Outsourcing is defined as delegating a third party to perform services or create goods that would otherwise be performed in-house by the company’s employees and staff. When a company decides to expand its operations overseas, this is a strategic decision.
But have you ever wondered why businesses outsource?
There isn’t just one reason, but several, and it all depends on the company’s context and actual needs. Let us recall that outsourcing takes place when a company hires outside help for various reasons.
This article will debunk these reasons and explain why outsourcing may be the answer you have been searching for to help your business grow.
Why Companies Outsource?
Businesses outsource their services for a variety of reasons. These reasons could include cost-cutting and resource savings, creating more room for growth, remaining at the top of the industry rankings, and more. Businesses would benefit from outsourcing as one of their primary business models.
Even well-known brands outsource their services to third-party providers, freeing up in-house employees to focus on tasks that will allow them to grow exponentially. This type of freedom enables your team to use their time wisely, putting forth an effort to deliver their outputs rather than performing routine tasks that consume their time.
However, some of the most common motivations are as follows:
1. Reduce and Control Operational Costs
One of the common reasons to outsource your services is labor and operational costs. When you hire local talent, you must provide salaries, all required benefits, and workspaces for their jobs. You should also include the requirements needed to run your new business properly. It could wreak even more havoc on your finances as a small business.
Outsourcing business processes gives you access to the workforce and resources you require for your operation. Your BPO firm assists you in hiring highly educated employees in the far east at a fraction of the cost of their local counterparts. The lower wage level is due to the low cost of living in most outsourcing countries, such as India and the Philippines. With bonuses and benefits already included, a monthly salary of $500 can go a long way.
Hiring a BPO firm also takes care of the necessary equipment and space for the entire operation. It includes, among other things, office space, desktops, phones, and office supplies.
2. Gaining Access to Skills
A business might outsource to gain access to expertise and services it wouldn’t obtain otherwise. For example, a small business may not afford to maintain a high-end graphic designer on staff, but it may hire one to design a logo. Many companies have learned that outsourcing helps them locate higher-level programming, bookkeeping, and human resource talents than they could employ in-house.
3. Save Time and Focus on Bigger Things
When you outsource, you save money and save time and focus. When non-core business functions, such as payroll, finance, and accounting, lead generation, back-office are completed by someone working for your company through outsourcing, the business’s essential resources are maximized. Business owners can better use their time by building and developing partnerships, increasing sales, and innovating service offerings while providing the best possible customer experience.
Allow your employees to concentrate on a single task to improve the quality of their work and productivity. Outsourcing these repetitive tasks frees up your core team’s time, allowing them to focus on more critical tasks.
4. Reduce Operational Risks When Growing or Scaling
When you outsource your services, you share some of your risks with your BPO. It includes operational dangers if you decide to open an office in another country. They will handle all the requirements and compliances required to open a new office. You can ensure that your team is in a proper office space with enough workspace, fast internet, and a clear phone connection.
Because this is included in your package, they can also handle employee training, monitoring, and salaries. In addition, if the demand for a specific task fall, you can quickly scale your teams to meet it.
5. To Improve Risk Management and Continuity
Most industries are not stable; change is always on the horizon. Thus, businesses must adapt to these changes. Outsourcing helps mitigate the potential negative impact by ensuring core functions continue to be performed and delivered. At the same time, management and internal resources can focus on remaining fluid and, if necessary, adapting a new business strategy. This security entices businesses to venture into outsourcing.
What Companies Outsource?
Outsourcing did not become popular until the 1990s when cost-cutting became a cornerstone in many businesses. Even if necessary, outsourced resources did not significantly impact the company because they were mostly customer service-related jobs that could be handled over the phone. However, some key industries have survived and continue to exist today because they provide essential products to well-known corporations.
Some of the most common outsourcing companies provide financial services, pharmaceutical manufacturing, retail services, and, of course, IT, technology, and software testing, as well as web development services.
Why is outsourcing necessary?
Outsourcing, and even offshoring, are essential components of the business process outsourcing (BPO) industry. Most businesses thrive when they collaborate with other companies. Organizations reacted positively to the service provided by outsourcing agencies in response to the industry’s sudden boom. Of course, some executives and industry leaders have expressed reservations about this movement, which should be no surprise.
Measuring the performance and success of your outsourced team should not be as difficult. Everyone can see a department’s or a person’s ongoing projects, completed projects, and upcoming works with all of the remote collaboration apps, 24/7 active communication software, and cloud-based streamlined workflow boards.
Outsourcing is vital to the global talent pool because it allows companies to get their services. Outsourcing ensures that prospective employees do not waste their potential and skills, whether on the other side of the world or behind a couple of time zones.
How to Run a Successful Outsourcing Business?
Previously, the primary reason for outsourcing was cost reduction. However, strategy and value-added activities within the company are now two of the major drivers behind outsourcing practices. But, if this is the case, why do businesses outsource to other countries? Companies that outsource do not expect foreign companies to do the job for them but rather to have partners who will help them grow independently, to put it mildly.
Still, as previously stated, it must be done with caution to avoid causing harm to one’s company, or else it will lose more money in outsourcing than it would otherwise. So, for a company to be successful with outsourcing, the following factors must be considered:
- Both the company and the outsourcing firm must establish clear goals and objectives.
- A strategic vision and planning are required.
- When it comes to vendors, a good and careful selection is required.
- Good relationship management between the firms.
- Subcontracts and vendor agreements that are well-organized.
- Constant and effective communication with stakeholders.
- The senior leadership must provide consistent support and be constantly involved.
- Pay close attention to any potential problems among the personnel.
- All financial justifications must be limited to the short term.
Even with all the benefits, one of the main reasons for outsourcing is to run a successful business model. However, even if a company has sufficient reasons to run a successful outsourcing program, it must also consider every component for it to work.
Like many other business-related operations, outsourcing may cost more than it is worth because it carries risks that the company should be aware of, if not weigh more heavily than the actual benefits, at least in their specific context.