Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally and sometimes involves transferring employees and assets from one firm to another.
The term outsourcing came from the phrase outside resourcing, the concept often involves the contracting of a business process e.g., payroll processing, accounting, reporting, tax advisory, HR, IT operational, and/or non-core functions, such as manufacturing, facility management, call center support.
Companies mostly outsource to cut costs. But today, it is not only about cutting business costs but also about exploit the benefits of strategic outsourcing such as profitability, improving company focus, sharing risks, and increasing efficiency.
Key Benefits of Outsourcing:
Control capital costs
Cost-cutting may not be the only reason to outsource, but it's certainly a major factor. Outsourcing converts fixed costs into variable costs, releases capital for investment elsewhere in your business, and allows you to avoid large expenditures in the early stages of your business. Outsourcing can also make your firm more attractive to investors, since you're able to pump more capital directly into revenue-producing activities.
Improving company focus and allows you to focus on core values
Every business has limited resources, and every manager has limited time and attention. Outsourcing can help your business to shift its focus from peripheral activities toward work that serves the customer, and it can help managers set their priorities more clearly.
Increased efficiency and service quality
Companies that do everything themselves have much higher research, development, marketing, and distribution expenses, all of which must be passed on to customers. An outside provider's cost structure and economy of scale can give your firm an important competitive advantage.
Sharing risks with a partner company
Every business investment carries a certain amount of risk. Markets, competition, government regulations, financial conditions, and technologies all change very quickly. Outsourcing providers assume and manage this risk for you, and they generally are much better at deciding how to avoid risk in their areas of expertise.
Other Benefits:
- Gaining access to world-class capabilities, talents and skills & technology
- Freeing internal resources for other purposes
- Streamlining or increasing efficiency for time-consuming functions
- Maximizing use of external resources
What can you outsource in Business Process Outsourcing (BPO)?
- Finance
- Accounting
- Payroll
- Human resource
- IT services
- Data recording
- Marketing
The Bottom Line:
There's a reason outsourcing has become such a popular option. It´s very important to identifying what your company really doesn’t need to doing by in-house capacity and mostly try to find a reliable partner, who will take a responsibility and provide you with the best solutions for your business. Biggest advantage of outsourcing is cost cutting and getting service of expert at very competitive rate. It can save you money. All depending on your needs.
Photo credits: Austin Distel