The need to optimise business performance has prompted many entrepreneurs and corporate leaders to outsource certain functions in a bid to streamline their operations. In fact, more businesses are realising the advantages of farming out some of their operations or services.
Nevertheless, while the business process outsourcing (BPO) industry has significantly grown over the past few years, some business owners still lack information or are still confused about how it works.
Outsourcing is the practice of contracting out an internal business process to a third-party service provider. It is typically used as a cost-saving strategy, given that the arrangement eliminates the need for a business to hire full-time employees or to procure in-house facilities.
Companies can outsource specific tasks or an entire department, depending on their needs and goals. In addition, outsourcing may involve foreign or domestic contracting, or both. Foreign contracting may also include offshoring, which involves the relocation of a business function to another country. For example, an Australian company may have its customer service support centre relocated to the Philippines, where they will hire local professionals. The main motivation behind offshoring decisions is to take advantage of cheaper labour costs in other countries, particularly in developing nations.
What Do Businesses Outsource?
Companies typically outsource their bookkeeping, accounting, payroll, HR, recruitment, data entry and IT functions. As the digital age spawned more virtual workers, freelancers and independent professionals, outsourced functions grew to include legal work, customer service support, transcription, article writing, digital marketing and other specialised services.
Pros and Cons of Outsourcing
As mentioned earlier, cost savings is the main reason companies outsource – domestically or otherwise. Besides that, businesses outsource so they can have more time to focus on their core competencies and other core operations.
Outsourcing also grants them access to advanced tools and industry expertise, since contractors invest heavily on technology and top talents in the industry. Contracting business tasks also allows companies to expand or to scale down easily as their business structure becomes more flexible.
Now, there are disadvantages to outsourcing as well. For one, a business may pay a premium for outsourced help. Also, the transfer of the business function can cause a disruption to the business’ daily operations. Outsourcing takes resources to manage as well, including an internal liaison to oversee performance and nurture the partnership.
Nevertheless, the key to a successful outsourcing project is to find the right contractor for the needs of a business.