In the last two decades, the global outsourcing industry has grown to an $565 billion dollar market. Although, some outsourcing jobs are in peril from automation, there has been an increased demand of higher-end outsourcing services, which can't be automated.
In this blog, we will try to do a thorough explanation on what outsourcing is, some of the type of business processes that do get outsourced and what advantages outsourcing can bring to your company.
What is Outsourcing and How does it work?
The term outsourcing defines the way in which businesses hire outside parties to complete a part of their business process. Any part of the business operation that can be completed by a third party vendor can be outsourced.
Some of the processes that typically gets outsourced and are part of the services we provide are back-end operations such as reporting, data entry, accounting, online research, and front end operations such as customer support through inbound calls, live chat and emails.
Types of Outsourcing
Since there is a wide array of services that are outsourced, they can be grouped in specific types, some of which are:
Business Process Outsourcing (BPO): Which involves the outsourcing of specific part of operations. It is divided in two categories; back office, which involves administrative tasks such as accounting, reporting, etc. and front office operations such as customer support.
IT Outsourcing: Also called IT enabled services (ITES) is a part of BPO that involves outsourcing part of operations that involves Information Technology. Software development, and programming are examples of falls under IT Outsourcing.
Knowledge Process Outsourcing (KPO): This involves outsourcing core business processes and require he third party outsourcing firm to have employees with advanced technical and analytical abilities. A core difference between BPO and KPO is that KPO services requires more skilled people with expert skills than BPO services.
Offshore Outsourcing: This is when a task is outsourced to a firm that is situated in another country. For example an american firm that hires an outsourcing firm in Bangladesh.
Near-shoring and Re-shoring: Outsourcing does not necessarily means to hire a firm situated in a totally different part of the world. If you hire an outsourcing firm from a neighboring country its called near-shoring while if you are outsourcing to a business situated in your own country it is called re-shoring.
Advantages and Disadvantages of Outsourcing
All types of outsourcing, whether KPO, BPO, ITES or any other has some advantages and disadvantages. A business should always weigh these pros and cons thoroughly before taking any decisions regarding outsourcing.
Advantages of Outsourcing:
Cost Reduction: The foremost advantage of outsourcing is that it reduces your costs substantially. Partly, the reduction of costs is due to the difference in salaries and wages between western countries and Asia. Other reasons include reduction in overhead costs infrastructure, when you are outsourcing.
Reduction of investment: Outsourcing substantially reduces the investment of a company in technology and infrastructure.
Reallocation of monetary savings: One advantage that comes with the aforementioned cost reduction that is often forgotten, is the ability to reallocate the savings to other more important sections of the business. For example, A startup company that needs funding for marketing can outsource part of its operations and reallocate the savings for marketing and branding.
Efficiency: By outsourcing to a BPO firm who are specialized in their tasks, you save the time you would have otherwise spent in hiring and training. Due to specialization, the tasks are completed at an increased efficiency than it would have otherwise occurred.
Increased Flexibility: In conjunction with reduced costs and increased efficiency, organizations that outsource also has greater flexibility with staffing and management.
Refocus on Core aspects of operations: With outsourcing, businesses can focus their time in more important parts of the business operations, leading to growth and development.
Competitive Advantages: Lastly, outsourcing helps to put a business in competitive advantages due to the advantages gained from the aforementioned points
A few disadvantages and some concerns:
Confidentiality and security: Sometimes outsourcing can lead to sharing and access to confidential information with the outsourcing firm. Businesses may rightfully, have concerns with security for this reason. However, this issue can be easily solved through hiring competent outsourcing firms, reviewing their security protocols and having non-disclosure agreements signed up with them.
Low quality service: A second concern is often the issue of getting low quality service from sub-par outsourcing firms, one must remember though that all industries have companies and businesses that function at sub-par of expectations and it is only a matter of searching and finding the right fit and good quality outsourcing service providers.
At the end, these concerns can be easily over come by implementing measures and doing a thorough research before hand on the outsourcing firms to whom you want to outsource.
Blog written by Zayed Ahmed, Founder and CEO of ASL BPO.