OUTSOURCING

 

WHAT IS OUTSOURCING

Outsourcing is contracting with another company or person to do a particular function. Almost every organization outsources in some way. Typically, the function being outsourced is considered non-core to the business. The outside firms that are providing the outsourcing services are third-party providers, or as they are more commonly called, service providers.

Although outsourcing has been around as long as work specialization has existed, in recent history, companies began employing the outsourcing model to carry out narrow functions, such as payroll, billing and data entry. Those processes could be done more efficiently and therefore more cost-effectively, by other companies with specialized tools and facilities and specially trained personnel.

Currently, outsourcing takes many forms. Organizations still hire service providers to handle distinct business processes, such as benefits management. But some organizations outsource whole operations. The most common forms are information technology outsourcing (ITO) and business process outsourcing (BPO).

Business process outsourcing encompasses call center outsourcing, human resources outsourcing (HRO), finance and accounting outsourcing, and claims processing outsourcing. These outsourcing deals involve multi-year contracts that can run into hundreds of millions of dollars. Frequently, the people performing the work internally for the client firm are transferred and become employees for the service provider.

The process of outsourcing generally encompasses four stages: 

1) strategic thinking, to develop the organization's philosophy about the role of outsourcing in its activities; 

2) evaluation and selection, to decide on the appropriate outsourcing projects and potential locations for the work to bed one and service providers to do it; 

3) contract development, to work out the legal, pricing and service level agreement (SLA) terms; and 

4) outsourcing management or governance, to refine the ongoing working relationship between the client and outsourcing service providers.

In all cases, outsourcing success depends on three factors: executive-level support in the client organization for the outsourcing mission; ample communication to affected employees; and the client's ability to manage its service providers. The outsourcing professionals in charge of the work on both the client and provider sides need a combination of skills in such areas as negotiation, communication, project management, the ability to understand the terms and conditions of the contracts and service level agreements (SLAs), and, above all, the willingness to be flexible as business needs change.

The challenges of outsourcing become especially acute when the work is being done in a different country (off-shored), since that involves language, cultural and time zone differences.

THE 5 W’s OF OUTSOURCING

Who should outsource?

Every company can reap big benefits through outsourcing. Outsourcing can change the way companies do business - through people, processes and technology. Whether B2B or B2C, whether SMEs or large diversified companies or small home offices, every company can leverage the power of outsourcing for business transformation.

Technology is the key to the competitive edge in the marketplace, and outsourcing helps companies to leverage the latest and most sophisticated workflow technologies - without capital investment - to optimize their  business processes and get "more bang for the buck." Outsourcing opens the door to a global talent pool of human resources with the qualifications and skill sets to harness this technology effectively. The internet along with workflow technology has streamlined the processing, transfer and delivery of data so that large volumes of work can be quickly and efficiently completed and delivered.

Process maturity in the outsourcing arena has revolutionized the way the world conducts business, and radically improved business processes to make them faster, cheaper and better. Outsourcing has been proven to reduce capital costs, increase efficiency, speed up time-to-market, reduce labor costs, and enable core business focus.

Outsourcing has actually helped companies find newer and better ways to do things, thus adding value to their products and services.

Why should a company Outsource?

• Outsourcing gives:

• The competitive edge - through sophisticated technology and people

• Support to do tasks faster, better and cheaper 

• Operational inefficiencies without capital investment

• Leading-edge e-business infrastructural support and facilities

• Management

• Better performance

• Lower cost

• Security

• Process maturity

What should a company Outsource?

Outsourcing is a technology-driven, process-centric service business. Business process outsourcing (BPO) refers to definable, repeatable business processes that involve scale and volume. Research and Analysis outsourcing is the higher end of the BPO spectrum, involving advanced analytical skills, domain knowledge, expertise and judgment.

When should a company Outsource?

• When you want to focus on your core business and leave tasks that are not mission-critical to those expert in doing them

• When you want it fast, you want it now, you want it cheaper and better - and you don't have the time, money and people to do it all yourself 

• When you need specialized skills which are which aren't readily available in your market - or cost the earth

• When you want to gain the competitive edge

BENEFITS OF OUTSOURCING

• Cost savings: The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring.

• Improve quality: Achieve a step change in quality through contracting out the service with a new Service Level Agreement.

• Knowledge: Access to intellectual property and wider experience and knowledge.

• Contract: Services will be provided to a legally binding contract with financial penalties and legal redress.

• Operational expertise: Access to operational best practice that would be too difficult or time consuming to develop in-house.

• Staffing issues: Access to a larger talent pool and a sustainable source of skills.

• Time zone: A sequential task can be done during normal day shift indifferent time zones - to make it seamlessly available 24x7. Same/similar can be done on a longer term between earth's hemispheres of summer/winter.

• Increase in business: Benefit of outsourcing is seeing a big increase in your profits, productivity, level of quality, business value, business performance and much more.

• Concentrate more on your core business: One of the benefits of outsourcing is that your organization will be free to concentrate on your core business. By outsourcing all your non-core functions, your employees can be put to better use and you will be able to see a huge growth in your core business.

• Make faster deliveries to customers: Another benefit of outsourcing is that you can make quicker deliveries to customers. Your outsourcing partner will be able to provide faster deliverable and you in turn will be able to make quick deliveries to your customer. Faster deliverer scan also help you save on time.

• Improved customer satisfaction: With timely deliveries and high-quality services you can impress your customers. Outsourcing can help you benefit from increased customer satisfaction and your customers will remain loyal to your organization.

DISADVANTAGES OF OUTSOURCING

• Lose of control

• Quality problems

• Slow response time

• Can't understand foreign accents

• Slow resolution times

• Can't produce desired results

• Reduced sales

• Irritated customers

• Irritated employees, unions, people within community