For many years, outsourcing has enabled big and small businesses to cut costs without compromising on the quality of their products or services. Besides the cost savings, outsourcing also gives a business more flexibility, expertise and top tools in the industry. This is why many entrepreneurs deem outsourcing as a worthwhile growth strategy.
But, what is outsourcing exactly?
In a nutshell, outsourcing is the contracting out of one or more internal business functions to a third party, i.e. an independent contractor or a specialist firm. Contractors typically specialise on a specific project or business function, e.g. finance and accounting, IT, payroll services, etc. These third-party firms generally invest in specialised technology and highly skilled people in the industry, which allows them to offer top-notch services.
The manner in which these services are delivered varies according to the outsourcing structure or model used, namely:
- Managed services
- Staff augmentation
- Project-based outsourcing
- Offshore production centres or offshoring
How Old is the Outsourcing Industry?
The first record of business process outsourcing activity dates back in 1949, when a young accountant in New Jersey started a company that manually processes and types pay checks for other businesses. When computing became mainstream, payroll processing by a third party became a normal strategy for businesses, regardless of their size.
To this date, payroll processing remains one of the most commonly outsourced functions. However, the proliferation of skilled freelancers, independent contractors and specialist firms has made it possible to outsource almost any business process these days. This boom paired with the advancements in technology has made outsourcing an industry in itself.
So, while the concept of outsourcing is decades old, the BPO industry is still relatively young.
Things to Consider When Outsourcing
An outsourcing project can be structured in various ways, depending on the following variables:
- Staff/talent requirements. What skills and experience do you need? How many people does your project require? Do you need full-time or part-time staff members?
- Project timeframe. Is you project a one-off engagement with a fixed duration, or is will it be ongoing for an indefinite period of time?
- What facilities, software or infrastructure does your project require?
- Compensation scheme. Do you intend to pay on an hourly, daily, weekly, monthly or annual basis? Do you seek a fixed-price service? Will you be paying based on headcount or performance?
- Administrative control. To what degree will you and your outsourcing partner manage various tasks, e.g. recruitment, technical support, quality assurance, production, etc.?
It is very important to discuss these things with a prospective external provider before using their services. Having well-defined project variables will also help you identify an outsourcing model that fits your goals and needs.