Access to a Global Pool of Experts: Outsourcing expands your workforce and enhances labor flexibility by providing access to highly skilled professionals and specialists from around the world. This allows you to leverage expertise without the need for additional training or hiring in-house staff, ultimately driving efficiency and productivity while minimizing costs.
2. Increased Economies of Scale: When seeking experts in specialized domains, outsourcing can save you time and effort while boosting productivity and efficiency. This translates to higher profitability for your business as you gain access to specialized skills without the associated overhead costs.
3. Business Adaptability: Outsourcing enables swift responses, flexibility, and adaptability to the dynamic business environment. By entrusting tasks, projects, and operational functionalities to specialized third-party companies, transitions become smoother, allowing you to focus on your core business functions.
4. Expansion of Business Offerings: With access to specialized skills and abundant resources, outsourcing empowers businesses to explore new markets and expand their offerings. It facilitates gradual growth at a manageable pace, preventing overspending and resource strain.
5. Increased Efficiency and Promote Growth: Outsourcing tasks to specialized experts promotes efficiency, profitability, and productivity. By supplementing your expanding business with a team of experts, you can foster growth and gain a competitive advantage in the global market.
6. Improved Competitive Edge: Outsourcing non-critical tasks enables businesses to concentrate on enhancing core competencies and strategies, thereby staying ahead of the competition.
7. Bridging Skill Gaps and Delivering Competitive Advantage: Start-ups and small businesses often face challenges in managing personnel and competing with established players. Outsourcing fills the skill gap by providing expertise that may not be readily available in-house. Your BPO service provider handles workforce management, saving you time, effort, and overhead costs in the long run.
8. Control of Overall Costs: Cost-effectiveness is a significant driver for outsourcing. BPO service providers employ highly skilled professionals in specialized domains who can perform tasks efficiently and with greater productivity. Outsourcing allows you to hire experienced freelancers and contractors on your own terms, without the expenses and obligations associated with in-house employees.
9. Risk Management: Effective risk management is crucial for every business. Depending on the agreed terms, the business process service provider shares the liability and risk associated with the outsourced tasks or projects. This gives companies more time to improve and focus on critical business areas.
10. 24/7 Production: Outsourcing provides the advantage of uninterrupted business operations. With a global team spanning different time zones, your business can run round the clock, offering customer service support, IT services, and continuous production. This maximizes value while minimizing overall costs.

How much can companies save through outsourcing?

In today's highly competitive digitized economy, businesses face significant challenges and the need for a sustainable business model and adaptability is paramount for survival. Many companies turn to outsourcing as a way to reduce operational costs, which is often their primary motivation. Let's explore the potential savings that companies can achieve through outsourcing.

• According to Statista, the global outsourcing market reached a value of 92.5 billion U.S. dollars in 2019.
• Research indicates that, on average, a company can save approximately 60% of operational costs by outsourcing specific tasks to external individuals or service providers.
• The Deloitte 2019 Global Shared Services Survey reveals that a majority of companies achieve annual productivity savings of up to 15% through their shared services centers (SSCs).
• Furthermore, 80% of respondents reported achieving savings of up to 20% through the implementation of automation programs within their SSCs.

By leveraging the advantages of outsourcing, businesses can optimize their expenses and achieve significant cost savings while enhancing their operational efficiency and remaining competitive in the market.

Conclusion

In conclusion, in order to stay ahead of the competition in today's increasingly challenging global market, organizations must be proactive and make decisive moves. It is crucial for your business to adapt and enhance its competitive edge to avoid being left behind. Atento is here to support you in embarking on your outsourcing journey and ensure that you successfully achieve your outsourcing goals. If you would like to learn more about the benefits of outsourcing, I invite you to schedule a call with me today. Don't hesitate to take the next step towards maximizing the potential of your business through outsourcing.

*You can schedule a call here.