In a bid to cut operational costs while growing their business, companies these days rely on outsourced help.
Outsourcing is an arrangement where a company delegates internal roles or services to a third-party firm. The setup differs from one company to another, depending on their needs and goals. If you are planning to outsource some of your business operations, it is important that you understand how each outsourcing model works in order to maximise the benefits and mitigate potential risks.
Let’s Define Outsourcing Models
Generally speaking, you can define outsourcing based on what is being outsourced and how the service is delivered. Below are the five common outsourcing models.
- Staff augmentation
Not all companies hire outsourced help so they can push some tasks off their plate and focus on other more important things. Sometimes, companies outsource because they need more skilled people but don’t necessarily need their services full time, or don’t have the resources to pay for it. This is where staff augmentation comes in. This model is usually used when a company decides to offer add-on services that they currently lack, e.g. support services for market expansion.
- Project-based outsourcing
As the name suggests, project-based outsourcing applies to companies with one-off or irregular projects. Often, these projects are of low to medium complexity and have well-defined requirements and deliverables. Companies outsource these projects so they can have a dedicated team to take on the job, causing little to no disruption to their regular operations.
This approach involves the transfer of a specific process or service from a company to the outsourcing partner. Out-tasking engagements are best for business owners who wish to keep control over the process being outsourced. It may involve licensing, wherein the buyer obtains permission to use the other company’s intellectual property, or contracting, wherein the external supplier performs a set of tasks or manages a group of processes for the buyer. Contracting is somewhat similar to staff augmentation in that labour is used on an hourly, daily, weekly, monthly or yearly basis.
- Managed services
Managed services refer to the proactive management of backend office functions or infrastructure by a third party on behalf of a company. In other words, a managed service provider (MSP) assumes all ongoing responsibility for handling, monitoring and problem solving for selected business functions. Managed services are common for IT functions, but this may also include outsourcing of HR activities, daily operations and production support.
In this outsourcing model, a company locates its own dedicated resources in another country. A good example of this are Australian companies relocating their contact centres in the Philippines. This allows them to leverage top talents at a relatively lower price, while maintaining control over their process and service delivery. Offshoring also allows companies to get closer to their clients and to gain access to new market opportunities.
Choosing an outsourcing model that fits your business can give you the flexibility and capability to achieve your goals and sustain your growth over time. More importantly, the success of an outsourcing project depends on the third party you work with – so choose only the best outsourcing partner.